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Mergers Acquisitions And Other Restructuring Activities 5th Edition Donald DePamphilis - Solutions
3–13. If you were the CEO of a target firm, what strategy would you recommend to convince institutional shareholders to support your position in a proxy battle with the bidding firm?
3–14. Anheuser-Busch reduced its antitakeover defenses in 2006, when it removed its staggered board structure. Two years earlier, it did not renew its poison pill provision. Speculate as to why the board acquiesced in these instances. Explain how these events affected the firm’s vulnerability
1. Identify the takeover tactics employed by Mittal. Explain why each was used.
2. Identify the takeover defenses employed by Arcelor. Explain why each was used.
3. Using the information in this case study, discuss the arguments for and against encouraging hostile corporate takeovers. Be specific.
4. Was Arcelor’s board and management acting to protect their own positions(i.e., the management entrenchment hypothesis) or the best interests of the shareholders (i.e., the shareholder interests hypothesis)? Explain your answer.
1. Discuss how changing industry conditions have encouraged consolidation within the telecommunications industry.
2. What alternative strategies could Verizon, Qwest, and MCI have pursued? Was the decision to acquire MCI the best alternative for Verizon? Explain your answer.
3. Who are the winners and losers in the Verizon-MCI merger? Be specific.
4. What takeover tactics were employed or threatened to be employed by Verizon?By Qwest? Be specific.
5. What specific takeover defenses did MCI employ?
6. How did the actions of certain shareholders affect the bidding process? Be specific.
7. In your opinion, did the MCI board act in the best interests of their shareholders? Of all their stakeholders? Be specific.
8. Do you believe that the potential severance payments that could be paid to Capellas were excessive? Explain your answer. What are the arguments for and against such severance plans for senior executives?
9. Should the antitrust regulators approve the Verizon-MCI merger? Explain your answer.
10. Verizon’s management argued that the final purchase price from the perspective of Verizon shareholders was not $8.45 billion but rather $7.05. This was so, they argued, because MCI was paying the difference of $1.4 billion from their excess cash balances as a special dividend to MCI
4–2. How does planning facilitate the acquisition process?
4–3. What major activities should be undertaken in building a business plan?
4–4. What is market segmentation and why is it important?
4–5. What basic types of strategies do companies commonly pursue and how are they different?
4–6. What is the difference between a business plan and an acquisition plan?
4–8. Why is it important to understand the assumptions underlying a business plan or an acquisition plan?
4–9. Why is it important to get senior management heavily involved early in the acquisition process?
4–10. In your judgment, which of the acquisition plan tactical limits discussed in this chapter are the most important and why?
4–13. In your opinion, what market need(s) was Dell Computer able to satisfy better than its competition? Be specific.
4–14. Discuss the types of analyses inside GE that may have preceded GE’s 2008 announcement that it would spin off its consumer and industrial business to its shareholders.
4–15. Ashland Chemical, the largest U.S. chemical distributor, acquired chemical manufacturer, Hercules Inc., for $3.3 billion in 2008. This move followed Dow Chemical Company’s purchase of Rohm & Haas. The justification for both acquisitions was to diversify earnings and offset higher oil
1. How did the acquisition of Countrywide fit BofA’s business strategy? Be specific.What were the key assumptions implicit the BofA’s business strategy? How did the existence of BofA’s mission and business strategy help the firm move quickly in acquiring Countrywide?
2. How would you classify the BofA business strategy (cost leadership, differentiation, focus, or some combination)? Explain your answer.
3. Describe what the likely objectives of the BofA acquisition plan might have been.Be specific. What key assumptions are implicit in BofA’s acquisition plan? What are some of the key risks associated with integrating Countrywide? In addition to the purchase price, how would you determine
4. What capabilities did the acquisition of FleetBoston Financial and MBNA provide BofA? How did the acquisition of Countrywide complement previous acquisitions?
5. What alternatives to outright acquisition did BofA have? Why do you believe BofA chose to acquire Countrywide rather than to pursue an alternative strategy? Be specific.
1. How would you characterize the Oracle business strategy (i.e., cost leadership, differentiation, niche, or some combination of all three)? Explain your answer.
2. What other benefits for Oracle, and the remaining competitors such as SAP, do you see from further industry consolidation? Be specific.
3. Conduct an external and internal analysis of Oracle. Briefly describe those factors that influenced the development of Oracle’s business strategy. Be specific.
4. In what way do you think the Oracle strategy was targeting key competitors?Be specific.
5–1. What resources are commonly used to conduct a search for potential acquisition targets?
5–4. What are the advantages and disadvantages of a letter of intent?
5–7. What is the purpose of the buyer and seller performing due diligence?
5–8. What is the purpose of a financing plan? In what sense is it a “reality check”?
5–9. Why is preclosing integration planning important?
5–10. What key activities make up a typical closing?
5–11. In a rush to complete its purchase of health software producer HBO, McKesson did not perform adequate due diligence but rather relied on representations and warranties in the agreement of sale and purchase. Within six months following closing, McKesson announced that it would have to reduce
5–13. In mid-2008, Fresenius, a German manufacturer of dialysis equipment, acquired APP Pharmaceuticals for $4.6 billion. The deal includes an earn-out, under which Fresenius would pay as much as $970 million if APP reaches certain future financial targets. What is the purpose of the earn-out?
1. How did K2’s acquisition plan objectives support the realization of its corporate mission and business plan objectives?
2. What alternatives to M&As could K2 have employed to pursue its growth strategy? Why were the alternatives rejected?
3. What was the role of “strategic controls” in implementing the K2 business plan?
4. How did the K2 negotiating strategy seek to meet the primary needs of the Fotoball shareholders and employees?
1. What was the total purchase price of the merger?
2. What are some of the reasons Cingular used cash rather than stock or some combination to acquire AT&T Wireless? Explain your answer.
3. How might the amount and composition of the purchase price affect Cingular’s, SBC’s, and BellSouth’s cost of capital?
4. With substantially higher operating margins than Cingular, what strategies would you expect Verizon Wireless to pursue? Explain your answer.
6–3. Why might the time required to integrate acquisitions vary by industry?
6–4. What are the costs of employee turnover?
6–5. Why is candid and continuous communication so important during the integration phase?
6–6. What messages might be communicated to the various audiences or stakeholders of the new company?
6–7. Cite examples of difficult decisions that should be made early in the integration process.
6–8. Cite the contract-related “transition issues” that should be resolved before closing.
6–9. How does the process for integrating business alliances differ from that of integrating an acquisition?
6–10. How are the processes for integrating business alliances and M&As similar?
6–12. In your judgment, are acquirers more likely to under- or overestimate anticipated cost savings? Explain your answer.
6–13. Cite examples of expenses you believe are commonly incurred in integrating target companies. Be specific.
6–14. A common justification for mergers of competitors are the potential crossselling opportunities it would provide. Comment on the challenges that might be involved in making such a marketing strategy work.
1. Why is it important to establish both top-down (i.e., provided by top management) and bottom-up (provided by operating units) estimates of synergy?
2. How did ArcelorMittal attempt to bridge cultural differences during the integration? Be specific.
3. Why are communication plans so important? What methods did ArcelorMittal employ to achieve these objectives? Be specific.
4. Comment on ArcelorMittal management’s belief that the cultural diversity within the combined firms was an advantage. Be specific.
5. The formal phase of the post-merger integration period was to be completed within six months. Why do you believe that ArcelorMittal’s management was eager to integrate the two businesses rapidly? Be specific. What integration activities were to extend beyond the proposed six-month integration
1. Explain the logic behind combining the two companies. Be specific.
2. What major challenges are the management of the combined companies likely to face? How would you recommend resolving these issues?
3. Most corporate mergers are beset by differences in corporate cultures. How do cross-border transactions compound these differences?
4. Why do you think mergers, both domestic and cross-border, are often communicated by the acquirer and target firms’ management as mergers of equals?
5. In what way would you characterize this transaction as a merger of equals? In what ways should it not be considered a merger of equals?
7–3. Under what circumstances is it important to adjust the capital asset pricing model for firm size? Why?
7–5. Explain the conditions under which it makes most sense to use the zero-growth and constant-growth DCF models. Be specific.
7–11. ABC Incorporated shares are currently trading for $32 per share. The firm has 1.13 billion shares outstanding. In addition, the market value of the firm’s outstanding debt is $2 billion. The 10-year Treasury bond rate is 6.25 percent.ABC has an outstanding credit record and earned a AAA
7–12. HiFlyer Corporation does not currently have any debt. Its tax rate is 0.4 and its unlevered beta is estimated by examining comparable companies to be 2.0. The 10-year bond rate is 6.25 percent, and the historical risk premium over the risk-free rate is 5.5 percent. Next year, HiFlyer
7–13. Abbreviated financial statements are given for Fletcher Corporation in Table 7–5.Yearend working capital in 2000 was $160 million and the firm’s marginal tax rate was 40 percent in both 2001 and 2002. Estimate the following for 2001 and 2002:a. Free cash flow to equity.b. Free cash flow
7–14. In 2002, No Growth Incorporated had operating income before interest and taxes of $220 million. The firm was expected to generate this level of operating income indefinitely. The firm had depreciation expense of $10 million that year. Capital spending totaled $20 million during 2002. At the
7–15. Carlisle Enterprises, a specialty pharmaceutical manufacturer, has been losing market share for three years, since several key patents expired.Free cash flow to the firm is expected to decline rapidly as more competitive generic drugs enter the market. Projected cash flows for the next five
7–16. Ergo Unlimited’s current year’s free cash flow to equity is $10 million. It is projected to grow at 20 percent per year for the next five years. It is expected to grow at a more modest 5 percent beyond the fifth year. The firm estimates that its cost of equity is 12 percent during the
7–17. In the year in which it intends to go public, a firm has revenues of $20 million and net income after taxes of $2 million. The firm has no debt, and revenue is expected to grow at 20 percent annually for the next five years and 5 percent annually thereafter. Net profit margins are expected
7–18. The information in Table 7–6 is available for two different common stocks:Company A and Company B.Table 7–6 Information on the Stocks in Problem 7–18 Company A Company B Free cash flow per share at the end of year 1 $1.00 $5.00 Growth rate in cash flow per share 8% 4%Beta 1.3 .8
7–19. You have been asked to estimate the beta of a high-technology firm that has three divisions with the characteristics shown in Table 7–7.Table 7–7 Characteristics of the Firm in Problem 7–19 Division Beta Market Value ($ millions)Personal computers 1.60 100 Software 2.00 150 Computer
1. Is it reasonable to assume that the acquirer could actually be getting the operation for “free,” since the value of the real estate per share is worth more than the purchase price per share? Explain your answer.
2. Assume the acquirer divests all of Fairmont’s hotels and real estate properties but continues to manage the hotels and properties under long-term management contracts. How would you estimate the net present value of the acquisition of Fairmont to the acquirer? Explain your answer.
1. Use discounted cash flow (DCF) methods to determine if @Home overpaid for Excite.
2. What other assumptions might you consider in addition to those identified in the case study?
3. What are the limitations of the discounted cash flow method employed in this case?
8–7. How is the liquidation value of the firm calculated? Why is the assumption of orderly liquidation important?
8–11. BigCo’s chief financial officer is trying to determine a fair value for PrivCo, a non-publicly traded firm that BigCo is considering acquiring. Several of PrivCo’s competitors, Ion International and Zenon, are publicly traded. Ion and Zenon have P/E ratios of 20 and 15, respectively.
8–13. Siebel Incorporated, a non-publicly traded company, has 2009 earnings before interest and taxes (EBIT) of $33.3 million, which is expected to grow at 5 percent annually into the foreseeable future. The firm’s combined federal, state, and local tax rate is 40 percent; capital spending will
8–14. Titanic Corporation reached an agreement with its creditors to voluntarily liquidate its assets and use the proceeds to pay off as much of its liabilities as possible. The firm anticipates that it will be able to sell off its assets in an orderly fashion, realizing as much as 70 percent of
8–15. Best’s Foods is seeking to acquire the Heinz Baking Company, whose shareholders’ equity and goodwill are $41 million and $7 million, respectively.A comparable bakery was recently acquired for $400 million, 30 percent more than its tangible book value (TBV). What was the tangible book
8–16. Delhi Automotive Inc. is the leading supplier of specialty fasteners for passenger cars in the U.S. market, with an estimated 25 percent share of this$5 billion market. Delhi’s rapid growth in recent years has been fueled by high levels of reinvestment in the firm. While this has resulted
8–17. Photon Inc. is considering acquiring one of its competitors. Photon’s management wants to buy a firm it believes is most undervalued. The firm’s three major competitors, AJAX, BABO, and COMET, have current market values of $375 million, $310 million, and $265 million, respectively.
8–18. Acquirer Incorporated’s management believes that the most reliable way to value a potential target firm is by averaging multiple valuation methods, since all methods have their shortcomings. Consequently, Acquirer’s chief financial officer estimates that the value of Target Inc. could
8–19. An investor group has the opportunity to purchase a firm whose primary asset is ownership of the exclusive rights to develop a parcel of undeveloped land sometime during the next five years. Without considering the value of the option to develop the property, the investor group believes the
8–20. Acquirer Company’s management believes that there is a 60 percent chance that Target Company’s free cash flow to the firm will grow at 20 percent per year during the next five years from this year’s level of $5 million. Sustainable growth beyond the fifth year is estimated at 4
1. What alternative valuation methods could Google have used to justify the purchase price it paid for YouTube? Discuss the advantages and disadvantages of each.
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