Mergers, Acquisitions, and Corporate Restructurings provides a comprehensive look at the field's growth and development, and places M&As in realistic context amidst changing trends, legislation, and global perspectives. All-inclusive coverage merges expert discussion with extensive graphs, research, and case studies to show how M&As can be used successfully, how each form works, and how they are governed by the laws of major countries. Strategies and motives are carefully analyzed alongside legalities each step of the way, and specific techniques are dissected to provide deep insight into real-world operations. This new seventh edition has been revised to improve clarity and approachability, and features the latest research and data to provide the most accurate assessment of the current M&A landscape. Ancillary materials include PowerPoint slides, a sample syllabus, and a test bank to facilitate training and streamline comprehension.
As the global economy slows, merger and acquisition activity is expected to increase. This book provides an M&A primer for business executives and financial managers seeking a deeper understanding of how corporate restructuring can work for their companies. - Understand the many forms of M&As, and the laws that govern them - Learn the offensive and defensive techniques used during hostile acquisitions - Delve into the strategies and motives that inspire M&As - Access the latest data, research, and case studies on private equity, ethics, corporate governance, and more
From large megadeals to various forms of downsizing, a full range of restructuring practices are currently being used to revitalize and supercharge companies around the world. Mergers, Acquisitions, and Corporate Restructurings is an essential resource for executives needing to quickly get up to date to plan their own company's next moves.
Preface xi
Part I: Background
Chapter 1: Introduction 3
Recent M&A Trends 3
Terminology 11
Valuing a Transaction 13
Types of Mergers 13
Merger Consideration 14
Merger Professionals 15
Merger Arbitrage 18
Leveraged Buyouts and the Private Equity Market 19
Corporate Restructuring 20
Merger Negotiations 21
Deal Structure: Asset versus Entity Deals 24
Merger Agreement 28
Merger Approval Procedures 29
Deal Closing 31
Short-Form Merger 31
Freezeouts and the Treatment of Minority Shareholders 32
Appraisal Arbitrage 33
Reverse Mergers 34
Chapter 2: History of Mergers 41
Merger Waves 41
First Wave, 1897–1904 43
Second Wave, 1916–1929 48
The 1940s 49
Third Wave, 1965–1969 49
Trendsetting Mergers of the 1970s 54
Fourth Wave, 1984–1989 59
Fifth Wave, 1992–2001 64
Sixth Wave, 2004–2007 68
Chapter 3: Legal Framework 71
Laws Governing Mergers, Acquisitions, and Tender Offers 72
Other U.S. Takeover Rules 85
Takeovers and International Securities Laws 86
U.S. State Corporation Laws and Legal Principles 96
State Antitakeover Laws 99
Regulation of Insider Trading 108
Antitrust Laws 110
Measuring Concentration and Defining Market Share 117
Example of the HH Index 118
European Competition Policy 121
Research Note: Event Studies Methodology 124
M&A Research: Event Studies 124
Chapter 4: Merger Strategy 127
Growth 127
Synergy 136
Operating Synergy 138
Diversification 146
Focus Hypothesis 151
Possible Explanation for the Diversification Discount 152
Do Diversified or Focused Firms Do Better Acquisitions? 156
Other Economic Motives 157
Hubris Hypothesis of Takeovers 168
Do Managerial Agendas Drive M&A? 171
Other Motives 176
Part II: Hostile Takeovers
Chapter 5: Antitakeover Measures 183
Management Entrenchment Hypothesis versus Stockholder Interests Hypothesis 184
Rights of Targets’ Boards to Resist: United States Compared to the Rest of the World 185
Preventative Antitakeover Measures 186
Poison Pills 187
Corporate Charter Amendments 199
Changing the State of Incorporation 210
Active Antitakeover Defenses 211
Information Content of Takeover Resistance 234
Chapter 6: Takeover Tactics 237
Preliminary Takeover Steps 238
Tender Offers 245
Advantages of Tender Offers over Open Market Purchases 260
Proxy Fights 267
Chapter 7: Hedge Funds as Activist Investors 279
Macroeconomic Foundations of the Growth of Activist Funds 281
Leading Activist Hedge Funds and Institutional Investors 282
Hedge Funds as Acquirers 288
Hedge Fund Activism and Firm Performance 292
Buyout Premiums: Activist Hedge Funds versus Private Equity Firms 294
Part III: Going-Private Transactions and Leveraged Buyouts
Chapter 8: Leveraged Buyouts 305
Terminology 305
Historical Trends in LBOs 306
Management Buyouts 314
Conflicts of Interest in Management Buyouts 318
U.S. Courts’ Position on Leveraged Buyout Conflicts 319
Financing for Leveraged Buyouts 328
Returns to Stockholders from LBOs 336
Returns to Stockholders from Divisional Buyouts 337
Empirical Research on Wealth Transfer Effects 342
Protection for Creditors 343
Intra-Industry Effects of Buyouts 344
Chapter 9: The Private Equity Market 345
History of the Private Equity and LBO Business 345
Private Equity Market 346
Computing Private Equity Internal Rates of Return 360
Characteristics of Private Equity Returns 361
Replicating Private Equity Investing 365
Board Interlocks and Likelihood of Targets to Receive Private Equity Bids 366
Secondary Market for Private Equity Investments 366
Chapter 10: High-Yield Financing and the Leveraged Loan Market 369
History of the Junk Bond Market 369
Leveraged Loan Market 380
Stapled Financing 383
Part IV: Corporate Restructuring
Chapter 11: Corporate Restructuring 389
Divestitures 392
Divestiture and Spinoff Process 403
Managerial Ownership and Sell-Off Gains 408
Activists and Sell-Offs 408
Shareholder Wealth Effects of Spinoffs: U.S. versus Europe 417
Equity Carve-Outs 424
Voluntary Liquidations or Bust-Ups 430
Tracking Stocks 431
Master Limited Partnerships and Sell-Offs 433
Chapter 12: Restructuring in Bankruptcy 437
Types of Business Failure 438
Causes of Business Failure 439
Bankruptcy Trends 444
U.S. Bankruptcy Laws 448
Reorganization versus Liquidation 449
Reorganization Process 450
Benefits of the Chapter 11 Process for the Debtor 457
Prepackaged Bankruptcy 461
Workouts 465
Corporate Control and Default 470
Liquidation 471
Investing in the Securities of Distressed Companies 472
Chapter 13: Corporate Governance 477
Structure of Corporations and Their Governance 477
CEO Severance Payments 494
Managerial Compensation, Mergers, and Takeovers 494
CEO Compensation and Power 495
Golden Parachutes 499
Compensation Characteristics of Boards That are More Likely to Keep Agency Costs in Check 501
Role of the Board of Directors 502
Antitakeover Measures and Board Characteristics 512
Disciplinary Takeovers, Company Performance, CEOs, and Boards 515
Merger Strategy and Corporate Governance 516
CEO Compensation and M&A Programs 516
Do Boards Reward CEOs for Initiating Acquisitions and Mergers? 516
CEO Compensation and Diversification Strategies 517
Agency Costs and Diversification Strategies 518
Interests of Directors and M&As 519
Managerial Compensation and Firm Size 520
Corporate Control Decisions and Their Shareholder Wealth Effects 521
Does Better Corporate Governance Increase Firm Value? 522
Corporate Governance and Competition 523
Executive Compensation and Postacquisition Performance 524
Mergers of Equals and Corporate Governance 525
Chapter 14: Joint Ventures and Strategic Alliances 535
Contractual Agreements 535
Comparing Strategic Alliances and Joint Ventures with Mergers and Acquisitions 536
Joint Ventures 536
Strategic Alliances 542
Chapter 15: Valuation 551
Valuation Methods: Science or Art? 553
Managing Value as an Antitakeover Defense 553
Benchmarks of Value 554
How the Market Determines Discount Rates 566
Valuation of the Target’s Equity 579
Marketability of the Stock 579
Takeovers and Control Premiums 583
Valuation of Stock-for-Stock Exchanges 588
Shareholder Wealth Effects and Methods of Payment 589
Exchange Ratio 595
Fixed Number of Shares versus Fixed Value 602
Merger Negotiations and Stock Offers: Halliburton versus Baker Hughes 603
International Takeovers and Stock-for-Stock Transactions 603
Desirable Financial Characteristics of Targets 604
Chapter 16: Tax Issues in M&A 613
Financial Accounting for M&As 614
Taxable versus Tax-Free Transactions 614
Tax Consequences of a Stock-for-Stock Exchange 617
Asset Basis Step-Up 618
Changes in the Tax Laws 619
Role of Taxes in the Merger Decision 620
Role of Taxes in the Choice of Sell-Off Method 622
Organizational Form and M&A Premiums 622
Capital Structure and Propensity to Engage in Acquisitions 623
Taxes as a Source of Value in Management Buyouts 624
Miscellaneous Tax Issues 625
Glossary 631
Index 643
