Mergers, Acquisitions, and Corporate Restructurings The Wiley Corporate F&A series provides information, tools, and insights to corporate professionals responsible for issues affecting the profitability of their company, from accounting and finance to internal controls and performance management Founded in 1807, John Wiley & Sons is the oldest independent publishing company in the United States With offices in North America, Europe, Asia, and Australia, Wiley is globally committed to developing and marketing print and electronic products and services for our customers’ professional and personal knowledge and understanding Mergers, Acquisitions, and Corporate Restructurings Sixth Edition PATRICK A GAUGHAN Cover Design: Wiley Cover Image: ©iStock.com/jpique Copyright © 2015 by John Wiley & Sons, Inc All rights reserved Published by John Wiley & Sons, Inc., Hoboken, New Jersey The Fifth Edition was published by John Wiley & Sons, Inc in 2011 Published simultaneously in Canada No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, (978) 750-8400, fax (978) 646-8600, or on the Web at www.copyright.com Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, (201) 748-6011, fax (201) 748-6008, or online at http://www.wiley.com/go/permissions Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose No warranty may be created or extended by sales representatives or written sales materials The advice and strategies contained herein may not be suitable for your situation You should consult with a professional where appropriate Neither the publisher nor author shall be liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages For general information on our other products and services or for technical support, please contact our Customer Care Department within the United States at (800) 762-2974, outside the United States at (317) 572-3993 or fax (317) 572-4002 Wiley publishes in a variety of print and electronic formats and by print-on-demand Some material included with standard print versions of this book may not be included in e-books or in print-on-demand If this book refers to media such as a CD or DVD that is not included in the version you purchased, you may download this material at http://booksupport.wiley.com For more information about Wiley products, visit www.wiley.com Library of Congress Cataloging-in-Publication Data: ISBN 978-1-118-99754-3 (Hardcover) ISBN 978-1-119-06335-3 (ePDF) ISBN 978-1-119-06336-0 (ePub) Printed in the United States of America 10 Contents Preface xi PART I: BACKGROUND Chapter 1: Introduction Recent M&A Trends Terminology Valuing a Transaction 12 15 Types of Mergers Merger Consideration 15 16 Merger Professionals Merger Arbitrage Leveraged Buyouts and the Private Equity Market Corporate Restructuring Merger Negotiations Merger Agreement Merger Approval Procedures Deal Closing Short-Form Merger 17 20 21 21 23 30 30 32 33 Freeze-Outs and the Treatment of Minority Shareholders Reverse Mergers Holding Companies 33 34 38 Chapter 2: History of Mergers 41 Merger Waves What Causes Merger Waves? First Wave, 1897–1904 Second Wave, 1916–1929 The 1940s Third Wave, 1965–1969 41 42 42 48 49 49 v vi ◾ Contents Trendsetting Mergers of the 1970s Fourth Wave, 1984–1989 56 62 Fifth Wave Sixth Merger Wave 67 73 Chapter 3: Legal Framework Laws Governing Mergers, Acquisitions, and Tender Offers 75 76 Other Specific Takeover Rules in the United States International Securities Laws Relating to Takeovers U.S State Corporation Laws and Legal Principles State Antitakeover Laws 88 89 98 101 Regulation of Insider Trading Antitrust Laws 109 111 Measuring Concentration and Defining Market Share European Competition Policy 117 121 Chapter 4: Merger Strategy 125 Growth Synergy Operating Synergy 125 136 138 Diversification 148 Types of Focus Increases Focus Increasing Asset Sales Increase Firm Values 154 154 Explanation for the Diversification Discount 155 Do Diversified or Focused Firms Do Better Acquisitions? Other Economic Motives 159 159 Hubris Hypothesis of Takeovers Do Managerial Agendas Drive M&A? Other Motives 169 173 177 PART II: HOSTILE TAKEOVERS Chapter 5: Antitakeover Measures 187 Management Entrenchment Hypothesis versus Stockholder Interests Hypothesis 188 Rights of Targets Boards to Resist: United States Compared to the Rest of the World Preventative Antitakeover Measures 189 189 Changing the State of Incorporation 214 Contents ◾ vii Active Antitakeover Defenses 214 Information Content of Takeover Resistance 247 Chapter 6: Takeover Tactics 249 Preliminary Takeover Steps 250 Tender Offers 257 Advantages of Tender Offers over Open Market Purchases Proxy Fights 272 279 Chapter 7: Hedge Funds as Activist Investors Macroeconomic Foundations of the Growth of Activist Funds Hedge Funds as Acquirers 291 294 301 PART III: GOING-PRIVATE TRANSACTIONS AND LEVERAGED BUYOUTS Chapter 8: Going-Private Transactions and Leveraged Buyouts 311 Terminology Historical Trends in LBOs Management Buyouts 311 312 319 Conflicts of Interest in Management Buyouts 323 U.S Courts’ Position on Leveraged Buyout Conflicts 325 Financing for Leveraged Buyouts 332 Returns to Stockholders from LBOs 340 Returns to Stockholders from Divisional Buyouts 341 Empirical Research on Wealth Transfer Effects 346 Protection for Creditors 347 Intra-industry Effects of Buyouts 347 Chapter 9: The Private Equity Market 349 History of the Private Equity and LBO Business Private Equity Market 349 350 Secondary Market for Private Equity Investments 369 Chapter 10: The Junk Bond and the Leveraged Loan Market and Stapled Financing History of the Junk Bond Market Leveraged Loan Market Stapled Financing 371 371 382 386 viii ◾ Contents PART IV: CORPORATE RESTRUCTURING Chapter 11: Corporate Restructuring 391 Divestitures 393 Divestiture and Spin-Off Process Market Liquidity and the Decision to Divest a Unit 404 406 Round-Trip Wealth Effects 406 Wealth Effects of Sell-Offs 407 Managerial Ownership and Sell-Off Gains 410 Activists and Sell-Offs 410 Shareholder Wealth Effects of Spin-Offs: U.S versus Europe Equity Carve-Outs Voluntary Liquidations or Bust-Ups Tracking Stocks 416 421 427 428 Master Limited Partnerships and Sell-Offs 430 Chapter 12: Restructuring in Bankruptcy 433 Types of Business Failure 434 Causes of Business Failure Bankruptcy Trends U.S Bankruptcy Laws Reorganization versus Liquidation Reorganization Process 435 440 444 445 446 Benefits of the Chapter 11 Process for the Debtor Prepackaged Bankruptcy Workouts 453 457 461 Corporate Control and Default Liquidation 469 469 Investing in the Securities of Distressed Companies 471 Chapter 13: Corporate Governance 477 Structure of Corporations and Their Governance Golden Parachutes CEO Severance Payments 477 486 490 Reform of Excesses of Golden Parachutes and Severance Payments Managerial Compensation, Mergers, and Takeovers CEO Compensation and Power 491 491 493 Index Odyssey Investment Partners LLC, 386 Offers, 256 Offer to Purchase, 85 Office Depot, 111 OfficeMax, 111, 404 Office Products USA, 69t Ohio Mattress, 377 Ohio Public Employees Retirement System, 358t Oil industry, 151 Okonite Company, 61 Old Spice, 400 Olive Garden, 299 Olsen, Frank A., 138 Omrix Biopharmaceuticals, 126t O’Neil, Stanley, 440 One West, 460 Open market purchases, 259, 273–279 Operating performance: and activist funds, 304–305, 305f after leveraged buyouts, 342–344 of carved-out subsidiaries, 424–425 postbankruptcy, 455–457 Operating synergy, 136–145 and acquisition premiums, 144–145 cost reductions from, 139–144 and purchasing power, 143–144 and revenue enhancement, 138–139 and revenue losses, 139 Opinions, 31–32 Optimal bid, 253 Oracle, 23, 164, 199–200, 482 Orange PLC, 6t, 11 Oregon Public Employees Retirement System, 358t Organizational form, premiums and, 616–617 Otis Elevator, 58–59 Outliers, comparable multiples based on, 571 Overconfidence, by CEOs, 494 Ownership: after leveraged buyouts, 325–326 concentration of, 233 ◾ 657 fractional, 38 with holding companies, 39 institutional, 588 managerial, 213, 410–416, 586–587 P Pacific Century CyberWorks Ltd., 7t Pacific Gas & Electric Company, 443t Pac-Man defense, 215, 224, 245–246 Pan American Airways, 137 Pan-American Steamship Company, 349 PanAmSat Holding Corp., 362 PanCanadian Petroleum Ltd., 151 Panic of 1907, 47 Pantry Pride, 197, 226–227 Paramount Communications Inc., 108–109, 226, 230, 247 Paramount Communications v Time, Inc., 108, 247 Paramount Pictures, 54 Parmalat Finanziaria SpA, 442 Parson, Donald, 197 Partially taxable transactions, 611 Partial tender offers, 83 Payment, 87 Payment-in-kind (PIK) securities, 376 PCS Health Systems, 156, 166 Peek, Jeffrey, 460 Peer group benchmarking, 485 Peltz, Nelson, 296f , 301, 554, 555 P/E multiples, 573, 574t Peninsula Pharmaceuticals, 126t Peninsular and Oriental Steam Navigation Co (P&O), 72, 88 Penn Central Railroad, 442, 453 Pennsylvania Public School Employees’ Retirement System, 358t Pension funds, 479–480 Pension fund LPs, 358, 358t Penzoil Corporation, 238 People Express, 374–375, 439 PeopleSoft Inc., 23, 199–200 PepsiCo, 180, 504, 505, 555 P/E ratio, see Price-earnings ratio 658 ◾ Index Perella, Joseph, 235 Perelman, Ronald, 226, 489 Perle, Richard, 508–509 Perot, Ross, 428–429 Pershing Square, 296f , 301, 410 Petition for relief, 446–447 Petro Brasileiro SA, 13t Petters Group Worldwide, 238 Pfizer Inc., 5t, 15, 23, 126t, 127, 128, 140, 178–179, 392 Phelps Dodge Corp v Cyprus Amax Minerals Company, 221 PHH Corp., 421 Philip Morris, 15–16, 64t, 155, 393, 401 See also Altria Philip Morris Intl Inc., 5t, 6t, 401 Philip Morris USA, 16, 401 Phillips De Pury & Luxembourgh, 157 Phillips Petroleum, 241, 375 Pickens, T Boone, 99, 224–225, 241, 245, 381 Pinault, Francois, 237 Pinault-Printemps, 237 Pironi Group, 402 Pizza Hut Poison pills, 191–203, 192f and blank check preferred stock, 196 and boards of directors, 203 dead hand, slow hand, and no hand provisions for, 196 flip-in, 193–195 flip-over, 191–192 issuing, 194–195 legality of, 103, 197 net operating loss, 197–198 number of, 198 preferred stock plans in, 191 and proxy contests, 198 with recapitalization plans, 233 and shadow pills, 196 shareholder approval for, 195 shareholder wealth effects for, 198–201 trends in adoption of, 202, 202f and voting plans, 193 Poison puts, 201–202, 347 Polaroid Corporation, 238 Political strategies, 66 Port, F J., 58 Ports World, 72, 88 POSCO, 72t Postpetition credit, for debtors, 450–451 Postvoted prepacks, 459 Power: and CEO compensation, 493–496 in mergers of equals, 580–581 and tender offer premiums, 271 Powerade, 504 Pownall, Thomas, 248 Preferred stock: blank check, 196 cost of, 559 Preferred stock plans, 191 Premiums: acquisition, 144–145, 616–617 buyout, 305–306, 306f control, 38, 578–583, 605t for M&As vs going-private transactions, 326, 326t, 327 takeover, 200–201, 581–582 tender offer, 270–271 Prepackaged bankruptcy, 457–460, 458t Preventative antitakeover defenses, 189–214 Prevoted prepacks, 459 Price-earnings (P/E) ratio: and earnings per share, 593–594, 594f for M&As vs going-private transactions, 326t, 327 postmerger, 595–596 for public vs private businesses, 603f in third merger wave, 53–54, 55f Pricing period, 16 Prince, Charles, 150 Prisoner’s dilemma, 264 Index Pritzker, Jay, 547, 548 Private equity firms, 349–369, 355t activist funds vs., 305–306, 306f "club deals" involving, 359–365 history of, 349–350 and interest rates in early 2000s, 73–74 and interlocked boards, 368–369 internal rates of return for, 365–366 and leveraged buyouts, 21 in leveraged buyouts, 350–351, 350f negotiations of sellers with, 353–355 returns for, 366–368, 366f secondary market for investments by, 369 structure of, 355–359 valuations by sellers vs., 352–353 venture capital funds vs., 351–352 Privately-held companies, 599–606 Private negotiations, 24 Private sellers, 353–355 Procter, William, 400 Procter & Gamble, 400–401, 490, 498 Profitability, 328–329, 328f Progenics Pharmaceuticals Inc., 542 Projections, in reorganization plans, 455 Proofs of claim, 447, 448 Proposals, proxy, 286 Proprietary deals, 353 Pro rata acceptance, 83 Protectionism, European, 73 Protective covenants, 335 Proxy, 279 Proxy advisory firms, 284–286 Proxy fights, 279–290 costs of, 284–286 dead shares problems in, 282–283 insurgents viewpoint of, 282 and poison pills, 198 regulation of, 279–281 shareholder wealth effects with, 287–288 success of, 283–284 ◾ 659 tender offers vs., 289–290 types of, 281–282 Proxy proposals, 286 Proxy solicitation, 88–89 Proxy statements, 279 Public businesses, 600–601 Public offerings, 362, 363f , 425–426 Public Utility Holding Company Act (PUHCA), 88 Purchasing power, 143–144 Pure plays, 402 Puts, poison, 201–202 Q Quaker Oats, 504–506, 505f , 554–555 Questrom, Allen, 473 QVC, 17, 226, 230 Qwest Communications, 151 R Rabbi trusts, 488 Radler, David, 508, 509 Rales, 197 Rales Brothers, 233 Rates of return, 562t Ravelston, 508 RCA, 137 Real estate investment trusts (REITs), 614 Real options, 567–569, 568t Recapitalizations, 215, 231–236, 435–439 Recasting of income statement, 601 Recession (2008–2009), see Great Recession Recession (Japan, 1990s), Recovery rate, 384 Red Lobster, 299, 300 Redomicile deals, 181 Refco Inc., 443–444, 443t Registration of shares, 406 Regulation(s): and collapse of junk bond market, 378 of joint ventures, 534 on LBOs, 345 660 ◾ Index Regulation(s): (Continued) of leveraged loan market, 385 of proxy fights, 279–281 and tender offers for highly regulated industries, 261 of two-tiered tender offers, 264–265 Regulatory standards, 506 Reincorporation, 214 Related diversification, 156–158 Relational Investors, 296f Relative earnings, 593–594, 594f Reliance Corp., 217 Renault, 534, 543–545 Reorganization(s), 445–457 asset sales during, 464–467, 468f benefits for debtor of, 453–457, 453t going concern sales vs., 464 liquidation vs., 445 process for, 446–453 tax-free, 609–610 transaction costs associated with, 463 Reorganization plans, 445, 451–452, 455 Repligen Corporation, 539–540 Representations and warranties insurance, 354 Repsol SA, 13t Republic Industries, 69t Repurchases, share, See Share repurchases Research and development (R&D), 178–180, 407, 533, 538 Residuals, 553 Restructuring plans, 405 Resurgens Communications Group, 521 Returns: on distressed debt securities, 471–472 for private equity firms, 366–368, 366f and social ties of directors, 503–504 Return for shareholders, 130 Returns to stockholders: from divisional buyouts, 341–346 from leveraged buyouts, 340–341 Revenues: and operating synergy, 138–139 tax, 618–619 Revenue Ruling 59–60, 602 Reverse breakup fees, 354–355 Reverse leveraged buyouts, 344–345 Reverse mergers, 34–38 special purchase acquisition vehicles in, 36–38 value and volume of, 34, 35f Reverse subsidiary mergers, 29, 30, 30f Reverse synergy, 399, 400 Reverse termination fees, 229 Revlon, 197, 489 Revlon, Inc v MacAndrews and Forbes Holdings, 100, 325 See also Revlon duties Revlon duties, 100, 108, 247 Revlon Inc., 226–227 Revolving credit, 334 Revson, Charles, 226 Reynolds American, 393 Reynolds Metal, 58 RFS Holdings BV, 5t, 6t R.H Macy and Company, 346, 467f Riklis, Meshulam, 371 Rinker Group Ltd, 7t Risk(s): and discount rate, 562–563 and diversification, 153 with leveraged buyouts, 340 with stock-for-stock exchanges, 583 Risk arbitrage, 20 Risk arbitrageurs, 274 Risk arbitrageur’s annualized return (RAR), 275–278 Risk effect, 493 RJ Reynolds, 316, 393 RJR Nabisco Holdings Corp., 393 RJR Nabisco Inc., 21, 64t, 316–318, 316t, 321t, 324, 329, 346 Robber Barons, The (Josephson), 237 Roche Holdings, 156, 166 Rockefeller, John D., 44, 45 Index Roll-up acquisitions, 164 Roll-ups, 69–70, 69t, 164 Romans, Donald, 548 Roosevelt, Theodore, and administration, 47–48, 112 Rosenstein, Barry, 296f Ross, Wilbur, 61, 446 Round-trip wealth effects, 406–407 Royal Bank of Scotland Group, 6t Royal Dutch Petroleum Co., 5t, 6t Royal Dutch Shell, 160t RR Donnelley, 23 RTL Group, 599 Rubin, Robert, 150 Rule 10b-5, 109–110 Rule 13(e)-1, 240 Rule 13(e)-3, 345 Rule 14(d)-7, 86 Rule 14(d)-10, 86 Rule 14a-7, 280 Rule 14e-2(a), 262 Rule 415, 236 Runups, stock price, 254–255, 256f Russia: GM in, 134 securities laws in, 92 S S-4 form, 77 Saab, 427 SABMiller Beverage Investments, 7t Salomon Brothers, 85, 317, 375 Sandler, Marian and Herb, 144 Sanofi-Synthelabo SA, 6t Santa Fe–Southern Pacific, 398, 417–418 Sarbanes-Oxley Act, 109 Savings and loan associations (S&L), 378 Saxon Industries, 216 SBC Communications, 416, 490 Schaeffer, Leonard, 492 Schedule 13D, 24, 79, 251, 262, 303, 304 ◾ 661 Schedule 13G, 80–81 Schedule 14A, 89, 280 Schedule 14a-8, 280 Schedule 14D-9, 240, 262 Schedule DFAN14A, 280 Schedule TO, 81, 259 Schering-Plough Corp., 179 Schrempp, Jurgen, 134 Scios, 126t Scorched earth defense, 234 Seagram Universal, 174 Seaman’s Furniture, 455 Sears, 138, 301, 466–467, 467f , 468f Sears, Roebuck and Co., 181–183 Sears Holdings, 467, 468f Sears Roebuck Acceptance Corporation, 181 SEC, see Securities and Exchange Commission Secondary market, 369 Second-generation antitakeover laws, 104–105 Second requests, 116 SEC Rules, see under Rule Section 14(a), 279 Section 14(a)8, 280 Secured creditors, 449 Secured debt, 332 Securities, 471–475 Securities Act of 1933, 589 Securities Act of 1934, 78 Securities and Exchange Commission (SEC), 18 auditing requirements, 600 and long-form mergers, 258 merger approval procedure, 31 proxy contest regulation, 279 registration requirements, 589 securities tender offer reviews, 261 WorldCom investigation, 525 Securities Exchange Act of 1934, 76, 345 662 ◾ Index Securities laws: international, 89–98 tender offers involving cash vs., 261–262 U.S., 76–83 Seibert v Gulton Industries, 209 Selectica, Inc v Versata, Inc., 198 Self-tender offers, 241–242 Sellers, price effects of sell-offs for, 407–408, 408t Sell-offs see also specific types and activist hedge funds, 410–416 and corporate governance, 409–410 involuntary, 417–418 and managerial ownership, 410–416 by master limited partnerships, 430–431 taxes as factor in, 616 undoing, 180 voluntary, 407–409, 408t, 409t, 417 wealth effects of, 407–410 Senior debt, 333, 334 Serial acquirers, 164–165 Servaes, Henri, 52 Service Corp., 164 Seven and I Holdings Corp., 338 7-Eleven, 338 Severance payments for CEOs, 490–491 S.G Warburg, 58 S-G Securities, Inc v Fuqua Investment Co., 84 Shadow pills, 196 Shamrock Holdings Inc., 238 Shares: issuance of, as antitakeover defense, 237–238 method of tendering, 85–86 Shareholders: approval of poison pills by, 195 approval of restructuring plans by, 405 communication between, 306–308, 307f materials for, related to tender offers, 85 minority, 33–34 return for, 130 value of votes by, 289 voting approval from, 32 withdrawal rights of, 82 Shareholder concentration, 222–223 Shareholder returns: and CEO compensation, 483 postacquisition, and executive compensation, 519–520 on Sears, 183 Shareholder wealth effects: and activist funds, 302–304 of antitakeover laws, 107 of control decisions, 516–518 of corporate charter amendments, 213 of corporate restructuring, 406–410, 416–421 of diversification, 153–158 of divestitures, 406–410 of dual capitalizations, 211–212 of equity carve-outs, 423, 423t of fair price provisions, 210 of golden parachute agreements, 487–490 of greenmail, 217–218 of joint ventures, 534–536 of overvalued acquiring companies, 585–586 of poison pills, 198–201 with proxy fights, 287–288 of recapitalization plans, 233 of reincorporation, 214 round-trip, 406–407 of sell-offs, 406–410 of spin-offs, 406–410, 414–421, 414t of standstill agreements, 221–222 of stock-for-stock exchanges, 583–589 of strategic alliances, 541–542 of supermajority provisions, 209 of tender offers, 265–270, 267f , 269f in third merger wave, 52–53 of voluntary bust-ups, 427–428 of white knight bids, 223–224 Index Share repurchases: accounting for, 218–219 as antitakeover defense, 239–242 "Shark repellent," 347 Shearson Lehman, 166–167, 422, 423 Shearson Lehman Hutton, 317 Shelf registration rule, 236 Shell Transport & Trading Co., 5t, 6t Sherman Antitrust Act, 44–45, 48, 49, 111–112 Shire, 229, 620 Shite PLC, 181 Shorewood Corporation, 246 Short-form mergers, 33, 258 SIC (Standard Industrial Classification) codes, 419, 571 Siegel, Martin, 274 Silverlake Partners, 359, 360 Silverman, Henry, 420, 421 Silver parachutes, 488 Simmons Bedding, 360–361 Simpson Thatcher & Bartlett LLP, 19t Singer Corporation, 64, 214 Single trigger golden parachutes, 488–489 Size-of-person test, 114 Size-of-transaction test, 114 SK Corp, 7t, 94 Skype, 280 Slaughter & May Ltd., 19t SLM Corp Investor Group, 321t Sloan, Albert, 529 Slow-growth industries, 129 Slow hand provisions, 196 Smale, John, 498 Smith, Jeffrey, 296f , 299, 300 Smith Barney, 316–317 Smithburg, William, 554 SmithKline Beecham, 5t, 6t, 117, 178 Smith v Van Gorkom, 31, 547–549 Snapple, 554–555 Snappy Rent-A-Car, 168 Social ties, 503–504 Solvency opinion, 469 ◾ 663 Sotheby’s, 197 Souki, Charif, 482 South African Breweries (SAB), 401–402 South America: and fifth merger wave, 70 fifth merger wave in, 70 M&A deals (1985– 2013), 14f M&A trends in, 12, 13t, 14f private equity firms in, 359 syndicated loans in, 382 volume of M&A deals, 12 Southern Pacific Railway, 418 See also Santa Fe–Southern Pacific South Korea: average value of M&A deals (1984– 2013), 10f number of M&A deals (1984– 2013), 9, 9f securities laws in, 94–95 value of M&A deals (1984– 2013), 8f Southland Corp., 338, 458t Southwestern Bell, 415 Sovereign Asset Management Ltd., 94 Spain, 73 golden shares rulings against, 214 securities laws in, 92 Special committees of boards of directors, 31 Specialized inputs, 167–168 Special purchase acquisition vehicles (SPACs), 36–38, 36f Sperry, 12 Spin-offs, 154–155, 411–421 defined, 392 equity carve-outs vs., 426–427 process for creating, 404–406 tax benefits for, 412–414 trends in, 412, 412f , 413t wealth effects of, 406–410, 414, 414t, 415 Split-offs, 392 Split-ups, 392, 419–421 Sponsored spin-offs, 411 664 ◾ Index Sponsor-to-sponsor deals, 362 Spreading overhead, 139–140 Sprint, 524 Squibb, 64t Staggered board amendments, 206f , 207–209, 300, 300f Stakeholder committees, 449–450 Standard Industrial Classification (SIC) codes, 419, 571 Standard Oil, 44, 48, 66 Standard Oil of Ohio, 64t Standard Oil Trust, 46 Standard & Poor’s, 335 Standstill agreements, 215, 220–222 Stapled financing, 385–387 Staples, Inc., 111 Starboard Value, 296f , 298–300 Starwood Capital Group, 399–400 Starwood Hotels and Resorts Worldwide Inc., 133, 614 State laws: antitakeover, 101–109 corporation, 98–101 State of Wisconsin Investment Board, 358t Station Casinos, Inc., 458t Statutory merger, 28 See also Forward merger Steinberg, Saul, 216, 217, 219 Stempel, Robert, 498 Sternlicht, Barry S., 400 St George Bank Ltd, 7t Stigler, George, 48 Stock(s): taxable purchases of, 611 tracking, 428–430 Stock entity deals, 27–28 Stock financed deals, 75, 76 Stock-for-stock exchanges, 583–598 collar agreements in, 597 exchange ratio for, 589–597 in international takeovers, 598 negotiations in, 597–598 risks with, 583 shareholder wealth effects of, 583–589 tax benefits of, 583, 611–613 Stockholder interests hypothesis, 188–189 Stockholders, returns to, see Returns to stockholders Stock market, 294, 295, 295f Stock market crash (1904), 47 Stock market crash (1987), 20 Stock price(s): around M&A announcements, 278–279 influence of arbitrageurs on, 576–577 runups and markups of, 254–255, 256f and takeover probability, 582–583 Strategic alliances, 538–545 corporate governance of, 539–540 joint ventures/M&As after, 543–545 knowledge flows in, 540 mergers and acquisitions vs., 532 shareholder wealth effects of, 541–542 successful, 542–543 Strategic buyers, 362 Strategic fit, 399 Strichman, George, 59 Strine, Leo E Jr., 25 Structural remedies, 123 Stubs, 231 Subordinated debt, 332, 333, 335 Subprime mortgage crisis, 439, 440, 460 and leveraged loan market, 383 Wachovia and, 144 Subsidiary deal, 29 Subsidiary mergers: forward, 29, 29f reverse, 29, 30, 30f Success, M&A, 159 Suez SA, 6t, 73 Sullivan, William, 360 Sullivan & Cromwell LLP, 19t Sumitomo Bank Ltd, 93 Index Sunbeam Corp., 465 Sunguard Data Systems, 359 Sun Oil Inc., 85, 257 Superior Oil, 166 Supermajority provisions, 208–209 Super-seniority, 451 Superstar CEOs, 486 Survival clause, 354 Survivor, 28 Swiss Re, 149 Syndicated loans, 382 Synergy: financial, 146–147 as motive for M&As, 136–147, 182 operating, 138–145 reverse, 399, 400 Syntex Corp., 156, 166 Synthes, 126t T Taft, William Howard, 48, 112 Taittinger, 399–400 Taiwan: average value of M&A deals (1984– 2013), 10f number of M&A deals (1984– 2013), 9f securities laws in, 97 value of M&A deals (1984– 2013), 8f Takeovers: control premiums in, 578–583 early warning signs for, 190 information asymmetry in, 251–252 by privately held companies, 606 of privately held companies, 606 role of junk bond financing in, 381 Takeover Directive, EU, 11, 12 Takeover premiums: and corporate governance, 581–582 poison pills and, 200–201 Takeover process, 229f , 252–253 Takeover rules, 88–89 Takeover strategies, 65 ◾ 665 Takeover tactics, 249–290 bear hugs, 253–254 bid jumps, 253 bypass offers, 256 casual passes, 250 establishing toeholds, 250–251 and information asymmetry in takeovers, 251–252 open market purchases, 273–279 proxy fights, 279–290 stock price runups and markups, 254–255, 256f tender offers, 257–279 Target company(-ies): for activist funds, 297–298 desirable financial characteristics of, 598–606 equity of, 575 valuation effects of payment method for, 584 Target Corp., 131, 243, 467f Targeted share repurchases, 216, 239 Tata, Ratan N., 72, 73 Tata Group, 72, 73 Tata Motors, 134–135 Taubman, A Alfred, 509 Taxable transactions, 608–609, 611 Taxation, 39, 619–621 Tax benefits, 607–621 of asset basis step-up, 612–613 with changes in tax laws, 613–614 of debt, 232 as factor in merger decision, 614–618 and financial accounting for M&As, 608 of leveraged buyouts, 330–331 of management buyouts, 618–619 as motive for M&As, 180–181 of prepackaged bankruptcies, 459 of spin-offs, 412–414 of stock-for-stock exchanges, 583, 611–613 and taxable/tax-free transactions, 608–610 666 ◾ Index Tax-free transactions, 608–610 Tax inversions, 620 Tax laws, 613–614 Tax loss carryforwards, 611–612 Tax Reform Act of 1969, 55 Tax Reform Act of 1986, 331, 431, 612–613, 615 Tax revenues, 618–619 TCI, 23, 416 TDC A/S, 321t Teacher Retirement System of Texas, 358t Teddy bear hug, 254 Telecummunicacoes de Sao Paulo, 13t Telefonica SA, 13t Telmex Internacional SAB de CV, 13t 10-day window, 262 Tender offers: bad bidders as targets of, 271–273, 272f bear hugs vs., 254 bidder purchases outside, 86 changes in, 86 commencement of, 81–82 competing, 87–88 for debt securities, 88 definition of, 84 eight-factor test, 257t involving cash vs securities, 261–262 on mini-, 87 nature of, 82 open market purchases vs., 259, 273–279 partial and two-tiered, 83 payment following completion of, 87 proxy fights vs., 289–290 reasons for using, 259–260 response of target management to, 262–263 steps in, 258–259 success rate of, 260–261, 260f in takeovers, 257–279 team for creating, 263–264 10-day window for, 262 two-tiered, 264–265 unsuccessful, 266–270, 267f , 269f U.S federal laws on, 76–88 wealth effects of, 265–270, 267f , 269f Tender offer premiums, 270–271 Tequila Herradura, 191 Terminal value, 552, 553 Termination fees, 228–230, 620–621 Term loans, 334 Term sheet, 25 Texaco, 64t, 160, 216, 217, 238, 381, 443t Texas Air, 439 Texas Engineering and Manufacturing Company (Temco), 60 Texas Gulf Sulphur, 110 Texas International Inc., 372 Texas Pacific Group, 351 Thain, John, 460 Thames Water PLC, 321t Third-party consents, 27 Third Point, 197 Thomas H Lee Partners LP, 360, 361, 443t Thompson, James, 508 Thornburg Mortgage, Inc., 443t 3M Corporation, 156 Thrifty Rent-A-Car, 168 TIAA, 480 Ticketmaster, 115 TIDE (three-year independent director evaluation), 195 Time, Inc., 108 Time periods: for long-term mergers vs tender offers, 259 in Williams Act, 82–83 Time requirements, 115 Time Warner, 5t, 108–109, 278, 283, 585–586 Tim Horton’s, 620 T-Mobile, 228 Tobin’s q, 153, 189, 501f Index Toeholds, establishing, 250–251 Topping fees, 228 Top-up option, 258 Total Fina SA, 6t, 246 Touch America, 151–152 Toyota, 169, 403 TPG, 352, 359 Tracinda Corp., 580 Tracking stocks, 428–430 Trailing multiples, 570, 573 Trane, 149 Transaction costs, 167 Transaction fees, 357 TransUnion Corporation, 547–549 Trans World Airlines (TWA), 458t Trans World Corporation, 137 Travelers Group Inc., 5t Trends, leveraged buyout, 312–321 in 1970s, 312–313 in 1980s-2000s, 313–316, 314f , 316t globalization as, 318–319, 318f –320f , 321t and origin of LBOs, 312 Trends, M&A, 3–14 in Asia, 4, 7t, 8–10, 8f –10f in Central America, 12, 13t, 14f in Europe, 3–4, 4f , 6t in South America, 12, 13t, 14f in U.S., 3–4, 4f worldwide, 4, 5t Triac Cos., 554, 555 Triangle Industries, 554–555 Trian Partners, 296f , 301 Trump, Donald, 219 Trustee Indenture Act of 1939, 462 Tube Investments, 58 Turnover thresholds, 123 TWA (Trans World Airlines), 458t 21st Century Fox, 278 Two-tiered tender offers, 83, 264–265 TXU Corporation, 316t, 321t, 329–330, 352 Tyco, 76–77 ◾ 667 Type A reorganization, 609 Type B reorganization, 609–610 Type C reorganization, 610 Type D reorganization, 610 Tysoe, Ronald, 473 U UAW, see United Auto Workers Ubben, Jeffrey, 296f UBS AG, 18t UFJ, 93 Unisys, 12 United Airlines, 137, 377, 400 United Auto Workers (UAW), 168, 169, 392 United Kingdom: shareholder approval rules, 479 shareholder concentration in, 223 splitting of CEO/chairman of board positions, 499 United States: bankruptcy laws, 444–445, 444t divestitures, 394t, 395–396, 395f , 397f federal laws on mergers, acquisitions, and tender offers, 76–88 federal takeover rules, 88–89 LBOs in, 318–319, 318f –320f LBO value and number, 22f , 318–319, 318f –320f , 321t M&A trends in, 3–4, 4f rulings on antitakeover laws, 102–103 rulings on leveraged buyouts, 325–332 spin-offs in, 412, 412f , 413t, 416–421 state antitakeover laws, 101–109 state corporation laws, 98–101 takeover tactics and concentration, 222–223 U.S Delivery Systems, 69t U.S Filter Corporation, 174 U.S Steel, 43, 44, 64t, 72t, 226, 429 668 ◾ Index U.S West, 151 United Technologies, 58–59, 248 Universal Foods Corporation, 103, 246 Universal Music Group, 123 Universal Studios Group, 174 Unocal Corp v.Mesa Petroleum Corp., 99, 198, 241–242 See also Unocal standard Unocal Corporation, 88, 96, 241–242 Unocal standard, 99–100 Unrelated diversification, 156–158 Unsecured LBOs, 332 USA Networks, 174 USX, 429 UUNet, 522 V Valcon Acquisition BV, 321t Valeant Pharmaceuticals, 301 Valid business reasons (term), 216 Valuation, 547–606 benchmarks for, 550–562 control premiums in, 578–583 and discount rates, 562–574 and financial characteristics of desirable targets, 598–606 intra-industry effects of LBOs on, 347 and managing value as antitakeover defense, 550 and marketability of stock, 575–578 of M&A transactions, 15 of private businesses, 599–606 real options in, 567–569, 568t by sellers vs private equity firms, 352–353 and Smith v Van Gorkom, 547–549 of stock-for-stock exchanges, 583–598 of target’s equity, 575 variability in, 549 ValueAct Capital, 296f , 484 Value benchmarks, 550–562 book value, 550–551 continuing (terminal) value, 553 cost of capital, 557–558 cost of common stock, 559–561 cost of debt, 558 cost of preferred stock, 559 discounted cash flows approach to, 551–553, 556–557 discount rate, 557–558 enterprise value, 551, 556 equity value, 551, 556 free cash flows, 556 hurdle rate, 561–562 liquidation value, 551 net present value approach to, 551–553 Value firms, postacquisition performance of, 578 Value leakage, 252 Vanderbilt, Cornelius, 47, 237 Van Gorkom, Jerome, 547 Varney, Christine, 115 Venture capital funds, 351–352 Verizon, 415, 416, 580 Vertex, 538 Vertical integration, 159, 166–169 Vertical joint ventures, 536 Vertical mergers, 15, 166–169 Vertical strips, 335–336 Viacom, 17, 226 Visteon, 168, 404 Vivendi Environment SA, 173 Vivendi Universal Entertainment, 174 Vivendi Universal SA, 173–175 VNU NV, 321t Vodafone, 10–12 Vodafone AirTouch PLC, 5t, 6t Vodafone Group PLC, 7t Voluntary bust-ups, 427–428 Voluntary divestitures, 398–404 Voluntary liquidations (bust-ups), 427–428 Voluntary sell-offs, 407–409, 408t, 409t, 417 Volvo, 543 Voting approval, 32 Index Vought Aircraft Company, 60 Vulture investors, 475 W W L Ross & Co., 446 Wachovia, 143–144 Wachtell, Lipton, Rosen & Katz, 19t Wallace Computer Services, Inc., 23, 103 Walmart, 466, 467f Warner Chilcott, 301 Warner Communications, Inc., 108, 247 Warner-Lambert Co., 5t, 178–179 Washington Mutual, Inc., 352, 443t Washington State Investment Board, 358t Wasserstein, Bruce, 235 Wasserstein-Perella, 235 Waste Management, 69t Waterman Steamship Company, 349 Wealth effects, shareholder, see Shareholder wealth effects Wealth transfer effects, 345–346 Weather Investment Srl, 321t Weil, Gotshal & Manges LLP, 19t Weil, Sandy, 150 Wellman v Dickinson, 84, 257 WellPoint Health Networks, 492 Wells Fargo, 144, 384 Wendy’s International, 301 Wesfarmers Ltd, 7t Wesray, 19 Westcorp Inc., 144 Western Union, 402–403 Westinghouse, 498 Westin International, 137, 400 WestLB, 11 Weston, 400 Westpac Banking Corp., 7t White knights, 215, 222–230, 261 White squires, 215, 225 White Weld & Company, 60 Whitman, Meg, 496 Whitworth, Ralph, 296f Whole entity deal, 27 ◾ 669 Williams, Harrison, 78 Williams Act, 77–88, 221, 226, 241 See also Schedule 13D and Bendix–Martin Marietta battle, 248 best price rule in, 86 and bidder disclosure, 251 on bidder purchases outside of tender offer, 86 on changes in tender offers, 86 on commencement of the offer, 81–82 on competing tender offers, 87–88 on definition of a tender offer, 84 on delisting of targets, 87 on derivatives, 80 on employee stock ownership plans, 81 for foreign companies, 88 on materials shareholders should receive, 85 on method of tendering shares, 85–86 on mini-tender offers, 87 on nature of the offer, 82 on payment following completion of offer, 87 on position of the target corporation, 82 on pro rata acceptance, 83 and Schedule 13D, 79 and Schedule 13G, 80–81 and Schedule TO, 81 section 13(d) of, 78–80 section 14(d) of, 81, 86 securities tender offer reviews, 261 and Sun Oil–Becton Dickinson battle, 85 10-day window in, 262 and tender offers, 257 and tender offers for debt securities, 88 time periods in, 82–83 and two-tiered tender offers, 264 Wilson & Company, 60–61 Wilson Foods case, 445 WilTel Network Services, 522 Wind Telecomunicazioni SpA, 321t 670 ◾ Index Winner’s curse, 253 Winner’s curse hypothesis, 175–176 Withdrawal rights, 82 Workouts, 461–463 and acquisition of companies in bankruptcy, 463–464 benefits of, 461 good candidates for, 461–463 transaction costs associated with, 463 WorldCom, Inc., 165, 442, 443t, 521–529, 522f –524f , 526f –527f World Savings, 144 Wuhan Steel Group, 72t Wyeth, 15, 23, 128, 140, 178, 492, 542 X Xstrata, 96 Y Yates Oil Field, 226 Youngstown Sheet and Tube Company, 61 YPF SA, 13t, 563 Z Zimmerman, James, 473 Zoetis, 128, 140, 392 WILEY END USER LICENSE AGREEMENT Go to www.wiley.com/go/eula to access Wiley’s ebook EULA ... Asia, and Australia, Wiley is globally committed to developing and marketing print and electronic products and services for our customers’ professional and personal knowledge and understanding Mergers, ... Mergers, Acquisitions, and Corporate Restructurings The Wiley Corporate F&A series provides information, tools, and insights to corporate professionals responsible... CEO Compensation and M&A Programs 510 511 511 Do Boards Reward CEOs for Initiating Acquisitions and Mergers? 512 CEO Compensation and Diversification Strategies 513 Agency Costs and Diversification