Mergers, Acquisitions and Corporate Restructurings

639 Pages·2007·3.78 MB·English

by  Patrick A. Gaughan

M A
ERGERS, CQUISITIONS,
C
AND ORPORATE
R
ESTRUCTURINGS
F E
OURTH DITION
P A. G
ATRICK AUGHAN
JOHNWILEY&SONS,INC.

M A
ERGERS, CQUISITIONS,
C
AND ORPORATE
R
ESTRUCTURINGS
F E
OURTH DITION

M A
ERGERS, CQUISITIONS,
C
AND ORPORATE
R
ESTRUCTURINGS
F E
OURTH DITION
P A. G
ATRICK AUGHAN
JOHNWILEY&SONS,INC.
Thisbookisprintedonacid-freepaper.
Copyright2007byJohnWiley&Sons,Inc.Allrightsreserved.
PublishedbyJohnWiley&Sons,Inc.,Hoboken,NewJersey.
PublishedsimultaneouslyinCanada.
Nopartofthispublicationmaybereproduced,storedinaretrievalsystem,ortransmittedinanyformorbyanymeans,
electronic,mechanical,photocopying,recording,scanning,orotherwise,exceptaspermittedunderSection107or108of
the1976UnitedStatesCopyrightAct,withouteitherthepriorwrittenpermissionofthePublisher,orauthorization
throughpaymentoftheappropriateper-copyfeetotheCopyrightClearanceCenter,Inc.,222RosewoodDrive,Danvers,
MA01923,978-750-8400,fax[phone],oronthewebatwww.copyright.com.RequeststothePublisherfor
permissionshouldbeaddressedtothePermissionsDepartment,JohnWiley&Sons,Inc.,111RiverStreet,Hoboken,NJ
07030,[phone],fax[phone].
LimitofLiability/DisclaimerofWarranty:Whilethepublisherandauthorhaveusedtheirbesteffortsinpreparingthis
book,theymakenorepresentationsorwarrantieswithrespecttotheaccuracyorcompletenessofthecontentsofthis
bookandspecificallydisclaimanyimpliedwarrantiesofmerchantabilityorfitnessforaparticularpurpose.Nowarranty
maybecreatedorextendedbysalesrepresentativesorwrittensalesmaterials.Theadviceandstrategiescontainedherein
maynotbesuitableforyoursituation.Youshouldconsultwithaprofessionalwhereappropriate.Neitherthepublisher
norauthorshallbeliableforanylossofprofitoranyothercommercialdamages,includingbutnotlimitedtospecial,
incidental,consequential,orotherdamages.
ForgeneralinformationonourotherproductsandservicespleasecontactourCustomerCareDepartmentwithintheU.S.
at877-762-2974,outsidetheU.S.at317-572-3993orfax317-572-4002.
Wileyalsopublishesitsbooksinavarietyofelectronicformats.Somecontentthatappearsinprint,however,maynot
beavailableinelectronicformat.
FormoreinformationaboutWileyproducts,visitourWebsiteathttp://www.wiley.com.
LibraryofCongressCataloging-in-PublicationData:
Gaughan,PatrickA.
Mergers,acquisitions,andcorporaterestructurings/PatrickA.
Gaughan.—4thed.
p.cm.
Includesindex.
ISBN:978–0–471–70564–2 (cloth)
1.Consolidationandmergerofcorporations. 2.Corporate
reorganizations. I.Title.
HD2746.5.G382007
658.1(cid:1)6—dc22
2006020848
PrintedintheUnitedStatesofAmerica.
10987654321
C
ONTENTS
Preface xi
About the Web Site xiii
Part 1 Background 1
1 Introduction 3
RecentM&ATrends 3
Definitions 12
ValuingaTransaction 12
TypesofMergers 13
ReasonsforMergersandAcquisitions 14
MergerFinancing 14
MergerProfessionals 15
MergerArbitrage 16
LeveragedBuyoutsandthePrivateEquityMarket 17
CorporateRestructuring 18
MergerNegotiations 19
MergerApprovalProcedures 21
Short-FormMerger 22
FreezeoutsandtheTreatmentofMinorityShareholders 23
PurchaseofAssetsComparedwithPurchaseofStock 23
StructuringtheDeal 24
AssumptionoftheSeller’sLiabilities 24
AdvantagesofAssetAcquisitions 24
AssetSelloffs 25
ReverseMergers 25
HoldingCompanies 26
2 History of Mergers 29
MergerWaves 29
WhatCausesMergerWaves? 29
FirstWave,1897–1904 30
SecondWave,1916–1929 36
The1940s 39
ThirdWave,1965–1969 40
TrendsettingMergersofthe1970s 47
vi CONTENTS
FourthWave,1984–1989 53
FifthWave 59
Summary 67
3 Legal Framework 69
LawsGoverningMergers,Acquisitions,andTenderOffers 70
SecuritiesLaws 70
OtherSpecificTakeoverRulesintheUnitedStates 84
InternationalSecuritiesLawsRelatingtoTakeovers 85
BusinessJudgmentRule 91
StateAntitakeoverLaws 92
RegulationofInsiderTrading 98
AntitrustLaws 100
RecentTrendsinAntitrustEnforcementintheUnitedStates 107
MeasuringConcentrationandDefiningMarketShare 109
EuropeanCompetitionPolicy 114
AntitrustRemedies 114
Summary 116
4 Merger Strategy 117
Growth 117
Synergy 124
OperatingSynergy 126
Diversification 136
OtherEconomicMotives 145
HubrisHypothesisofTakeovers 157
OtherMotives 163
TaxMotives 165
Summary 165
Part 2 Hostile Takeovers 169
5 Antitakeover Measures 171
ManagementEntrenchmentHypothesisversusStockholderInterestsHypothesis 172
PreventativeAntitakeoverMeasures 173
ChangingtheStateofIncorporation 196
ActiveAntitakeoverDefenses 197
InformationContentofTakeoverResistance 231
Summary 233
6 Takeover Tactics 234
PreliminaryTakeoverSteps 236
TenderOffers 240
CONTENTS vii
OpenMarketPurchasesandStreetSweeps 258
AdvantagesofTenderOffersoverOpenMarketPurchases 260
ArbitrageandtheDownwardPricePressuresAroundM&AAnnouncements 263
ProxyFights 263
Summary 281
Part 3 Going Private Transactions and Leveraged Buyouts 283
7 Leveraged Buyouts 285
Terminology 285
HistoricalTrendsinLBOs 286
CostsofBeingaPublicCompany 295
ManagementBuyouts 297
ConflictsofInterestinManagementBuyouts 299
FinancingforLeveragedBuyouts 309
CapitalStructureofLBOs 314
SourcesofLBOFinancing 315
ReturnstoStockholdersfromLBOs 317
ReturnstoStockholdersfromDivisionalBuyouts 317
ReverseLBOs 319
EmpiricalResearchonWealthTransferEffects 324
ProtectionforCreditors 325
Summary 328
8 Trends in the Financing of Takeovers and Going Private
Transactions 330
TrendsinCashversusStockPercentageofTakeoverFinancing 331
ShareholderWealthEffectsandMethodsofPayment 335
PrivateEquityMarket 340
HedgeFunds 348
ComparisonofPrivateEquityFundsandHedgeFunds 352
HedgeFundandPrivateEquityFundConvergence 353
JunkBondsFinancingofTakeovers 355
StapledFinancing 373
SecuritizationandM&AFinancing 374
Summary 375
9 Employee Stock Ownership Plans 378
HistoricalGrowthofESOPs 378
TypesofPlans 380
CharacteristicsofESOPs 380
LeveragedversusUnleveragedESOPs 381
viii CONTENTS
CorporateFinanceUsesofESOPs 381
VotingofESOPShares 383
CashFlowImplications 383
ValuationofStockContributedintoanESOP 384
EligibilityofESOPs 384
PutOptionsofESOPs 384
DividendsPaid 385
ESOPsversusaPublicOfferingofStock 385
EmployeeRiskandESOPs 387
SecuritiesLawsandESOPs 388
TaxBenefitsofLESOPs 388
BalanceSheetEffectsofESOPs 389
DrawbacksofLESOPs 389
ESOPsandCorporatePerformance 390
ESOPsasanAntitakeoverDefense 392
ESOPsandShareholderWealth 393
ESOPsandLBOs 394
Summary 397
Part 4 Corporate Restructuring 399
10 Corporate Restructuring 401
Divestitures 403
DivestitureandSpinoffProcess 413
WealthEffectsofSelloffs 421
EquityCarve-outs 434
VoluntaryLiquidations,orBustups 437
TrackingStocks 439
MasterLimitedPartnershipsandSelloffs 440
Summary 442
11 Restructuring in Bankruptcy 443
TypesofBusinessFailure 443
CausesofBusinessFailure 444
BankruptcyTrends 446
U.S.BankruptcyLaws 452
ReorganizationversusLiquidation 453
ReorganizationProcess 454
BenefitsoftheChapter11ProcessfortheDebtor 459
CompanySizeandChapter11Benefits 459