Mergers and Acquisitions (Express Exec)

105 Pages·2002·0.95 MB·English

by  Broc Romanek Cynthia M Krus

Mergers and
Acquisitions
Broc Romanek and Cynthia M. Krus
F
0 IN
5.0 AN
(cid:2)Fast track route to mastering mergers and acquisitions 9 C
E
(cid:2)Covers the key areas of M&A, from detailing how to structure
different types of transactions to meet varying objectives to
the history of M&A activity and the impact of the Internet
and other new technologies
(cid:2)Examples and lessons from some of the world’s most
successful businesses, including Daimler-Chrysler,
Vodaphone-Mannesman and UFJ Bank
(cid:2)Includes a glossary of key concepts and a comprehensive
resources guide
CopyrightCapstonePublishing2002
TherightofBrocRomanekandCynthiaM.Krustobeidentifiedastheauthors
ofthisworkhasbeenassertedinaccordancewiththeCopyright,Designsand
PatentsAct1988
Firstpublished2002by
CapstonePublishing(aWileycompany)
8NewtecPlace
MagdalenRoad
OxfordOX41RE
UnitedKingdom
http://www.capstoneideas.com
Allrightsreserved.Nopartofthispublicationmaybereproduced,storedina
retrievalsystem,ortransmitted,inanyformorbyanymeans,electronic,mechan-
ical,includinguploading,downloading,printing,recordingorotherwise,except
as permitted under the fair dealing provisions of the Copyright,Designs and
Patents Act 1988, or under the terms of a license issued by the Copyright
LicensingAgency,90TottenhamCourtRoad,London,W1P9HE,UK,without
thepermissioninwritingofthePublisher.RequeststothePublishershouldbe
addressedtothePermissionsDepartment,JohnWiley&Sons,Ltd,BaffinsLane,
Chichester,WestSussex,PO191UD,[email protected]
orfaxedto([phone].
CIPcataloguerecordsforthisbookareavailablefromtheBritishLibrary
andtheUSLibraryofCongress
ISBN1-84112-340-4
ThistitleisalsoavailableinprintasISBN1-84112-339-0
SubstantialdiscountsonbulkquantitiesofExpressExecbooksareavailable
tocorporations,professionalassociationsandotherorganizations.Please
contactCapstoneformoredetailson+44(0)1865798623or(fax)+44
(0)1865240941or(e-mail)[email protected]
Introduction to
ExpressExec
ExpressExec is 3 million words of the latest management thinking
compiled into 10 modules. Each module contains 10 individual titles
formingacomprehensiveresourceofcurrentbusinesspracticewritten
by leading practitioners in their field. From brand management to
balancedscorecard,ExpressExecenablesyoutograspthekeyconcepts
behind each subject and implement the theory immediately. Each of
the100titlesisavailableinprintandelectronicformats.
Through the ExpressExec.comWebsite you will discover that you
canaccessthecompleteresourceinanumberofways:
» printedbooksore-books;
» e-content–PDForXML(forlicensedsyndication)addingvaluetoan
intranetorInternetsite;
» acorporatee-learning/knowledgemanagementsolutionprovidinga
cost-effectiveplatformfordevelopingskillsandsharingknowledge
withinanorganization;
» bespokedelivery–tailoredsolutionstosolveyourneed.
Whynotvisitwww.expressexec.comandregisterforfreekeymanage-
ment briefings, a monthly newsletterand interactive skills checklists.
ShareyourideasaboutExpressExecandyourthoughtsaboutbusiness
today.
[email protected].
Contents
IntroductiontoExpressExec v
05.09.01 IntroductiontoMergersandAcquisitions 1
05.09.02 WhatisaMergerorAcquisition? 5
05.09.03 TheEvolutionofMergerandAcquisition
Activity 13
05.09.04 TheE-Dimension:ImpactoftheInternetand
OtherNewTechnologies 23
05.09.05 TheGlobalDimension 35
05.09.06 TheStateoftheArt 45
05.09.07 InPractice:M&ASuccessStories 61
05.09.08 Glossary 75
05.09.09 Resources 85
05.09.10 MakingitWork 95
FrequentlyAskedQuestions(FAQs) 105
1
0
.
9
0
.
5
0
Introduction to Mergers
and Acquisitions
The introductorychapter setsforththe major thrusts ofthis informa-
tionalbook.
» Mergersandacquisitionsareanessentialvehicleforcorporateevolu-
tion.
» Mergers and acquisitions are propelled by a number of economic,
governmental,andculturalfactors.
» Mergersandacquisitionshavehistoricallyoccurredindistinctwaves.
» Thereisnomorecomplicatedtransactionthanamergeroracquisi-
tion.
2 MERGERSANDACQUISITIONS
Mergersandacquisitionsareanessentialvehicleforcorporateevolution
and therefore are an inevitable phenomenon.Merger and acquisition
activityreacheditshighestpointattheendofthe1990sandcontinues
at a frenetic pace. During the 1990s, there were tens of thousands
oftransactionsinvolvingaggregateannouncedvaluestotalingtrillions
of dollars. Worldwide in 1999 there were 47 announcedtransactions
valuedover$10billion.In1991,therewereonlythreecompleteddeals
valuedover$5billionandnoneover$10billion.1Eventhoughmerger
and acquisition activity began to subside in 2001, this appears to be
onlyamomentarypause.
Merger and acquisition activity is being propelled by a number
ofstrategicfactors,includingcompetition,rationalizationofbusiness,
technologicalrevolution,andglobalization.Therewasalsoasubstantial
increase in worldwide merger and acquisition activity, especially in
Europe.Duringthe1990s,mergerandacquisitionactivitywasdriven
byliberalizationofgovernmentrestrictions,easingofcross-bordercash
flows,andadvancesintechnologywhichfacilitatedtheabilitytoeffect
majorinternationalanddomesticcombinations.Thisledtosubstantial
growthininternationalcross-bordertransactionswhichisstillexpected
togrowsignificantly.
Mergerandacquisitionactivityhasoccurredinwaves.Currently,it
isbelievedthatweareexperiencingthefinalstagesofthefifthwave
whichfeatureddealvolumesthatsurpassedthepreviouswaveinthe
1980s,adecadewhichrepresentedoneofthemostintenseperiodsof
mergeractivityinhistory.Thepreviouswavesoccurredattheturnof
thecentury,inthe1920s,andattheendofthe1960s.Althoughthese
waves were initiated by economic circumstances, it was the decline
ofthestockmarketandtheresultingilliquidityofthefinancialmarket
thatendedthesewaves.
The fourth wave was unique compared with the three previous
waves. It especially featured the hostile takeover and the corporate
raider. The general public perception of the go-go 1980s, however,
was depicted in Michael Douglas’s portrayal of Gordon Gekko, the
corporate raider in the movie Wall Street who declared ‘‘Greed is
Good.’’ In addition, the junk bond market grew into a tool of high
finance whereby bidders for corporations obtained access to billions
ofdollarstofinanceraidsonsomeofthelargest,mostwell-established
INTRODUCTION 3
corporations. This access to capital markets meant that megamerger
dealsbecameareality.Beforethe1980s,largerUScompanieshadlittle
toworryaboutin preservingtheirindependence.With theadventof
the hostile raid, however, they erected formidable defenses against
takeoverandincreasinglycalledonstategovernmentstopasslawsto
makehostileacquisitionsmoredifficult.
The1980salsofeaturedtherapidgrowthanddeclineoftheleveraged
buyout(LBO),theuseofcapitaltofinanceabuyoutofthefirm’sstock.
In an LBO, a public company goes private by purchasing its publicly
outstandingshares.This financingtechniquewas popularin the mid-
1980sbutbecamealessviablealternativetowardtheendofthedecade,
primarilyduetothecollapseofthejunkbondmarket,whichwasused
byraidersandLBOfirmstofinancesuchtransactions.
Thedeclineinmergerandacquisitionactivityatthebeginningofthe
1990s reversed in 1992, when the volume of transactions intensified
andthe fifth wave beganto swell.However,this wave was distinctly
differentfromtheonethathadprecededit.Thedealsofthe1990swere
notthehighlyleveragedhostiletransactionsthatweresocommonin
the 1980s. The 1990s featured more strategic mergers that were not
motivated by short-term profits or dependent on highly leveraged
capitalstructures,andwhichusedmoreequitythandebtasthestock
marketboomed.
The1990sprovedtobeequallyorevenmoredynamicintermsof
companies evolving through upsizing and growth, downsizing, right-
sizing, spinoffs, rollups, divestitures, consolidations, and growth; but
with different focus on post-closing synergies, operating efficiencies,
increasesincustomerbases,strategicalliancesandmarketshare,and
accesstonewtechnologies.
There are a number of factors that will perpetuate merger and
acquisitionactivity,including:
» availabilityofcapital;
» fallingtradebarriers;
» technologicalrevolution–theInternet;
» consolidationoftheEuropeanmarket–theeuro;
» foreigninvestmentintotheAsianmarket;
» innovative instruments, such as tracking stock, contingent value
rights,jointventures,andothermethodsofeffectingatransaction;
4 MERGERSANDACQUISITIONS
» acceptanceofhostiletransactionsinforeignanddomesticmarkets;
» theeasingofregulatoryrestrictionsinregulatedindustries–banking,
insurance,etc.;and
» theaccelerationofprivatization,includingtelecommunications.
Thereisnomorecomplicatedtransactionthanamergeroracquisition.
Thevariousissuesraisedarebroadandcomplex,fromtaxandsecurities
laws to antitrust and corporate laws. The industries affected by this
rapid activity are also diverse, from banking and computer software
companiestoretailingandhealthcarefirms.Itseemsthatvirtuallyevery
executiveofeverymajorindustryfacesabuyorselldecisionatsome
pointduringhisorhercareer.
As we embracethe newmillenniumand as technologiesconverge
andbusinessandhomeconsumersincreasetheirdemandsfortrulyinte-
gratedproductsandservices,wearelikelytoseeevengreatermerger
and acquisition activity in the telecommunications, cable, television,
andcomputerindustries.
NOTE
1 ThompsonFinancialSecuritiesData(January2000).
2
0
.
9
0
.
5
0
What is a Merger or
Acquisition?
Successful mergers and acquisitions are neither an art nor a science,
but a process. Determining the objectives of the buyer and seller in
negotiatingandclosingthedealisessential.Chapter2detailsthetypes
ofmergersandacquisitionsandhowtheprocessvariesbasedonthe
objectivesofthebuyerandoftheseller.
» Whatisastatutoryversusasubsidiarymerger?
» Whenisastockswapversuscash-outmergermoreappropriate?
» What are the differences in the processes for a merger and an
acquisition?
» Whatisaleveragedbuyout?
» Howaremergersandacquisitionsfinanced?
» Whatarethebasicdocumentsofmergersandacquisitions?
» Howisamergeroracquisitionwithapubiccompanydifferentthan
withaprivatecompany?