1 / 35

Chapter 7

Chapter 7. Corporate Restructuring Strategy. A.Mergers and Acquisitions. (A) Value-added in a merger. Operational benefits Sales and marketing Costs and production Research and technology Resources Managerial. (A) Value-added in a merger. Non-operational benefit Funding Taxes Risk

hanh
Download Presentation

Chapter 7

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Chapter 7 Corporate Restructuring Strategy

  2. A.Mergers and Acquisitions (A) Value-added in a merger • Operational benefits • Sales and marketing • Costs and production • Research and technology • Resources • Managerial

  3. (A) Value-added in a merger • Non-operational benefit • Funding • Taxes • Risk • Familial • Minority representation • Foreign economy

  4. (B) Strategic planning process Industry Competitor Analysis Business Environment Analysis Company Analysis Company Analysis Strengths Weaknesses Segments Motivation Unmet needs Opportunity Threats Plan Objectives Means for achieving objectives (Strategies) Means for monitoring process Acquisition Criteria

  5. (B) Strategic planning process • Company Analysis • Aggregate Analysis • Analysis by Product Type • Production and Cost Analysis • Financial Capacity • Performance Review

  6. (B) Strategic planning process • Identification of Strengths and Weakness • Marketing Ratings • Manufacturing Ratings • Financial Ratings • Creativity Ratings • Management and Personal Ratings

  7. (B) Strategic planning process • Customer Analysis • Industry and Competitor Analysis • Environment Analysis

  8. ( C )Buy Strategies • The pursuit of value-added • Horizontal acquisitions • Vertical acquisitions • Conglomerate acquisitions • Joint ventures

  9. ( C )Buy Strategies • The pursuit of bargains • Diversifiers • Cash needy • Time pressured • Problem child

  10. B.Tender Offer (A)Characteristics • A tender offer usually means a cash or securities bid for a company,made directly to the company’s shareholders without consultation or cooperation from its management,often as a prelude to a wholesale takeover of the company

  11. (B) Strategy • Offensive Strategies • Undervalued assets • Gain control • Portfolio,etc. • Defensive Strategies • Evaluating the tender offer in short and long term(Green mail)

  12. (B) Strategy • Accessing the possibility of better alternatives • Finding a white knight • Prefer stock issue with special voting right • Sell assets • Developing tactics to induce better offer • Block or slow the timetable • Pac-Man Maneuver • Counter tender offer

  13. (C) Corporate policy • Winners • The management of the aggressor company • The shareholders of the target company(50% premium) • Investment bankers • Merger lawyers • Losers • The management and the employees of the target company • The shareholders of the aggressor company

  14. (C) Corporate policy • Possible abuses • Two-tiered merger(Poison Pills) • Fast buck v.s. growth (LCO) • Time pressure after tender offer is announced but before shares can be bought up(White Knights) • Job displaced(Golden Parachute) • Antitrust

  15. C.Divestiture and Spinning-off (A)Divestiture • Strategy Sell if the premium is positive and is judged to be the best obtainable • Finding sugar daddies • Foreigners • Superior judge of worth • Earnings per share boosters • Geared

  16. (A)Divestiture • Cash rich • The shrinking company • Wildcat and star worshippers • Wildcat, stars, cash cows, dogs (LM, HG)(HM, HG)(H, L) (L, L) • Monument builders • Investment banker clients

  17. (B)Spin-off • Strategy Spin-off if the costs of being a part of the parent exceed the benefits and a desirable sale cannot be arranged • Problems • Headquarter staff • Apportioning debt

  18. (B)Spin-off • What company should consider a spin-off strategy? • Unrelated divisions

  19. D. Leverage Buy Out (LBO) • A leverage buyout (LBO) is any acquisition of a company which leaves the acquired operating entity with a greater than traditional debt-to-worth ratio. • By type of financing • Secured financing purchase price = collateralized asset + investing equity+ notes taken back by seller • Unsecured financing purchase price = venture capital + Mezzanine financing + senior debt

  20. D. Leverage Buy Out (LBO) • By type of transaction • Asset acquisitions The formation of a new corporation, which acquires the assets of the target, company. • Tax issue • Stock acquisitions Stock redemption, tender offers, pure stock acquisitions and reverse mergers • Public companies

  21. A LBO involves leverage from a financing source to acquire the target company. • Proceed  Pay the seller • Internal cash flow • Asset redeployment retire the debt

  22. Features of target companies • Operating loss • Capital intensive • Market undervalued • Trouble companies

  23. (A) Financing Strategy • Types • Asset-based financing • Asset-based lenders, e.g. banks, financing corp. • Secured floating-rate financing • Senior bank debt • Banks • Unsecured • Fixed-rate senior and subordinated debt • Insurance companies, pension funds, mezzanine buyout funds • Unsecured fixed rate debt with warrants

  24. (A) Financing Strategy • Preferred stock or subordinated debt • Venture capitalists, mezzanine buyout funds,insurance companies. • Fixed-rate preferred stock with warrants • Common stock • Leverage buyout specialists, venture capitalists, ESOP • Common stock

  25. (A) Financing Strategy • The secured leverage buyout

  26. (A) Financing Strategy • The unsecured leverage buyout

  27. (A) Financing Strategy • Venture capitalists in LBO • When to consider venture financing • Value added • Creditability with seller • Assistance in financing arrangements and negotiations • Cross-utilization of talent

  28. (A) Financing Strategy • Venture capitalists’ investment objectives • Expected returns (35%~50%) • Liquidation expectations (5 yrs~7 yrs) • Put option (protective device) • Restrictions on Owner-Managers’ liquidity • Rights of first refusal • Take-along agreement • Right of first offer

  29. (A) Financing Strategy • ESOP in LBO • Function • Raise additional capital • Recapture taxes • Assure estate liquidity • Retire outstanding shares • Provide a market for closely held stock • Discourage unionization • Buy out dissident stockholders

  30. (A) Financing Strategy • Acquire other companies • Combat tender offers • Broaden the appeal of unions • Shelter excess accumulated earnings • Refinancing existing debt • Maximize IRS investment tax credit • Divest subsidiaries • Purchase key main insurance

  31. (A) Financing Strategy • ESOP invests in the securities of the employer corporation and is permitted to borrow money. (Leverage ESOP) ESOP New stock tax- Deductible payment loan amatization payment Stock purchase Corporation Bank guarantee

  32. (A) Financing Strategy • ESOP is integrated in the financial plan of LBO • Cash flow • Debt amortization • Purchase stock • loan

  33. (B) Corporate policy • How risky are LBOs? • Highly leveraged, increase failure (Thatcher Glass LBO) • Over-leveraged, bad loan, junk bond (Dr Pepper LBO, 3 times net worth) • Overpriced • LBO failures (5~15%) (Eli Witt, Oppenheimer & Co.)

  34. (B) Corporate policy • Why owners should consider a LBO? • For the closely held company, a LBO can provide the selling shareholders with benefit that are not fully appreciated. • Liquidity for stock, market stability • Diversification • Family estate tax savings • Reverse LBO

  35. (B) Corporate policy • Why management should consider a LBO? • Opportunity to create personal wealth • Conflict of interest (stand on buyout side)

More Related