Welcome to Scribd, the world's digital library. Read, publish, and share books and documents. See more
Download
Standard view
Full view
of .
Look up keyword
Like this
2Activity
0 of .
Results for:
No results containing your search query
P. 1
Outline M&A 2012.1114

Outline M&A 2012.1114

Ratings: (0)|Views: 141|Likes:
Published by Jamie Del Castillo

More info:

Published by: Jamie Del Castillo on Nov 22, 2012
Copyright:Attribution Non-commercial

Availability:

Read on Scribd mobile: iPhone, iPad and Android.
download as DOCX, PDF, TXT or read online from Scribd
See more
See less

04/15/2013

pdf

text

original

 
 1
DE LA SALLE UNIVERSITY
College of Law 
MERGERS & ACQUISITIONS
ATTY. ANTHONY B. PERALTAClass: Attendance is mandatory and I expect you to be prepared to contribute to every classdiscussion. Absence from 25% of classes or more will bar a student from taking the finalexam. Expect to be called at random.Evaluation: 40% of the grade is based on a 2-hour final exam. 30% of the grade is based onparticipation in class and the remaining 30% is based on quizzes/short writingassignments.
Course Code :
iNTROM&A
Type of Course :
ElectiveCourse
Credit :
2 units
Total Hours :
28 hours
Term/Time/Room :
Second Trimester 2012-2013
I.
 
Course Description
The Philippines has come of age as a vibrant marketplace for merger and acquisition deals (M&A) as well ascapital-raising activities. The recent acquisition by San Miguel Corporation of a substantial stake in PAL; themerger of PLDT and DIGITEL; and the pending acquisition of GMA Network, Inc. by the Beneficial Trust Fund of PLDT for P52.5B clearly show the resurgence of M&A activity. M&A activity is at breakneck pace spurred in largepart by the influx of capital into strategic industries like telecommunications, air transportation, banking andcyberspace.This course seeks to examine the rationale, applicable laws, jurisprudence and actual case studies relative toM&Atransactions. It also dissects the multiple role of the lawyer in structuring the deal, due diligence,negotiation, documentation and risk reduction.Class 1
INTRODUCTION
 
A.
 
Motivations for Mergers and Acquisitions
1.
 
Exogenous and Endogenous factors Affecting, Motivating and Dissuading Acquisitions
o
 
A division of a company might no longer fit into larger
corp.’s
plans, so corp. sells division
o
 
Infighting between owners of corp. Sell and split proceeds
o
 
Better management
o
 
Need for funding
o
 
Market share
o
 
New Technology
o
 
Industry-specific conditions
o
 
synergies
o
 
Economies of scale/scope
 
Examples of the largest and recent mergers:
Acquiring Company
 
Target
 
Year
 
Price
 Sprint MCI WorldCom, Nextel 1998 $79 billion, $46 billionCiticorp Travelers 1998 $73 billion
 
 2
Exxon Mobil 1998 $78 billionSBC Ameritech 1998 $63 billionTotal Elf Aquitaine 1999 $54 billionMercedes Benz Chrysler 1998 $31 billionAOL Time Warner 2000 $156 billionOracle PeopleSoft 2003 $10 billionBank of America Nations Bank, Merrill Lynch 2008 $61 billion, $50 billionPeriods of U.S. mergers:
 
1887-1904 (
“Age of Monopoly”): Due to huge changes in technology (railroad transportation,
manufacturing, and communications).
o
 
Production capacity was concentrated in relatively few hands. For example, 25 companieshad 80% of market share, in certain industries.
o
 
This was epitomized by Standard Oil, which initially co-opted 20 Cleveland-area firms andeventually owned 90% of American petroleum refinery. These led to huge economies of scale, which reduced costs, as well as vertical integration, which reduced gave it leveragevis-à-vis suppliers.
 
1916-1929
 
(“Age of Oligopoly”): Due to the stock market boom of the 1920s, mergers continued.
o
 
Companies
 –
particularly utilities (gas and electricity), manufacturing and minerals
 –
were joined under massive holding companies.
o
 
But because companies leveraged too highly on small amounts of equity, the systemcollapsed under its own weight with the Great Depression. Merger activity is obviouslyslowed down.
 
1960s
(“Age of Conglomerates”): In 1950, antitrust laws were strengthened
against horizontaland vertical mergers, and enforced more vigorously. However, due to the stock boom of the1960s, merger activity is at its highest.
o
 
The new fad is
conglomerates
, which are companies whose businesses have no particularrelationship to each other (e.g. GE, ITT). The resulting focus was on diversification, ratherthan consolidation and economies of scale.
o
 
Conglomerates were partly a response to the antitrust laws, since the traditional view is
that only “competing” firms cannot merge.
 
o
 
Companies financed these mergers by, e.g., issuing preferred stocks and taking on debt to
buy out a target company’s shareholders.
o
 
Professor thinks conglomerates do not make sense, because a manager cannot possiblyrun multiple businesses efficiently. This was the main thinking of what one Yale professor
called the “M Form”, where the company management was decentralized and one person
headed a division. This was the opposite of the ce
ntralized “U Form”. The M model, of 
course, was shown to fail when the conglomerates began to collapse in the 1970s. Andwhen the economy went south, the conglomerate started to sell the pieces off. This isknown as
divestiture
that is, when the parent spins off a subsidiary and sells it.
o
 
Most of these traditional mergers are financed in stock-for-stock deals, that is, anexchange of new (merged) stocks for the old (individual parts) ones.
 
1980s
(“Age of Takeovers and Debt”): Unlike the merger mania of 
before, this one began in spiteof a depressed stock market (i.e. stocks are selling less than their fair market value). But whenVolker liberalized monetary policy, the stock market bounced again. So like the mergers of 
before, the thinking was that “if we don’t make that XYZ acquisition soon, it will cost us more
because of rising stock prices. The professor also thinks that this was because companies wereundergoing a financial restructuring.
o
 
Hostile tender bids (
known as
hostile takeovers)
.
 
 3
 
The word
tender 
comes from British English. Historically, a
majority 
of a target’s
shareholders would be offered to sell their shares on a first-come, first-serve basis,at a good price (usually at a premium over the market price). Once the acquiringcompany had a majority of the tenders (and thus control), the other shareholderswould simply be ignored, since the buyout was effectively complete. A tender bidis usually considered effective only if a minimum percentage of the shares isactually purchased at the stated price
 
Wall Street investment houses traditionally saw hostile bidding as unrespectable.
In fact, hostile bidders were referred derisively as “
green mailers
”. However, in
1974, Morgan Stanley broke ranks and advised on the takeover of InternationalNickel. After that, every investment house joined the merger fray to provide thenecessary financing for mergers.
 
Today, hostile bids may be desirable if 1) the company has confidential corporatesecrets that would be compromised if revealed to the public at large or 2) thetarget company has a dysfunctional shareholder organization, so it would be
difficult to bring them all together in a single room (“high transaction costs”)
o
 
Leveraged Buyouts (LBOs)
. A host of new financing devices were created.
 
A new menu of financial devices (e.g. Michael Milken’s “junk bonds”) gives a newpush to the idea of a “leveraged buyout” (LBO).
 
LBOs enabled even the smallest group of companies (e.g. T. Boone Pickens
“thegreenmailer” of MESA, a small Texas oil owner) t
o launch credible hostile bidsagainst huge companies (like Gulf, Phillips and Texaco).
 
Companies like Getty Oil, TWA, and Federated Stores are acquired.
 
The buyers took the conglomerates, and sold them off piecemeal, earning themhuge returns on their investments.
 
Merger activity is particularly concentrated in the petroleum, mining, food service(e.g. Safeway), insurance and banking industries.
Hostile Bids Less Common Today
. Hostile tender offers are a lot less common today. In 1988,there were 217 hostile bids. In 1998, there were 22. In 2002, there were only 5 known. In otherwords, the vast majority of mergers today occur as a result of 
negotiated 
talks.
Initially, hostile bidders enjoyed the protection of the “business judgment rule”. But in th
e 1980s,
Delaware’s courts changed their attitude, and became increasingly intrusive. The legal effect was
to excise hostile takeovers from the deferential umbrella of the business judgment rule. This wasmotivated, in part, by a suspicion that directors were acting to feather their own nests, thusrequiring greater scrutiny from the courts.Generally, today
only half of hostile bids actually succeed 
. And although they offers have the advantageof being a quick and certain way to do a merger,
hostile bids can also be risky 
. Why?1.
 
Hostile bids are a rather impolite way of doing business. They have been replaced by voluntarynegotiations between parties.2.
 
A hostile takeover can trigger the
 poison pill 
defense by the target, which Delaware courtdecisions have tended to agree with3.
 
Regulations, such as the SEC’s “best price rule”, discourage hostile tender offers. Directors have a
duty to maximize shareholder wealth, so they may reject a good hostile bid if something bettercomes along from yet another company.4.
 
Companies have protected themselves against hostile bids in various ways.

You're Reading a Free Preview

Download
scribd
/*********** DO NOT ALTER ANYTHING BELOW THIS LINE ! ************/ var s_code=s.t();if(s_code)document.write(s_code)//-->