LECTURE 1 (88)

1. BACKGROUND AND HISTORICAL TRENDS

1.1. TYPES OF MERGERS
1.1.1. By organizational structure
1.1.2. By method of payment
1.2. CASH DEALS
1.3. STOCK DEALS
1.4. DEBT DEALS
2. MARKET REACTION TO A TAKEOVER
3. REASONS TO ACQUIRE
3.1. COMMONLY LISTED REASONS TO ACQUIRE
3.1.1. Economies of scale and scope
3.1.2. Vertical integration
3.1.3. Expertise
3.1.4. Monopoly gains
3.1.5. Efficiency gains
3.1.6. Tax savings from operating losses
3.1.7. Diversification
3.1.8. Earnings growth
3.1.9. Managerial motives to merge
4. VALUATION AND THE TAKEOVER PROCESS
4.1. THE OFFER
4.2. MERGER ARBITRAGE
4.3. TAX AND ACCOUNTING ISSUES
4.4. BOARD AND SHAREHOLDER APPROVAL
5. TAKEOVER DEFENSES
5.1. POSION PILLS
5.2. STAGGERED BOARDS
5.3. WHITE KNIGHTS
5.4. GOLDEN PARACHUTES
5.5. RECAPITALIZATION
5.6. OTHER DEFENSIVE STRATEGIES
5.7. REGULATORY APPROVAL
6. WHO GETS THE VALUE ADDED FROM A TAKEOVER?
6.1. THE FREE RIDER PROBLEM
6.1.1. Overcoming the free-riding problem: toeholds
6.1.1.1. Overcoming the free-riding problem: toeholds: the leveraged buyout
6.1.1.2. Overcoming the free-riding problem: toeholds: the freezeout merger
6.2. COMPETITION

LECTURE 2: VALUATION TECHNIQUES FOR M&AS (39)

1. THE COMPARABLES APPROACHES
1.1. COMPARABLE COMPANIES ANALYSIS: A SIMPLE EXAMPLE
1.2. COMPARABLE TRANSACTIONS ANALYSIS
1.2.1. Case study: valuing Mobil for the Exxon-Mobil merger in 1998
1.2.2. Premium paid to the target and combined
1.3. ISSUES WITH COMPARABLES APPROACHES
2. THE DISCOUNTED FREE CASH FLOW VALUATION MODEL
2.1. THE DFCF MODEL: ENTERPRISE VALUATION
2.1.1. Enterprise valuation: what is a free cash flow?
2.1.2. What is the appropriate discount rate?
2.2. THE DFCF MODEL: EQUITY VALUE
2.2.1. Examples
2.3. ISSUE WITH THE DFCF APPROACH
3. CASE STUDY
LECTURE 3: THEORIES OF M&A’S (28)
1. MERGERS AS VALUE-INCREASING DECISIONS
2. MERGERS AS VALUE-REDUCING DECISIONS
3. MANAGERIAL HUBRIS
4. THE THEORIES OF TAKEOVERS
4.1. WHAT IS THE IMPACT OF TAKEOVER PROSPECT ON MANAGERIAL INCENTIVES TO INCREASE
SHAREHOLDER VALUE?
4.2. POSITIVE THEORY OF TAKEOVERS
4.2.1. Grossman and Hart (1980)
4.2.1.1. Value-enhancing raider: the Grossman and Hart Analysis
4.2.1.1.1. Positive raider surplus despite free riding
4.2.1.1.2. Discussion of Grossman and Hart’s analysis
4.3. THE ROLE OF TOEHOLDS IN ENCOURAGING TAKEOVERS
4.4. THE ROLE OF DILUTION IN ENCOURAGING TAKEOVERS
4.4.1. Müller and Panunzi (2004) on the dilution
4.4.1.1. Multiple bidders
5. MANAGERIAL RESISTANCE

LECTURE 4: EVENT STUDY ANALYSIS (45)

1. EVENT-STUDY: THE EMPIRICAL METHOD
2. ORDINARY LEAST SQUARES (OLS)
3. AN EVENT STUDY
3.1. PROCEDURE OF AN EVENT STUDY
3.2. HOW DO WE CONSTRUCT ABNORMAL RETURNS?
3.3. MODELS FOR MEASURING NORMAL RETURNS
3.3.1. Constant mean return model (CMR)
3.3.1.1. Are the abnormal returns under the CMR model statistically from zero?
3.3.2. A market model for normal returns
3.3.2.1. Are the abnormal returns under the market model statistically different from zero?
3.3.2.2. Other specifications for market model
3.3.3 Aggregation of the abnormal returns
3.3.3.1. Aggregation through time: cumulative abnormal returns (CARs)
3.3.3.1.1. Are cumulative abnormal returns (CAR) statistically different from zero?
3.3.3.1.2. Variance for CARs
3.3.3.1.3. Aggregation across firms is required
3.3.3.1.4. Aggregation across firms and time
3.3.4. An alternative (equivalent) approach
3.3.4.1. What about CAR standard errors?

LECTURE 5: EMPIRICAL EVIDENCE ON M&A’S (51)

1. MAIN THEORIES
1.1. MERGERS AS VALUE-INCREASING DECISIONS
1.2. MERGERS AS VALUE-REDUCING DECISIONS
1.3. MERGERS AS VALUE-NEUTRAL DECISIONS: MANAGERIAL HUBRIS AND ZERO-VALUE M&AS
2. THE COMBINED RETURNS IN M&AS
2.1. EVIDENCE ON COMBINED RETURNS
2.1.1. Bradley, Desai and Kim (1988)
2.1.2. More evidence
2.1.3. General conclusions
2.2. EXTENDED ANALYSIS
2.3. BANKING INDUSTRY
2.4. CONCLUSION
3. FACTORS RELATED TO TARGET RETURNS
3.1. TYPE OF MERGER AND METHOD OF PAYMENT
3.2. SINGLE VS MULTIPLE BIDDERS
 3.3. TARGET RUN-UP
3.4. TAKEOVER BIDDING AND TAKEOVER PREMIUMS
4. FACTORS RELATED TO BIDDER RETURN
4.1. METHOD OF PAYMENT
4.1.1. Digression: Myers and Majluf (1984): Pecking order hypothesis
4.2. SINGLE VS MULTIPLE BIDDERS
4.3. DO BAD BIDDERS BECOME GOOD TARGETS?
5. TAKEOVER REGULATION AND TAKEOVER HOSTILITY
5.1. THE EFFECT OF THE WILLIAM ACT
5.2. TAKEOVER IMPEDIMENTS IN THE 1980S
5.3. TAKEOVER HOSTILITY
6. POSTMERGER OPERATING PERFORMANCE
7. LONG-TERM STOCK PRICE PERFORMANCE FOLLOWING MERGERS
8. EFFICIENCY VS MARKET POWER
9. EFFECTS OF CONCENTRATION

LECTURE 6: INITIAL PUBLIC OFFERINGS (IPOS) (44)

1. EXTERNAL FINANCING AND IPO
2. IPO AS A STRATEGIC DECISION
2.1. IPO = GOING PUBLIC
2.2. WHY GOING PUBLIC?
2.2.1. Going public and the cost of capital
2.2.2. Going public and cash-out by insiders
2.2.3. Going public and takeover activities
3. STRATEGIC REASONS FOR GOING PUBLIC
3.1. WHAT DO CFOS SAY ABOUT THE REASON TO GO PUBLIC?
3.2. OTHER ADVANTAGED OF IPO
3.3. DISADVANTAGES OF GOING PUBLIC
3.4. WHAT DO CFOS SAY ABOUT THE REASON TO NOT GOING PUBLIC?
4. TIMING OP IPOS: FACTORS THAT INFLUENCE IPO TIMING
4.1. BULL MARKET AND IPO ACTIVITIES
4.2. ATTRACTIVENESS OF THE IPO MARKET
4.3. WHAT DO CFOS SAY ABOUT IPO TIMING?
5. IPO PROCESS
5.1. UNDERWRITERS AND IPO
5.2. DUE DILIGENCE AND FILINGS
5.3. PRICING
5.4. STABILIZATION
5.5. TRANSITION TO MARKET COMPETITION
5.6. REVERSE MERGER: GOING PUBLIC WITHOUT AN IPO
6. IPO UNDERPRICING
6.1. WHY IPOS ARE UNDERPRICED
6.2. WHERE HAVE ALL THE IPOS GONE?
7. CURRENT TRENDS IN IPOS
8. CASE STUDY

LECTURE 7: CORPORATE RESTRUCTURING AND DIVESTITURES (33)

1. CORPORATE RESTRUCTURING STRATEGIES
2. CORPORATE RESTRUCTURING AND REORGANIZATION STRATEGIES
3. PRIMARY REASONS FOR DIVESTITURE
4. PRIMARY METHODS OF DIVESTITURES AND ITS VARIATIONS
4.1. EQUITY CARVE-OUTS (ECO)
4.1.1. Benefits of ECO and its end goal
4.1.2. Efficiency of ECOs
4.1.3. Example of an ECO
4.2. SPIN-OFFS
 4.2.1. Why spin off?
4.2.2. What are the disadvantages of a spin-off?
4.2.3. Example of a spin-off: PayPal and eBay
4.3. VARIATION OF PRIMARY METHODS OF DIVESTITURES
4.3.1. Split-up
4.3.1.1. Why split up?
4.3.1.2. Split-up case study: Hawlett-Packard
4.3.1.3. Spin-off vs Split-up vs Carce-out
4.3.2. Tracking stock
4.3.2.1. Salient features of tracking stock
4.3.2.2. Pros and cons of tracking stock
4.3.2.3. Example of a tracking stock
4.3.3. Exchange offer
4.4. THEORY: WHY MIGHT DIVESTITURES CREATE WEALTH?
4.4.1. Empirical evidence: types of divestitures and parent returns
4.4.2. Empirical evidence: asset sales
4.4.3 Empirical evidence: related vs unrelated divestitures

LECTURE 8: FINANCIAL RESTRUCTURING (35)

1. WHAT IS FINANCIAL RESTRUCTURING
1.1. FINANCIAL VS OPERATIONAL RESTRUCTURING
1.1.1. Financial restructuring
2. WHY AND HOW TO UNDERGO FINANCIAL RESTRUCTURING?
3. LEVERAGE AND LEVERAGED RECAPITALIZATIONS
3.1. OPTIMAL LEVERAGE
3.1.1. Trade-off theory
3.1.2. Agency cost
3.1.3. Taxes, financial distress and agency cost
3.2. LEVERAGED RECAPITALIZATIONS
3.2.1. Characteristics
4. DEBT RESTRUCTURING AND BANKRUPTCY PROCEDURE
4.1. DEBT RESTRUCTURING
4.2. BANKRUPTCY
4.2.1. Liquidation
4.2.2. Reorganization
4.2.3. Strategic bankruptcy
4.2.4. Chapter 11 and efficiency
4.2.5. Chapter 11 and incentives
5. EQUITY RESTRUCTURING
5.1. DUAL-CLASS STOCK
5.1.1 Empirical evidence
5.1.2. Paradox of entrenchment
6. SIDE-NOTE: PRISONER’S DILEMMA
7. EXCHANGE OFFERS AND EQUITY-FOR-DEBT SWAPS
7.1. EMPIRICAL EVIDENCE
7.2. SIDE-NOTE: SWAPS VS EXCHANGE OFFER

LECTURE 9: GOING PRIVATE AND LEVERAGED BUYOUTS (41)

1. GOING PRIVATE AND LBO/MBO
1.1. WHY GOING PRIVATE?
1.2. PRIVATE EQUITY BUYOUT
1.3. MANAGEMENT BUYOUT
2. PRIVATE EQUITY
2.1. ADVANTAGE AND DISADVANTAGE OF PE FINANCING
2.2. PUBLIC VS PRIVATE EQUITY
2.3. TYPES OF PE
3. HISTORICAL OVERVIEW OF LBO MARKET
3.1. THE PROFILE OF LBO TARGETS
4. LBO DEAL STRUCTURE
4.1. GPS AND LPS
4.2. ROLE OF CLOS AND OTHER INVESTMENT VEHICLES
5. 4 STAGES OF LBO
6. EXIT STRATEGIES IN LBOS
7. EMPIRICAL EVIDENCE ON LBOS
8. LBO AND VALUE CREATION
8.1. POST BUYOUT

LECTURE 10: SHARE REPURCHASE (33)

1. SHARE REPURCHASE ACTIVITIES
2. REASONS FOR BUYBACKS
3. MAJOR TYPES OF SHARES REPURCHASE
3.1. FIXED-PRICE TENDER OFFERS (FPTS)
3.2. DUTCH AUCTION REPURCHASES (DARS)
3.3. TRANSFERABLE PUT RIGHTS (TPRS)
3.4. OPEN-MARKET REPURCHASES (OMRS)
4. Empirical evidence on share repurchase
5. Undervaluation and share repurchase
6. SHARE REPURCHASE VS DIVIDENDS
6.1. MOTIVES: EMPIRICAL EVIDENCE