PRINCIPALS

OF M&A

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 CHAPTER 1: INTRODUCTION TO M&A
A. RECENT TRENDS
 Growth of the emerging markets acquirers.
 Growth of foreign sovereign fund investments.
 Growth in popularity of SPACs.

B. FOREIGN SOVEREIGN WEALTH FUNDS

 Large pools of government-controlled capital.
 They have made large investments in Citigroup, Merrill Lynch, and UBS.
 Investments have this far been minority investments – not seeking control.

C. SPECIAL PURPISE ACQUISITION CORPORATIONS (SPACs)

 These are companies that are formed to acquire other companies.
 They raise capital such as in an IPO (IPO (Initial Public Offering), có nghĩa là phát hành lần đầu ra
công chúng. Thuật ngữ này được dùng để chỉ hoạt động lần đầu phát hành cổ phiếu và đưa lên sàn
chứng khoán của một công ty với mục đích để huy động vốn từ các nhà đầu tư. Công ty sau khi IPO sẽ
được gọi là một công ty đại chúng).
 The shareholders do not know at the time they invest what the acquisition target is going to be.
 They are some time called “Blank Check Corporations”.
 They are an alternative to private equity funds.
 Approval of Deal: Shareholders get to vote to approve the proposed acquisition.
 Disposition of Funds (Xử lý vốn): Also the bulk of the money raised (i.e. 80%) has to be spent on the
acquisition.
 Time Frame: If they do not find a shareholder approved deal within 1.5 – 2 years, the money must be
returned to investors.
 Popularity: Used to be lowly regarded investments but recently have become quite popular.
 Founders and Management Compensation: Management gets 20% of the company – and they invest
little.
- This gives management an incentive to do a deal – not necessarily the best deal.
- They do not get fee until a deal is done.

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D. LEVERAGED BUYOUTS (LBO)
 Where debt is used to take a public company private.

E. TERMINOLOGY
1. Merger of Equals: 2 companies of equal size.
- Usually one company ends up being the dominant one.
2. Statutory Merger: legal name given to mergers.
- Specifically means that it is a merger pursuant to state laws in which the acquirer is incorporated (sáp
nhập theo luật pháp của tiểu bang nơi bên mua lại được thành lập).
- The normal process is an agreed upon the deal between the 2 companies.
3. Subsidiary Merger: a merger of 2 companies in which the target becomes a subsidiary.
- Advantage: may allow the buyer to keep the target as a separate subsidiary corporation and insulate
the parent company from the target’s liabilities (bảo vệ công ty mẹ khỏi các khoản nợ của mục tiêu).
4. Tender Offer:
- Where a bidder makes an offer directly to the target company’s shareholders.
- Usually done in hostile deals.
5. Consolidation:
- Where 2 equal-sized companies combine and a whole new company is created.

F. ACQUISITION & DETERMINING THE VALUE OF A DEAL

 Acquisition: usually one company is bigger than the other.
 When valuing deals, the smaller company is assumed to be the one acquired and the source of the value
placed on the deal.

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G. FAIRLESS OPINIONS
 This is an opinion issued by a firm on the value of the company being acquired.
 The evaluations are sometimes conducted by investment bankers. This can create an issue of conflict of
interest as they may have a stake in the deal:
- Advisory fees
- Financing fees
 To prevent this from being an issue, firm may want to hire an independent valuation firm.
H. ASSET PURCHASES
 Important issue: Treatment of liabilities.
Note: Corporation could sell off all assets and then pay a liquidating dividend and dissolve the
corporation.
Liabilities must be satisfied.
 Liabilities and Acquisitions: Buyer assumes both the assets and liabilities of the seller.
Successor liability (trách nhiệm kế thừa): attempts to avoid such liabilities that may give rise to a lawsuit
for a fraudulent conveyance of assets (lừa đảo chuyển tài sản).
 De Facto merger: Another way the buyer may assume the seller’s liabilities unintentionally (người mua
vô tình gánh trách nhiệm pháp lý của người bán).
This can occur where an asset purchase is later treated like a merger:
- Unions and Successor liability – Unions may try to maintain the prior owner’s contract through the
principle of successor liability.
- New buyer may require renegotiation of union agreements as a precondition to an acquisition of a
troubled seller.

I. HOLDING COMPANIES
 Parent company owns sufficient stock in target to control target.
- Usually can be achieved for less than 51%.
- May be as low as 10%.
 An alternative to 100% acquisition.
Advantage:
- Lower cost – do not have to buy 51% or 100%.
- No control premium.
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 - May get control without soliciting target shareholder approval.
Disadvantage:
- Triple taxation of dividends:
+ If parent owns 80% or more dividends are exempt from taxation.
+ If own less than 80% then 80% of dividends are exempt from tax.
- Easier to disassemble if Justice Department finds:
+ Antitrust
+ Anticompetitive problems

J. M&A PHASES

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 CHAPTER 4: MERGER STRATEGY
MOTIVES & DETERMINANTS OF MERGERS
 Growth  Vertical integration benefits
 Synergy – economics of scales  Financial synergy
 Diversification  Horizontal mergers & pursuit of monopoly
 Improved management power
 Hubris hypothesis  Tax benefits
A. GROWTH
- One of the most fundamental motives for M&A is growth.
- Companies seeking to expand are faced with a choice between internal or organic growth and growth
through M&A.
- Companies may grow within their own industry or they may expand outside their business category.
- Diversification: expansion outside one’s industry.
- If a company seeks to expand within its own industry, it may conclude that internal growth is not an
acceptable means.
- For example, if a company has a window of opportunity that will remain open for only a limited period
of time, as the company grows slowly through internal expansion, competitors may respond quickly and
take market share. Advantages that a company may have can dissipate over time or be whittled away by
the actions of competitors. The only solution may be to acquire another company that has established
offices and facilities, management, and other resources, in place.
- Another example would be if a company developed a new merchandising concept. Being first to develop
the concept that provides a certain limited time advantage. If not properly taken advantage of, it may slip
by and become an opportunity for larger competitors with greater resources.
- Another example of using M&A to facilitate growth is when a company wants to expand to another
geographic region. It may be quicker and less risky to expand geographically through acquisitions than
through internal development.
1. Achieving Growth in a Slow-Growth Industry through Acquisitions:
 Corporate managers are under constant pressure to demonstrate successful growth.
 When the demand for an industry’s products and services slows, it becomes more difficult to continue
to grow. When this happens, managers often look to M&A as a way to jump-start growth.
 Acquisitions will lead not only to revenue growth but also to improved profitability through
synergistic gains.

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  Unfortunately, it is much easier to generate sales growth by simply adding the revenues of acquisition
targets than it is to improve the profitability of the overall enterprise.
 Although acquisition bring with them the possibility of synergistic gains, they also impose greater
demands on management, which now runs an even larger enterprise.
 Management needs to make sure that the greater size in terms of revenues has brought with it
commensurate profits and returns for shareholders.

2. Is Growth or Increased Return the More Appropriate Goal?

 A major goal for a company’s management and board is to achieve growth.
 However, managers need to make sure that the growth is one that will generate good returns for
shareholders.
 Boards need to critically examine the expected profitability of the revenue derived from growth and
determine if the growth is worth the cost.

3. International Growth and Cross-Border Acquisitions:

 Companies that have successful products in one national market may see cross-border acquisitions as a
way of achieving greater revenues and profits.
 Companies may use cross-border deals as an advantageous way of tapping another market.
 A cross-border deal may enable an acquirer to utilize the country-specific know-how of the target,
including its indigenous staff and distribution network.
 Cross-border deals present some basic and obvious challenges that domestic deals lack. A business
model that may work well in a home country can fail for unexpected reasons in another nation.
 Language different can also pose a challenge not just in the initial negotiations but also in post-deal
integration.
 Physical distances can also increase managerial demands.

4. Currency-Related Effects:
 Exchange rates can play an important role in international takeovers.
 When the currency of a bidder appreciates relative to that of a target, a buyer holding the more
highly valued currency may be able to afford a higher premium.

B. SYNERGY (CỘNG HƯỞNG)

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- Synergy: type of reaction that occurs when 2 substances or factors combine to produce a greater effect
together than that which the sum of the 2 operating independently could account for.
- Synergy refers to the phenomenon of 2 + 2 = 5.
- The anticipate existences of synergistic benefits allows firms to incur the expenses of the acquisition
process and still be able to afford to give the target shareholders a premium for their shares.
- Synergy may allow the combined firm to appear to have a net acquisition value (NAV) > 0:

- The term in the brackets is the synergistic effect.

- This effect must be greater than P + E to justify going forward with the merger.
- If the bracketed term is < P + E, the bidding firm will have overpaid for the target.
- 2 main types of synergy: operating synergy & financial synergy.
+ Operating synergy comes in 2 forms: revenue enhancements & cost reductions.
+ Financial synergy refers to the possibility that the cost of capital may be lowered by combining one or
more companies.
- OPERATING SYNERGY
Operating synergy can come form gains that enhance revenues or those that lower costs.
Of the two, revenue enhancements can be the more difficult to achieve.
1. Revenue-Enhancing Operating Synergy:
 Revenue enhancing synergies can be difficult to achieve.
 Revenue-enhancing synergies can come from various sources:
+ Pricing power
+ Combination of functional strengths
+ Growth from faster-growth markets or new markets
 A combination of 2 companies may lead to greater pricing power or purchasing power. This
will normally be possible only if the 2 companies are in the same business.
 Combination of functional strengths: perhaps one company has strong R&D or production
abilities, while the other has great marketing and distribution. Each merger partner could be
bringing important capabilities “to the table”.

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  Growth from faster-growth markets or new markets: When many companies are struggling to
expand their mature markets and reaching rapidly diminishing returns, the fastest way to realize
meaningful growth can be to enter higher-growth new markets.

2. Revenue-Related “Dissynergies”:
 Not only may M&A-related increases in revenues be difficult to achieve, but also M&A-related
losses in revenues may be difficult to prevent.
 However, when the bidder paid a premium for the target, the profitability of its total revenues was
probably used to determine the total price. Deals can be losers if revenues are lost.

3. Cost-Reducing Operating Synergies:

 The main source of operating synergies.
 These cost reductions may come as a
result of economies of scale – As the
output levels rise, the per-unit costs
decline.
 Some of the other sources of these gains
arise from increased specialization of
labor and management and the more
efficient use of capital equipment, which might not be possible at low output levels.
 Argument:
+ Diseconomies of scale may arise as the firm experiences higher costs and other problems
associated with coordinating a larger-scale operation.
+ The continued growth of large companies can still pay stockholders an acceptable ROE vs.
Firms would be able to provide stockholders a higher rate of return of they were smaller, more
efficient companies.
 Economies of scope: being able to offer wider range of services or products to same customers.
+ Ex: Commercial bank with major retail network acquiring a bank with strong trust department.
+ In the banking industry, scope economies may be as important as economies of scale in
explaining M&As.

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 4. Cost Improvements Through Gains in Purchasing Power:
 If a combination of 2 companies yields enhanced purchasing power, this can lead to meaningful
reductions in costs.
 One benefit of purchasing power enhancement is that it may be less likely to draw the attention of
regulators than combinations that will have more apparent effects on consumers.
 Increased buying power over common supplier industries that were supplying inputs to both
acquirers and targets.

5. Synergy and Acquisition Premiums:

 This premium is a value in excess of the market value of a company that is paid for the right to
control and proportionately enjoy the profits of the business.
 Synergies requires that the bidder receive gains, such as in the form of performance improvements,
that offset the premium.
 The higher the discount rate that is used to convert the synergistic gains to present value, the more
difficult it is to justify a high premium.
 The higher the premium, the more pressure the combined company is under to realize a high rate
of growth in future synergistic gains.
 When a bidder has paid a significant premium, it implicitly assumes more pressure to realize
greater revenue enhancement and more cost reductions.
 Throughout the process, the bidder needs to be aware of the actual and anticipated response of
competitors.
 Enhanced revenues may come at the expense of competitors’ revenues.

- FINANCIAL SYNERGY
 Financial synergy refers to the impact of a corporate merger/acquisition on the costs of capital to
the acquiring firm/the merging partners.
 A company may experience financial economies of scale – in the form of lower flotation (chi phí
phát hành) and transaction costs.
 In financial markets, a larger company has certain advantages that may lower the firm’s cost of
capital. It enjoys better access to financial markets, and it tends to experience lower costs of raising
capital because it is considered to be less risky than a smaller firm. Therefore, the costs of
borrowing by issuing bonds are lower because a larger firm would probably be able to issue bonds
offering a lower interest rate the a smaller company.

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  Diversified companies, which tend to be larger than undiversified firms, have better credit quality
and better access to capital markets..
 Another, financial synergy can occur when a company with substantial financial resources and
cash on hand, but few high-return projects, acquires a "cash-strapped" target with some high-return
projects that it is unable to finance. These agreements may benefit both companies in a "win-win"
situation.

C. DIVERSIFICATION
- Diversification means growing outside a company’s current industry category.
- Poor motives for acquisitions.
- Diversification to acquire leading positions in the various industries.
- Diversification to enter more profitable industries.
→ One problem: the lack of an assurance that those profit opportunities will continue for an extended
time in the future. Industries that are profitable now may not be as profitable in the future.
- Diversification to obtain the optimal capital structure.
→ One problem: there are some cheaper ways to do this than acquisitions.
- Diversification to form a lower risk investment for shareholders.
→ One problem: it is easier for shareholders to do on their own.
- Economic theory implies that a diversification program to enter more profitable industries will not be
successful in the long run.
- Related vs. Unrelated diversification:
 Related diversification: Diversify into fields related to firm’s business.
 Related diversification showed positive returns but unrelated diversification showed negative returns.
 Defined relatedness: 2 ways
 Vertical related: 2 businesses or divisions are vertically related if one buys inputs from the other.
 Complementary: If 2 business they jointly procure inputs or share distribution channels or
marketing.
 Vertical related firms do poorly compared to more focused firms.
 Complementary firms show higher values.

D. OTHER ECONOMIC MOTIVES: HORIZONTAL INTEGRATION & VERTICAL

INTEGRATION
1. Horizontal Integration:

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 - Horizontal mergers: combinations of 2 firms producing the same product. Both companies are at
the same level in the production to market process.
- Benefits:
 Increase the firm’s market share.
 Elimination of duplicate facilities.
 Offer broader product line.
- Horizontal merger & Market power:
 Market power (monopoly power): the ability to set and maintain price above competitive
levels (marginal costs).
 3 sources of market power: product differentiation, barriers to entry & market share.
 Horizontal integration helps company increase it market share. However, even with a substantial
increase in market share, the lack of significant product differentiation or barriers to entry could
prevent a firm from raising its price significantly above marginal cost.
 Even in industries that have become more concentrated, there may be a substantial amount of
competition.
 Moreover, if prices and profits rise too high, new entrants may enter such contestable markets
quickly, raising the degree of competition.
 If a merger results increased market power for the combined company, we would expect a
positive stock price effect for the bidders.
 Unfortunately, stock price studies alone will not allow us to conclude that a positive equity
market response was due to the greater market power.

2. Vertical Integration:
- Vertical mergers: combinations of 2 firms that have a buyer-seller relationship.
- Motives:
 To be assured of a dependable source of supply: Dependability may be determined by supply
availability & quality maintenance & timely delivery consideration. As companies pursue just-
in-time inventory management, they may lower inventory costs.
 Lower transaction costs: The acquirer firm may be able to predict future supply costs and avoid
the uncertainty that normally is associated with renegotiation of supply agreement.

E. HUBRIS HYPOTHESIS: (just may explain some takeovers)

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 - Managers seek to acquire firms for their own personal motives → They may pay a premium for
companies for this reason.
- Managers may believe their own valuations are superior to the market → This may cause them to
overpay.
- If Hubris hypothesis is true, then you would expect the stock price of the acquirer to fall after the
announcement of the acquisition.
- Hubris vs. Managerialism:
 Hubris: Managers believe their valuation is superior to the market and then may overpay.
 Managerialism: Managers may know they are overpaying but they do so to pursue their own goals.

F. DO MANAGERIAL AGENDAS DRIVE M&A?

- Managers have their own personal agendas, and these may differ from that of the company.
- Bad deals were driven by the objectives of the managers doing the deals → usually cause lower and
negative announcement period returns.
- If you are bad at running the business you have, adding to it and thereby increasing the managerial
demands will only worsen managerial performance.
- Winner’s curse of acquisitions:
 States that: bidders who overestimate the value of a target will most likely win a contest. This is due
to the fact that they will be more inclined to overpay and outbid rivals who more accurately value the
target.
 This helps explain why bidders may overpay.
 Supports the Hubris hypothesis.
- Do bad bidders become good targets?
 Companies that make acquisitions which cause their equity to lose value are increasingly likely to
become takeover targets.
 Takeovers can be both a problem and a solution.
 Takeovers that reduce market value may be bad deals, assuming the market correctly assesses them,
and this is a problem.
 However, the deals market may take care of the problem through another takeover of the “bad
bidders” – a solution.
- Executive compensation (thù lao điều hành) & Corporate acquisition decisions:
 For companies that engaged in acquisitions, they found a positive relationship between firm size and
executive compensation but not for these that did not.

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  When they separated out good acquisitions from bad ones, they found out that good acquisitions
increased compensation while bad deals did not.

G. OTHER MOTIVES
1. Improved Management:
- Some takeovers are motivated by a belief that the acquiring firm’s management can better manage
the target’s resources. The bidder may believe that its management skills are such that the value of
the target would rise under its control. This leads the acquirer to pay a value for the target in excess
of the target’s current stock price.
- Large companies make offers for smaller, growing companies because the smaller companies may
offer a unique product or service that has sold well and facilitated the rapid growth of the target.
- The growing firms may find that it needs to oversee a much larger distribution network and may
have to adopt a very different marketing philosophy. The lack of managerial expertise may be a
stumbling in the growing company and may limit its ability to compete in the broader marketplace.

2. Improved Research & Development

3. Improved Distribution:
- Companies that make a product but do not have direct access to consumers need to develop channel
to ensure that their product reaches the ultimate consumer in a profitable manner.
- Vertical mergers between manufacturers and distributors/retailers often give competitor
manufacturers cause for concern in that they worry about being cut off from distribution channels.

4. Tax Motives:
- For a certain small fraction of mergers, tax motives could have played a significant role.
- A number of deals drew attention for the impact that tax motives played in the merger decisions.
These were called redomicile deals. They were driven by differing tax rates in the countries
involved.
- Ex: AbbVie acquired Shite PLC and in doing so established its new headquarters in the UK. This
move would lower the company’s tax rate, which was 22% in 2013, to 13% in 2016.

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 CHAPTER 5: ANTI-TAKEOVER MEASURE
2 TYPES OF ANTI-TAKEOVER DEFENSE:
 Preventative: Defense install in advance of a takeover.
 Active: Defenses deploy during a takeover battle.
A. PREVENTATIVE ANTI-TAKEOVER DEFENSE
POISON PILLS
(Viên thuốc độc)
- Meaning of the name: If the acquiring company takes
over the target, it will have to swallow the poisonous
consequences of the pill.
- Another name: Shareholders Rights Plans
- Poison pills are provisions companies include in their
stock issuances that prevent anyone from gaining a
controlling stake. They usually have share ownership
thresholds set that trigger the issue of more shares to
stockholders for a discount or for free.
- Flooding the market with new shares dilutes the value
of the shares already purchased by the acquiring
company, reducing its percentage of ownership and
making it harder and more costly for the buyer to gain
control.
- Types of Poison pills:
1. Preferred Stock Plans:
 Lenox offered each common stockholder a
dividend of preferred shares that would be
convertible into 40 shares of Brown Foreman
stock if Brown Foreman took over Lenox. These
convertible shares would seriously dilute the
Brown family’s 60% share ownership position.
 Disadvantages:
→ The issuer could buy back preferred stocks
CORPORATE CHARTER AMENDMENTS
(Sửa đổi điều lệ doanh nghiệp)
- Differentiate between a corporate charter and
the corporation’s bylaws:
 Bylaws (nội quy): are usually established by the
board of directors, and they set forth important
rules for how the company will operate.
 Corporate charter (điều lệ công ty): A more
fundamental document the sets forth the
company’s purpose and the different classes of
shares it may have. More major changes in how a
company operates may have to be set forth in the
corporate charter and not the bylaws. Corporate
charter changes generally require shareholder
approval.
- Types of corporate charter changes:
1. Staggered Board (Hội đồng so le) Amendments:
 A normal direct election process provides for
each director to come up for election at the
company’s annual meeting.
 When a board is staggered/classified, only a
certain percentage (such as 1/3) will come up
for election during any one year, so that each
director is elected approximately once every 3
years.
 Staggered boards require shareholder approval
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 only after an extended period of time (>10
years).
→ When an analyst computes the leverage of a
company, the preferred stock may be added to
the long-term debt, thus making the issuer more
heavily leveraged and riskier in the eyes of
investors.
2. Flip-Over Poison Pills:
 Shareholders of the target company have the
opportunity to purchase shares of the acquiring
company at a significantly discounted price.
 Happen when: The acquiring company’s
provisions allow the shareholders within the
targeted company to by their shares at a discount
price when the takeover is successful.
 The right to purchase shares at a discount may
apply to either common stock or preferred stock.
 Acquiring company’s stock price
discounts → More target company’s
shareholders buy larger the number
discounted shares of the acquiring company’s
stock → The more diluted the acquiring
company’s stock becomes → Put downward
pressure on the stock price.
3. Flip-In Poison Pills:
 Already existing shareholders – but not newly
buying shareholders (i.e., such as the hostile
acquirer) – are given the opportunity to buy
additional shares of the target company. In
addition, the opportunity to purchase additional
shares is made very appealing by the fact that the
shareholders can acquire them at a substantial
before they can be implemented.
 For example, a company with nine board
members divided into three classes—Class 1,
Class 2 and Class 3—will assign three members
per class. Class 1 members serve a one-year
term on the board, Class 2 members serve two
years, and Class 3 members hold their seats for
three years.
 When a bidder has already bought majority
control, the staggered board may prevent him
from electing managers who will pursue the
bidder’s goals fro the corporation.
 In a proxy contest, staggered boards require
insurgents to win more than one proxy fight at 2
successive shareholder meetings to gain control
of the target.
 This can create much uncertainty as a lot can
happen over the one-to two-year period that is
deeply
needed to gain control of a staggered board.
 The combination of a poison pill and a
of
staggered board can be a powerful defensive
combination b/c one way to de-active the
poison pill is to change the target’s board and
get a new board who will eliminate the pill.
When a staggered board imposes long delays to
change the board, the poison pill defense
becomes more powerful.
 Leaky staggered board: where controlling
shareholder has right to increase the size of the
board.
→ This is determined by if it is in the corporate
charter.
→ If so, controlling shareholder may replace
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 discount from the current market price.
 The value of the shares already purchased by the
acquiring company is diluted → Reducing % of
ownership, making it harder and more costly for
the acquirer to gain control.
4. Back-End Plans (Note Purchase Rights Plans):
 The target company provides existing
shareholders—with the exception of
company attempting the takeover—with the
ability to exchange existing securities for cash or
other securities valued at a price determined by
the company’s board of directors.
 The back-end price is set above the market price,
so back-end plans establish a minimum price for
a takeover.
5. Voting Plans:
 Are designed to prevent any outside entity from
obtaining voting control of the company.
 The company issues a dividend of preferred
stock.
 Holders of preferred stock become entitled to
supervoting rights.
1/3 of board by also add new board members to
the larger board and thereby get a majority
quickly.
2. Supermajority Voting Provisions:
 A provision that states that certain corporate
actions require much more than a mere majority
– typically 67%-90% – approval from its
the
shareholders to pass.
3. Fair-Price Provisions:
 Require potential acquirers of the company to
pay a “fair price” in order to acquire shares held
by the company’s stockholders.
 Goals:
→ Discourage hostile takeovers by making the
acquisitions more expensive.
→ Protect minority stockholders who may be
offered a lower price for their shares than
shareholders who own a significant percentage
of the company’s stock.
4. Dual Capitalization:
 A restructuring of equity into 2 cases of stock
with different voting rights.
 Goal: To give greater voting power to a group
of stockholders who might be sympathetic to
management’s view.
 Management often increases its voting power
directly in a dual capitalization by acquiring
stock with greater voting rights.
 A typical dual capitalization involves the
issuance of another class of stock that has
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 superior voting rights to the current outstanding
stock.

5. Anti-Greenmail Provisions:
 Thư xanh là hành động một bên đứng ra mua số
lượng lớn cổ phiếu của một công ty, nhằm đe dọa
sẽ thực hiện một vụ thâu tóm thù địch, buộc công
ty mục tiêu phải mua lại cổ phiếu của nó với giá
cao hơn và và thu về lợi nhuận lớn.
 Công ty mục tiêu buộc phải mua lại cổ phiếu với
mức giá cao hơn đáng kể để cản trở vụ thâu tóm,
điều này mang lại lợi nhuận lớn cho bên gửi thư
xanh.
 Anti-greenmail provisions:
→ A special clause in a company’s corporate
charter than prevents its board of directors from
approving greenmail payments.
→ If a premium payment is offered to the
greenmailer, the same deal must be extended to all
shareholders.
→ Or, the provision could require that any
greenmail payment be subject to a shareholder
vote and majority approval.

B. ACTIVE ANTI-TAKEOVER DEFENSE

1. Greenmail: Payment of a premium to buy shares of threatening shareholders.
2. Standstill Agreements (Thỏa thuận tạm hoãn):
- A contract that contains provisions which govern how a bidder of a company can purchase, dispose of,
or vote stock of the target company.
- A standstill agreement can be useful for a company that is under pressure from an activist investor or
aggressive bidder to fend off the unwanted approach.
- Usually accompany a greenmail payment. Here the bidder agrees not to buy additional shares in
exchange for a fee.

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3. White Knight: The target may seek a friendly bidder, or white knight, as an alternative to the hostile
acquirer.
4. White Squire:
- The target may place shares or assets in the hands of a friendly firm or investor.
- The target company seeks to implement a strategy that will preserve its independence.
- The stock selected often is convertible preferred stock.
- The white squire id typically not interested in acquiring control of the target and will not sell out the
stocks to a hostile bidder, from the target’s viewpoint.
5. Lock-Up Transactions: Sale of assets to make target lass desirable.
6. Lock-Up Options: A option that give potential buyer right to buy certain assets at an attractive price.
7. Just Say No: Say do not want to be bought.
8. Pac-Man Defense: The target makes bid for the hostile bidder.

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 CHAPTER 6: TAKEOVER TACTICS
A. PRELIMINARY (SƠ BỘ) TAKEOVER STEPS
1. Casual Pass: Happen in Seeking Phase.
- An informal approach made to the target management.
- May come from a member of the bidder’s management or from one of its representatives (such as its
investment banker).
- May be used if the bidder is unsure of the target’s responses.
- It can work against the bidder b/c it provides the target with advance warning of the bidder’s interest.
- Ex: Private contact, Informal email.

2. Establishing a Toehold (chỗ đứng): Begin an action by owning the minor of shares, below 5%.
- If the market is unaware of the bidder’s actions, the bidder can avoid the payment of a premium for the
shares that form the toehold → lower the average cost of the acquisition.
- Provide the bidder with some of the same rights that other shareholders have → establishing a
fiduciary (ủy thác) duty.
- If a rival bidder acquires the target, the initial bidder may receive a premium on its toehold position →
potentially significant gains.

3. Takeover Contest Process:

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 4. Metrics Related:
a. Bid jumps: Higher money bid, higher successful deal.
b. Bear hugs:
 An offer to buy a publicly listed company at a significant premium to the market price of its
shares.
 Be used to pressure a reluctant company’s board to accept the bid of risk upsetting its
shareholders.
 2 kinds: Teddy bear hug (not include a price/specific deal terms, not be public) & normal bear
hug (include a price, be public).

B. TENDER OFFER (CHÀO MUA CÔNG KHAI)

- A bid to purchase (chào mua) some of all of shareholder’s stock in a corporation.
- Tender offers are typically made publicly and invite shareholders to sell their shares for a specified price
in a specified period of time.
- The tender offer typically is set at a higher price per share than the company’s current stock price,
providing shareholders a greater incentive to sell their shares.
- It is a two-step transaction:
 Step 1: The acquirer seeks to buy a stipulated number of shares – at least at the minimum stipulated
in the offer → get the control.
→ If the buyer gets the minimum in the tender offer which is over 50%, it may request that the target
give it a top-up option, which would allow the buyer to buy sufficient newly issued shares to allow
the buyer to cross the threshold to do a short-term merger.
 Step 2: A back-end/close-out transaction to acquire the remaining shares.
- If the buyer acquires a very large percentage of the target’s shares, it may be able to simply freeze out or
close out the remaining shareholders automatically via what is called a short-form merger.
- A tender offer is quicker than a long-form merger because voting approval of the target shareholders is
not needed. They approve by selling their shares to the bidder.
- Reason for using: when a friendly negotiated transaction does not appear to be viable alternative.
- Have the advantage of speed → There are defense, such as the poison pill or right plan, that the target
may deploy to derail and slow down the tender offer.
- Advantages:

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  Don’t get stuck in an undesirable minority position.
 The holdout problem does not exist.
 Bidder may amass a significant percentage of the target’s stock from arbitragers.
- Measure of payment:
 Cash
 Securities: (such as bidder’s own shares) may be more attractive because in some cases the
transaction may be considered tax-free.
→ When the bidder uses its own shares, this is sometimes called an exchange offer.
- Response of the Target management: The target basically has 4 options:
1. Recommend acceptance
2. Recommend rejection
3. State that it has no option and is neutral
4. State that it cannot take a position on the bid
 In evaluating its response, the target’s board has to remember that its stockholders often view tender
offers as a favorable development because they tend to bring high offer premium → The response is
not always clear. If resistance will increase shareholder returns, this may be a more appropriate
course of action.
 Resisting the bid → the target may force the bidder to raise its offer. Multiple bidders usually
translate into higher premiums and somewhat greater leverage for the target.
 A risk that the target may bears when its resists the bid: the bid may be withdrawn (rút lui).
 If the premium offered reflects a value that is in excess of that which could be realized for
shareholders by keeping the company independent, then resistance reduces value.
 If the target’s board and management believe that the company would be an attractive target, they
may install defenses in advance of any bid so that the company cannot be acquired at values less
than what they believe the company is worth.
- Creation of a Tender offer team: Investment bank, Legal advisors, Information agent, Depository
bank, Forwarding agent.
- Two-tiered tender offers (Front end-ended loaded tender offers): Under a two-tiered tender offer,
an acquirer offers a better deal for a limited number of shares of the target company that it wishes to
purchase, followed by a worse offer for the remaining shares. The initial tier is designed to give the
acquirer control over the target company. It then makes a reduced offer for an additional group of
shares through a second tier that has a later completion date. This approach is designed to reduce
the total acquisition cost for the acquirer.

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C. PROXY FIGHTS
 An attempt by a single shareholder or a group of shareholders to take control or bring about other
changes in a company through the use of the proxy mechanism of corporate voting.
 A bidder may attempt to remove the current board and/or management by exercising his voting rights and
gaining support from other shareholders.
 Types of Proxy contests: 2 main forms.
1. Contests for seats on the board of directors: An insurgent group of stockholders may use this means
to replace management. If the opposing slate of directors is elected, it may then use its authority to
remove management and replace them with a new management team.
2. Contests about management proposals: these proposals can be control proposals relating to a
merger or acquisition.
 The Insurgent’s viewpoint:
In a proxy contest, an insurgent group attempts to wrest control of the target by gathering enough
supporting votes to replace the current board with board members of the group’s choosing.
Some characteristics increase the likelihood that a proxy fight will be successful:
- Insufficient voting support: Without a strong block of clear support for management among the
voting shareholders, management and the incumbent board may be vulnerable to a proxy fight.
- Poor operating performance: The worse the firm’s recent track record, the more likely it is that
other stockholders will vote for a change in control.
- Sound alternative operating plan: The insurgent must be able to propose changes that other stock
holders believe will reverse the downward direction of the firm, or provide for the removal of
antitakeover barriers and a receptive approach to outside offers for the sale of the firm.
 Costs of a proxy fight:
- Professional fees
- Printing, mailing and communications costs
- Litigation costs
- Other fees
 Proxy fight vs. Tender offer:
- Proxy contests tend to occur more frequently in cases in which the company’s performance has been
poor.
- In general, they discovered that targets of tender offers are more profitable than those of proxy fights.

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 CHAPTER 11: CORPORATE RESTRUCTURING
A. SELL-OFFS (BÁN THÁO)
- A sell-off occurs when a large volume of securities are sold in a short period of time, causing the price
of a security to fall in rapid succession.
- Motivation:
 A division of the company is performing poorly or simply because it no longer fits into the firm’s
plans.
 Financial pressures.

B. DIVESTITURES (BÁN BỚT TÀI SẢN)

- A sale of a division of the parent company to another firm.
- The parent company gets paid in cash or marketable securities.
- By divestitures, firms can stay focused on core business and remain profitable.
- When the market performed well, there was a tendency for more divestitures to occur.
- Involuntary vs. Voluntary divestitures:
Involuntary Voluntary
 Occurs when the firm receives an unfavorable
 A deliberate (có chủ ý) decision made by the
review by external institutions (FTC).
management of the selling firm.
 Forcing the firm to divest itself of a particular
 Selling off part of their business for strategic,
division for legal and regulatory constraints
financial or organization reasons.
reasons (ex: antitrust laws).

- Reasons for voluntary divestitures:

 Poor strategic fit of division: Divest a division that no longer fits into the overall strategic plans.
 Poor performance: Divest a division that is not profitable enough.
 Reverse synergy “4-1=5”: Divest a division that are worth more separately than they are within the
parent company’s corporate structure.
 Capital market factors: Greater access to capital market for 2 separate firms than for a combined
one because there is a division of the firm investors show interest in.
 Abandoning the core business: Divest the core business that seems to have few growth
opportunities.

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  Market liquidity: Divisions in industries that are more liquid are more likely to be divested b/c
sellers may receive the full value or even higher value for the asset in a liquid market.

C. DIVESTITURES & SPIN-OFFS PROCESS

1. Settle on a divestiture/spin-off decision
2. Formulate a restructuring plan
3. Sell the business or identify a buyer
4. Get the shareholders’ approval of the plan
5. Registration of the shares
6. Complete the deal

D. SPIN-OFFS
- A creation of a new, independent business through the separation of a business unit.
- Happens by the parent company distributes shares to their shareholders through a pro rata distribution as
a dividend.
- The shareholders of the parent company will also be the shareholders of the spin-off entity.
- Debt is allocated between the new parent and spun-off based on the post-transaction size.
- The stock price of a company may adjust downward after spin-offs.

E. EQUITY CARVE-OUTS
- A variation of a divestitures.
- The sale of an equity interest in a subsidiary to outsiders.
- An equity carve out is a public offering of a partial interest in a wholly owned subsidiary.

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- If the parent sells the shares, this is called a secondary offering. If the subsidiary does the selling, it is
referred to as a primary issuance.
- The primary offering has no tax consequences, but a secondary offering could result in capital gains
taxes for the parent. This is why most equity carve-outs are primary issues. When the unit sells the
shares, it receives the proceeds.
- How carve-out shares are sold & How the parent company can receive cash with having no
adverse tax effects:

- Advantages:
 A means of reducing the firms’ exposure to a business that they believe is no longer a good strategic
fit or that has higher risk than what it prefers.
 Establishing a market for the shares of the subsidiary.
- Reasons why the equity carve-out may be chosen over a public offering of stock:
 Increase efficiency for the parent company and division now that they are run separately.
 Market can more easily evaluate each part now that is separate.
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  Parent company can have cash instead of the division and may be able to use this capital better to
achieve higher returns.
- Riskier and more highly leveraged firms chose to go the spin-off route rather than to option for a carve-
out.
- Equity carve-out versus spin-off decision is determined by access to capital markets.

+ Companies that have better access will choose an equity carve-out.

+ Having a lot of debt makes company less attractive to market.

F. MASTER LIMITED PARTNERSHIPS (MLPs)

- Limited partnerships in which the shares are publicly traded.
- A MLP consists of:
+ 1 general partner: runs the business and have unlimited liability.
+ >= 1 limited partners: who purchase shares in the MLP and provide the capital for the entity's
operations.
- Key advantage: the elimination of the corporate layer of taxation → Corporations have used MLPs to
redistribute assets to avoid double taxation on their returns.
- MLPs & Sell-offs:
 In a spin-off, assets are directly transferred from the parent company to the MLP.
 In an equity carve-out, the MLP raises cash through a public offering. Then, the assets of the parent
company's division that is being sold off are bought with the money raised.

G. VOLUNTARY LIQUIDATION
- The most extreme form of corporate restructuring.
- When a corporation does not have a viable future (like being no longer able to operate profitably) or has
no other purpose in remaining operational, the board of directors or the ownership may consider to
undergo a voluntary liquidation.
- This decision must be approved by shareholders.

H. TRACKING STOCKS (TARGETED STOCKS)

- A stock issued by a parent company that tracks the financial performance of a particular segment or
division.
- It is traded in the open market separately from the parent company's stock.

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- Shareholders of tracking stocks only get rights to earnings of the entity in question.
- Tracking stocks do not represent an ownership interest in the assets of the entity being tracked.
- Shareholders do not get voting rights for the overall company or even the division.
- Ways to issue tracking stocks:
+ Issue as a stock dividend that is distributed to the parent firm's shareholders.
+ Have a public offering of the shares and receive cash in exchange.

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