tag:blogger.com,1999:blog-44838496462744938212024-03-06T00:39:59.935-05:00MergerProfMergerProfhttp://www.blogger.com/profile/14980171226758349881noreply@blogger.comBlogger338125tag:blogger.com,1999:blog-4483849646274493821.post-18250081767391998022015-12-03T11:16:00.000-05:002015-12-03T11:16:05.657-05:00Three Days of Acquisition Finance - Amsterdam<div class="MsoNormal" style="line-height: 14.0pt;">
<span style="font-family: "arial";"><span style="letter-spacing: -0.2px;">I'm reposting last weeks outline of our upcoming course in Amsterdam on Acquisition Finance. Here is is. There is still time to <a href="http://www.aif.nl/programs/open-enrollment-programs/acquisition-finance-structuring-the-deal.aspx?PID=61" target="_blank">sign up</a> - we hope to meet you there.</span></span></div>
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<span style="font-family: "arial";"><span style="letter-spacing: -0.2px;">All the best,</span></span></div>
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<span style="font-family: "arial";"><span style="letter-spacing: -0.2px;">Ralph</span></span></div>
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<b style="mso-bidi-font-weight: normal;"><span style="font-family: "arial"; font-size: 13.0pt; letter-spacing: -.15pt;">Wednesday December 9, 2015<o:p></o:p></span></b></div>
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<b><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt;">Time: 09.00 – 13:00<o:p></o:p></span></b></div>
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<span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt; mso-fareast-font-family: Arial;">•<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt;">Introduction<o:p></o:p></span></div>
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<span style="font-family: "arial"; font-size: 9.5pt; mso-fareast-font-family: Arial;">•<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><span style="font-family: "arial"; font-size: 9.5pt;">Overview of Acquisition Finance: Structuring the Deal <o:p></o:p></span></div>
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<span style="font-family: "arial"; font-size: 9.5pt;">This session presents an overview of the program - outlining advantages, risks and current trends in acquisition finance. Particular attention is given to sources of gains in acquisition finance and the opportunities and risks entailed in highly levered transactions. The following topics will be discussed:<o:p></o:p></span></div>
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<span style="font-family: "courier new"; font-size: 9.5pt; letter-spacing: -.15pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt;">How Acquisition Finance Creates Value<o:p></o:p></span></div>
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<span style="font-family: "courier new"; font-size: 9.5pt; letter-spacing: -.15pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt;">Participants, Products, Risk and Return<o:p></o:p></span></div>
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<span style="font-family: "courier new"; font-size: 9.5pt; letter-spacing: -.15pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt;">The Importance of Markets<o:p></o:p></span></div>
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<span style="font-family: "courier new"; font-size: 9.5pt; letter-spacing: -.15pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt;">The Whole Deal Approach:<o:p></o:p></span></div>
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<span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt; mso-fareast-font-family: Arial;">•<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><span style="font-family: "arial"; font-size: 9.5pt;">The Acquisition Process<span style="letter-spacing: -.15pt;"><o:p></o:p></span></span></div>
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<span style="font-family: "courier new"; font-size: 9.5pt; letter-spacing: -.15pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><span style="font-family: "arial"; font-size: 9.5pt;">Timeline of the Acquisition Process<span style="letter-spacing: -.15pt;"><o:p></o:p></span></span></div>
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<span style="font-family: "courier new"; font-size: 9.5pt; letter-spacing: -.15pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><span style="font-family: "arial"; font-size: 9.5pt;">Motives for Acquisition<span style="letter-spacing: -.15pt;"><o:p></o:p></span></span></div>
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<span style="font-family: "courier new"; font-size: 9.5pt; letter-spacing: -.15pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><span style="font-family: "arial"; font-size: 9.5pt;">Characteristics of Targets<span style="letter-spacing: -.15pt;"><o:p></o:p></span></span></div>
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<span style="font-family: "courier new"; font-size: 9.5pt; letter-spacing: -.15pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><span style="font-family: "arial"; font-size: 9.5pt;">Types of Deals<span style="letter-spacing: -.15pt;"><o:p></o:p></span></span></div>
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<span style="font-family: "courier new"; font-size: 9.5pt; letter-spacing: -.15pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><span style="font-family: "arial"; font-size: 9.5pt;">Ideal Qualities for LBO Candidates<span style="letter-spacing: -.15pt;"><o:p></o:p></span></span></div>
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<span style="font-family: "arial"; font-size: 9.5pt; mso-fareast-font-family: Arial;">•<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;"> </span></span><span style="font-family: "arial"; font-size: 9.5pt;">Key Participants and Markets in Acquisition Finance<o:p></o:p></span></div>
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<span style="font-family: "courier new"; font-size: 9.5pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><span style="font-family: "arial"; font-size: 9.5pt;">PE Sponsors<o:p></o:p></span></div>
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<span style="font-family: "courier new"; font-size: 9.5pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><span style="font-family: "arial"; font-size: 9.5pt;">Institutional Equity Investors<o:p></o:p></span></div>
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<span style="font-family: "courier new"; font-size: 9.5pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><span style="font-family: "arial"; font-size: 9.5pt;">Lenders<o:p></o:p></span></div>
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<span style="font-family: "courier new"; font-size: 9.5pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><span style="font-family: "arial"; font-size: 9.5pt;">Corporate<o:p></o:p></span></div>
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<span style="font-family: "courier new"; font-size: 9.5pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><span style="font-family: "arial"; font-size: 9.5pt;">Understanding Markets<o:p></o:p></span></div>
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<span style="font-family: "courier new"; font-size: 9.5pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><span style="font-family: "arial"; font-size: 9.5pt;">Current European Market Overview<o:p></o:p></span></div>
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<span style="font-family: "arial"; font-size: 9.5pt; mso-fareast-font-family: Arial;">•<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><span style="font-family: "arial"; font-size: 9.5pt;">Valuing the Target– a Quick Review<o:p></o:p></span></div>
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<span style="font-family: "arial"; font-size: 9.5pt;">This session provides a review of valuation tools and models, discussing the strengths and weaknesses of each as well as their application to acquisition finance.</span><span style="letter-spacing: -.15pt;"><o:p></o:p></span></div>
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<span style="font-family: "courier new"; font-size: 9.5pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><span style="font-family: "arial"; font-size: 9.5pt;">Discounted Cash Flow<o:p></o:p></span></div>
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<span style="font-family: "courier new"; font-size: 9.5pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><span style="font-family: "arial"; font-size: 9.5pt;">Multiples<o:p></o:p></span></div>
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<span style="font-family: "courier new"; font-size: 9.5pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><span style="font-family: "arial"; font-size: 9.5pt;">Comparable Transactions<o:p></o:p></span></div>
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<span style="font-family: "courier new"; font-size: 9.5pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><span style="font-family: "arial"; font-size: 9.5pt;">Determining the Discount Rate in DCF<o:p></o:p></span></div>
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<span style="font-family: "courier new"; font-size: 9.5pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><span style="font-family: "arial"; font-size: 9.5pt;">Terminal Value and The Exit Process<o:p></o:p></span></div>
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<span style="font-family: "courier new"; font-size: 9.5pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><span style="font-family: "arial"; font-size: 9.5pt;">Valuing Synergies<o:p></o:p></span></div>
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<b><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt;">Time: 13.00 </span></b><b><span style="font-family: "symbol"; font-size: 9.5pt; letter-spacing: -.15pt; mso-ascii-font-family: Arial; mso-bidi-font-family: Arial; mso-char-type: symbol; mso-hansi-font-family: Arial; mso-symbol-font-family: Symbol;">-</span></b><b><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt;"> 14.00 Lunch<o:p></o:p></span></b></div>
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<b><span style="font-family: "arial"; font-size: 13.0pt; letter-spacing: -.15pt;">Wednesday December 9<o:p></o:p></span></b></div>
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<b><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt;">Time: 14.00 </span></b><b><span style="font-family: "symbol"; font-size: 9.5pt; letter-spacing: -.15pt; mso-ascii-font-family: Arial; mso-bidi-font-family: Arial; mso-char-type: symbol; mso-hansi-font-family: Arial; mso-symbol-font-family: Symbol;">-</span></b><b><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt;"> 15.30<o:p></o:p></span></b></div>
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<span style="font-family: "symbol"; font-size: 9.5pt; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;"> </span></span><span style="font-family: "arial"; font-size: 9.5pt;">Valuing Late-Stage Companies and Buyouts<o:p></o:p></span></div>
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<span style="font-family: "symbol"; font-size: 9.5pt; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;"> </span></span><span style="font-family: "arial"; font-size: 9.5pt;">Mergers and Acquisitions: Who Wins? Who Loses<o:p></o:p></span></div>
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<span style="font-family: "courier new"; font-size: 9.5pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><span style="font-family: "arial"; font-size: 9.5pt;">Measuring Abnormal Returns<o:p></o:p></span></div>
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<span style="font-family: "courier new"; font-size: 9.5pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><span style="font-family: "arial"; font-size: 9.5pt;">Assumptions behind Event Studies<o:p></o:p></span></div>
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<span style="font-family: "courier new"; font-size: 9.5pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><span style="font-family: "arial"; font-size: 9.5pt;">The Empirical Evidence<o:p></o:p></span></div>
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<span style="font-family: "courier new"; font-size: 9.5pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><span style="font-family: "arial"; font-size: 9.5pt;">Adjusting for Anticipation<o:p></o:p></span></div>
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<span style="font-family: "arial"; font-size: 9.5pt; mso-fareast-font-family: Arial;">•<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><span style="font-family: "arial"; font-size: 9.5pt;">Deals in the News: including Ahold/Delhaize, ABN-IPO, Perrigo/Mylan, Noikia Cablevision<o:p></o:p></span></div>
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<b><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt;">Time: 15.30 </span></b><b><span style="font-family: "symbol"; font-size: 9.5pt; letter-spacing: -.15pt; mso-ascii-font-family: Arial; mso-bidi-font-family: Arial; mso-char-type: symbol; mso-hansi-font-family: Arial; mso-symbol-font-family: Symbol;">-</span></b><b><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt;"> 15.45 Break<o:p></o:p></span></b></div>
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<b><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt;">Time: 15.45 </span></b><b><span style="font-family: "symbol"; letter-spacing: -.15pt; mso-ascii-font-family: "CG Times"; mso-char-type: symbol; mso-hansi-font-family: "CG Times"; mso-symbol-font-family: Symbol;">-</span></b><b><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt;"> 17.00 </span></b><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt;">Initial<b> </b></span><span style="font-family: "arial"; font-size: 9.5pt;">Case Preparation: "Monmouth”<o:p></o:p></span></div>
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<span style="font-family: "courier new"; font-size: 9.5pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><span style="font-family: "arial"; font-size: 9.5pt;">The management of Monmouth Inc. is considering whether to acquire the Robertson Tool Company and the value and form that the acquisition should take. Value can be assessed using a variety of approaches including a DCF with WACC analysis, impact on EPS and market multiples. The case also requires consideration of how the offer should be designed and implemented.<o:p></o:p></span></div>
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<b><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt;">Case material<o:p></o:p></span></b></div>
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<span style="font-family: "symbol"; font-size: 6.0pt; letter-spacing: -.15pt; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt;">“Monmouth”</span><span style="font-family: "arial"; font-size: 6.0pt; letter-spacing: -.15pt;"><o:p></o:p></span></div>
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<span style="font-family: "arial"; font-size: 9.5pt; mso-fareast-font-family: Arial;">•<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt;">Rosenbaum and Pearl: Investment Banking</span><span style="font-family: "arial"; font-size: 9.5pt;"><o:p></o:p></span></div>
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<span style="font-family: "courier new"; font-size: 9.5pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><span style="font-family: "arial"; font-size: 9.5pt;">Chapter 1 - "Comparable Companies Analysis”<o:p></o:p></span></div>
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<span style="font-family: "courier new"; font-size: 9.5pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><span style="font-family: "arial"; font-size: 9.5pt;">Chapter 2 – “Precedent Transaction Analysis”<o:p></o:p></span></div>
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<span style="font-family: "courier new"; font-size: 9.5pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><span style="font-family: "arial"; font-size: 9.5pt;">Chapter 3 – “Discounted Cash Flow Analysis”<o:p></o:p></span></div>
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<span style="font-family: "arial"; font-size: 9.5pt; mso-fareast-font-family: Arial;">•<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><span style="font-family: "arial"; font-size: 9.5pt;">Joseph Rizzi: “Back to the Future Again: Private Equity After the Crisis”, Journal of Applied Finance, Volume 19, No. 1&2 2009<o:p></o:p></span></div>
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<span style="font-family: "arial"; font-size: 9.5pt; mso-fareast-font-family: Arial;">•<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><span style="font-family: "arial"; font-size: 9.5pt;">Valuation of Late-Stage Companies and Buyouts, UVA-F-1639 by Susan Chaplinsky<o:p></o:p></span></div>
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<b><span style="font-family: "arial"; font-size: 13.0pt; letter-spacing: -.15pt;">Thursday December 10<o:p></o:p></span></b></div>
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<b><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt;">Time: 09.00 – 11.30<o:p></o:p></span></b></div>
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<span style="font-family: "symbol"; font-size: 9.5pt; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;"> </span></span><span style="font-family: "arial"; font-size: 9.5pt;">Debriefing of Day 1 and Introduction to Day 2<o:p></o:p></span></div>
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<span style="font-family: "symbol"; font-size: 9.5pt; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;"> </span></span><span style="font-family: "arial"; font-size: 9.5pt;">Capital Structure - Theory<o:p></o:p></span></div>
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<span style="font-family: "courier new"; font-size: 9.5pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><span style="font-family: "arial"; font-size: 9.5pt;">How Capital Structure Creates or Destroys Value<o:p></o:p></span></div>
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<span style="font-family: "courier new"; font-size: 9.5pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><span style="font-family: "arial"; font-size: 9.5pt;">Capital Structure Theory – A Review<o:p></o:p></span></div>
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<span style="font-family: "courier new"; font-size: 9.5pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><span style="font-family: "arial"; font-size: 9.5pt;">The Three Impacts of Debt<o:p></o:p></span></div>
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<span style="font-family: "courier new"; font-size: 9.5pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><span style="font-family: "arial"; font-size: 9.5pt;">Debt vs. Equity<o:p></o:p></span></div>
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<span style="font-family: "courier new"; font-size: 9.5pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><span style="font-family: "arial"; font-size: 9.5pt;">Empirical Evidence<o:p></o:p></span></div>
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<span style="font-family: "symbol"; font-size: 9.5pt; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;"> </span></span><span style="font-family: "arial"; font-size: 9.5pt;">Capital Structure - Practice<o:p></o:p></span></div>
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<span style="font-family: "courier new"; font-size: 9.5pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><span style="font-family: "arial"; font-size: 9.5pt;">Historical Overview<o:p></o:p></span></div>
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<span style="font-family: "courier new"; font-size: 9.5pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><span style="font-family: "arial"; font-size: 9.5pt;">Understanding the Cycle of Purchase Price Multiples<o:p></o:p></span></div>
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<span style="font-family: "courier new"; font-size: 9.5pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><span style="font-family: "arial"; font-size: 9.5pt;">Different Approach of PE re Valuation and Capital Structure<o:p></o:p></span></div>
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<b><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt;">Time: 11.30 </span></b><b><span style="font-family: "symbol"; letter-spacing: -.15pt; mso-ascii-font-family: "CG Times"; mso-char-type: symbol; mso-hansi-font-family: "CG Times"; mso-symbol-font-family: Symbol;">-</span></b><b><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt;"> 13.30 Working Lunch</span></b><span style="font-family: "arial"; font-size: 9.5pt;"> Continued Case Preparation: "Monmouth”<o:p></o:p></span></div>
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<b><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt;">Time: 13.30 – 14.45<o:p></o:p></span></b></div>
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<span style="font-family: "arial"; font-size: 9.5pt; mso-fareast-font-family: Arial;">•<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;"> </span></span><span style="font-family: "arial"; font-size: 9.5pt;">Discussion of Monmouth Case <o:p></o:p></span></div>
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<b><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt;">Time: 14.45 – 15:00 Break<o:p></o:p></span></b></div>
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<b><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt;">Time: 15.00 – 16.30<o:p></o:p></span></b></div>
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<span style="font-family: "symbol"; font-size: 9.5pt; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;"> </span></span><span style="font-family: "arial"; font-size: 9.5pt;">Financing the Deal<o:p></o:p></span></div>
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<span style="font-family: "courier new"; font-size: 9.5pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><span style="font-family: "arial"; font-size: 9.5pt;">Products<o:p></o:p></span></div>
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<span style="font-family: "courier new"; font-size: 9.5pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><span style="font-family: "arial"; font-size: 9.5pt;">Building the Capital Structure<o:p></o:p></span></div>
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<span style="font-family: "courier new"; font-size: 9.5pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><span style="font-family: "arial"; font-size: 9.5pt;">Tools<o:p></o:p></span></div>
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<b><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt;">Time: 16.30 – 17.00<o:p></o:p></span></b></div>
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<span style="font-family: "symbol"; font-size: 9.5pt; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;"> </span></span><span style="font-family: "arial"; font-size: 9.5pt;">Introduction to the Radnet Case<o:p></o:p></span></div>
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<span style="font-family: "courier new"; font-size: 9.5pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><span style="font-family: "arial"; font-size: 9.5pt;">This case examines issues surrounding the choice of financing arrangements for the acquisition of Radiologix. The case follows Mark Stolper, the CFO of RadNet, as he considers how to raise the $363 million in funds necessary to finance the acquisition. When completed, the combined firms will be the largest private diagnostic imaging provider in the United States. When Stolper joined RadNet three years earlier, he confronted a company with "too much debt, and the wrong kind of debt." His goal is to finance the acquisition in a way that further enhances the financial strength and operating flexibility of the company. Given the large size of funding required, the firm will unlikely be able to fund the entire transaction with first lien or bank debt. His financial advisors differ in their recommendations for how to raise the remaining funds.<o:p></o:p></span></div>
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<b><span style="font-family: "arial"; font-size: 13.0pt; letter-spacing: -.15pt;">Thursday December 10<br /><br /><o:p></o:p></span></b></div>
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<b><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt;">Pre-reading material <o:p></o:p></span></b></div>
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<span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt; mso-fareast-font-family: Arial;">•<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt;">Joseph Rizzi: “How much debt is right for your deal? The impact of market innovations on debt capacity”<o:p></o:p></span></div>
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<span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt; mso-fareast-font-family: Arial;">•<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt;">Rosenbaum and Pearl: Investment Banking<o:p></o:p></span></div>
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<span style="font-family: "courier new"; font-size: 9.5pt; letter-spacing: -.15pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt;">Chapter 4 - “Leveraged Buyouts”<o:p></o:p></span></div>
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<span style="font-family: "courier new"; font-size: 9.5pt; letter-spacing: -.15pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt;">Chapter 5 - “LBO Analysis”<o:p></o:p></span></div>
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<b><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt;">Social Event: 17.00 </span></b><b><span style="font-family: "symbol"; font-size: 9.5pt; letter-spacing: -.15pt; mso-ascii-font-family: Arial; mso-bidi-font-family: Arial; mso-char-type: symbol; mso-hansi-font-family: Arial; mso-symbol-font-family: Symbol;">-</span></b><b><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt;"> 18.30 Drinks with AIF<o:p></o:p></span></b></div>
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<span style="height: 18px; left: -3px; mso-ignore: vglayout; position: relative; top: 11px; width: 443px; z-index: 251731456;"><img height="7" src="file://localhost/Users/ralphwalkling/Library/Caches/TemporaryItems/msoclip/0/clip_image008.gif" v:shapes="AutoShape_x0020_47" width="443" /></span><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt;"><br clear="all" style="page-break-before: always;" /></span><b><span style="font-family: "arial"; font-size: 13.0pt; letter-spacing: -.15pt;">Friday December 11</span></b><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt;"><o:p></o:p></span></div>
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<b><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt;">Time: 09.00 – 13.00<o:p></o:p></span></b></div>
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<span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt; mso-fareast-font-family: Arial;">•<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt;">Debriefing of Day 2 and Introduction to Day 3<o:p></o:p></span></div>
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<span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt; mso-fareast-font-family: Arial;">•<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt;">Structuring the Deal: Mitigating Risk<o:p></o:p></span></div>
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<span style="font-family: "courier new"; font-size: 9.5pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><span style="font-family: "arial"; font-size: 9.5pt;">The Most Important Risks of the Deal<o:p></o:p></span></div>
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<span style="font-family: "courier new"; font-size: 9.5pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><span style="font-family: "arial"; font-size: 9.5pt;">Mitigating Deal Risk<o:p></o:p></span></div>
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<span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt; mso-fareast-font-family: Arial;">•<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt;">Structuring the Deal<o:p></o:p></span></div>
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<span style="font-family: "courier new"; font-size: 9.5pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><span style="font-family: "arial"; font-size: 9.5pt;">Covenants<o:p></o:p></span></div>
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<span style="font-family: "courier new"; font-size: 9.5pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><span style="font-family: "arial"; font-size: 9.5pt;">Expanding Debt Capacity<o:p></o:p></span></div>
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<span style="font-family: "courier new"; font-size: 9.5pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><span style="font-family: "arial"; font-size: 9.5pt;">Subordination<o:p></o:p></span></div>
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<span style="font-family: "courier new"; font-size: 9.5pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><span style="font-family: "arial"; font-size: 9.5pt;">Due Diligence<o:p></o:p></span></div>
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<span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt; mso-fareast-font-family: Arial;">•<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt;">Hostile Deals, Activists and Arbs<o:p></o:p></span></div>
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<span style="font-family: "courier new"; font-size: 9.5pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><span style="font-family: "arial"; font-size: 9.5pt;">Hostile Takeovers<o:p></o:p></span></div>
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<span style="font-family: "courier new"; font-size: 9.5pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><span style="font-family: "arial"; font-size: 9.5pt;">The Role of Activists<o:p></o:p></span></div>
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<span style="font-family: "courier new"; font-size: 9.5pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><span style="font-family: "arial"; font-size: 9.5pt;">The Importance of Arbs<o:p></o:p></span></div>
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<span style="font-family: "courier new"; font-size: 9.5pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><span style="font-family: "arial"; font-size: 9.5pt;">Defensive Strategies of the Target<o:p></o:p></span></div>
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<span style="font-family: "courier new"; font-size: 9.5pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><span style="font-family: "arial"; font-size: 9.5pt;">Understanding Speculation Spreads and What They Reveal<o:p></o:p></span></div>
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<span style="font-family: "arial"; font-size: 9.5pt; mso-fareast-font-family: Arial;">•<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;"> </span></span><span style="font-family: "arial"; font-size: 9.5pt;">Continued Case Preparation: “Radnet Inc.: Financing an Acquisition”<o:p></o:p></span></div>
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<b><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt;">Time: 13.00 </span></b><b><span style="font-family: "symbol"; font-size: 9.5pt; letter-spacing: -.15pt; mso-ascii-font-family: Arial; mso-bidi-font-family: Arial; mso-char-type: symbol; mso-hansi-font-family: Arial; mso-symbol-font-family: Symbol;">-</span></b><b><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt;"> 14.00 Lunch<o:p></o:p></span></b></div>
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<b><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt;">Time: 14.00 – 15.00<o:p></o:p></span></b></div>
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<span style="font-family: "symbol"; font-size: 9.5pt; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;"> </span></span><span style="font-family: "arial"; font-size: 9.5pt;">Continued Case Preparation: “Radnet Inc.: Financing an Acquisition”<o:p></o:p></span></div>
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<b><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt;">Time: 15.00 – 15.15 Break<o:p></o:p></span></b></div>
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<b><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt;">Time: 15.15 – 16.45<o:p></o:p></span></b></div>
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<div class="MsoListParagraph" style="line-height: 14.0pt; mso-hyphenate: none; mso-list: l4 level1 lfo4; tab-stops: -.5in 0in .5in 1.0in; text-indent: -.25in;">
<span style="font-family: "symbol"; font-size: 9.5pt; letter-spacing: -.15pt; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt;">Discussion of the Radnet Case <o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 14.0pt; margin-left: 1.0in; mso-hyphenate: none; mso-list: l4 level2 lfo4; tab-stops: -.5in; text-indent: -.25in;">
<span style="font-family: "courier new"; font-size: 9.5pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><span style="font-family: "arial"; font-size: 9.5pt;">Operating flexibility<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 14.0pt; margin-left: 1.0in; mso-hyphenate: none; mso-list: l4 level2 lfo4; tab-stops: -.5in; text-indent: -.25in;">
<span style="font-family: "courier new"; font-size: 9.5pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><span style="font-family: "arial"; font-size: 9.5pt;">Composition of investors<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 14.0pt; margin-left: 1.0in; mso-hyphenate: none; mso-list: l4 level2 lfo4; tab-stops: -.5in; text-indent: -.25in;">
<span style="font-family: "courier new"; font-size: 9.5pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><span style="font-family: "arial"; font-size: 9.5pt;">Repayment considerations<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 14.0pt; margin-left: 1.0in; mso-hyphenate: none; mso-list: l4 level2 lfo4; tab-stops: -.5in; text-indent: -.25in;">
<span style="font-family: "courier new"; font-size: 9.5pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><span style="font-family: "arial"; font-size: 9.5pt;">Type of debt<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 14.0pt; margin-left: 1.0in; mso-hyphenate: none; mso-list: l4 level2 lfo4; tab-stops: -.5in; text-indent: -.25in;">
<span style="font-family: "courier new"; font-size: 9.5pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><span style="font-family: "arial"; font-size: 9.5pt;">“The wrong type of debt”<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 14.0pt; margin-left: .5in; mso-hyphenate: none; mso-list: l4 level1 lfo4; tab-stops: -.5in; text-indent: -.25in;">
<span style="font-family: "symbol"; font-size: 9.5pt; letter-spacing: -.15pt; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt;">Wrap-up – Putting it All Together<o:p></o:p></span></div>
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<span style="font-family: "symbol"; font-size: 9.5pt; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;"> </span></span><span style="font-family: "arial"; font-size: 9.5pt;">Concluding comments<o:p></o:p></span></div>
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<div class="MsoNormal" style="line-height: 14.0pt; mso-hyphenate: none; tab-stops: -.5in 0in .5in 1.0in;">
<b><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt;">Time: 16.45 </span></b><b><span style="font-family: "symbol"; font-size: 9.5pt; letter-spacing: -.15pt; mso-ascii-font-family: Arial; mso-bidi-font-family: Arial; mso-char-type: symbol; mso-hansi-font-family: Arial; mso-symbol-font-family: Symbol;">-</span></b><b><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt;"> 17.00<o:p></o:p></span></b></div>
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<span style="font-family: "arial"; font-size: 9.5pt; mso-fareast-font-family: Arial;">•<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;"> </span></span><span style="font-family: "arial"; font-size: 9.5pt;">Completion of AIF Evaluation Form<span style="letter-spacing: -.15pt;"><br /></span><o:p></o:p></span></div>
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<b><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt;">Case material</span></b><b><span style="font-family: "arial"; font-size: 10.0pt; letter-spacing: -.15pt; mso-bidi-font-family: "Times New Roman";"><o:p></o:p></span></b></div>
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<span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt; mso-fareast-font-family: Arial;">•<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt;">"Radnet Case” <i>(to be distributed during class on Day 1)<b><o:p></o:p></b></i></span></div>
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<b><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt;">Pre-reading material <o:p></o:p></span></b></div>
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<span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt; mso-fareast-font-family: Arial;">•<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt;">Rosenbaum and Pearl: Investment Banking<o:p></o:p></span></div>
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<span style="font-family: "courier new"; font-size: 9.5pt; letter-spacing: -.15pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt;">Chapter 6 - “Sell Side M&A”<o:p></o:p></span></div>
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<span style="font-family: "courier new"; font-size: 9.5pt; letter-spacing: -.15pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt;">Chapter 7 - “Buy Side M&A”<o:p></o:p></span></div>
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MergerProfhttp://www.blogger.com/profile/14980171226758349881noreply@blogger.com2tag:blogger.com,1999:blog-4483849646274493821.post-63433654580795939192015-11-30T03:30:00.000-05:002015-11-30T03:30:05.026-05:00 Keep It Simple Stupid: The New York Community Bank Astoria Financial Acquisition<div class="MsoNormal" style="text-indent: .5in;">
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New York Community Bank (NYCM) announced on October 29 the
$2B acquisition of Astoria Financial (AF). The market reaction was brutal with
NYCB dropping 8% (around $500 Mln) and AF losing 6%. <span style="mso-spacerun: yes;"> </span>Perhaps, the AF drops reflects the
depreciating value of the NYCB stock it is receiving. It is unusual for both
the buyer and seller to drop. It is an in-market deal which should lead to cost
saves. The price is full, but on its face does not seem excessive at 15%
premium (over stock which may have run up in anticipation of a bid), 1.6X
tangible book (1.2X book) and 30X AF earnings (high, but may reflect AF weak
earnings?).<o:p></o:p></div>
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So what happened? Well it seems plenty happened beneath the
surface including:<o:p></o:p></div>
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<!--[if !supportLists]--><span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="mso-list: Ignore;">1)<span style="font: 7.0pt "Times New Roman";">
</span></span></span><!--[endif]-->Regulatory: the acquisition pushes NYCB past the
$50B regulatory threshold. This means it will be subject to more intense
regulation. Some estimate the incremental costs at $10 Mln+ p.a. <span style="mso-spacerun: yes;"> </span>for items like compliance. Not necessarily bad
if part of a higher value strategy. Nonetheless, it needs to be explained to
investors so they can evaluate.<o:p></o:p></div>
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<!--[if !supportLists]--><span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="mso-list: Ignore;">2)<span style="font: 7.0pt "Times New Roman";">
</span></span></span><!--[endif]-->Charge: NYCB is changing its capital structure
by repaying existing debt. This triggers a $615 Mln charge represents 4X
estimated first year cost savings and 30% of the purchase price. The cost plus
premium starts to make this look like an expensive deal. The reduced debt
lowers the interest tax shield and further lowers NYCB’s value. May be a
preemptive regulatory action to ensure the deal’s approval?<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="mso-list: l0 level1 lfo1; text-indent: -.25in;">
<!--[if !supportLists]--><span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="mso-list: Ignore;">3)<span style="font: 7.0pt "Times New Roman";">
</span></span></span><!--[endif]-->Equity Issuance: NYCB is diluting existing
shareholders by a) issuing $600 Mln+ in new equity to cover the charge listed
above and b) equity consideration for 80% of the purchase price. This is a
sizeable surprise. <o:p></o:p></div>
<div class="MsoListParagraphCxSpLast" style="mso-list: l0 level1 lfo1; text-indent: -.25in;">
<!--[if !supportLists]--><span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="mso-list: Ignore;">4)<span style="font: 7.0pt "Times New Roman";">
</span></span></span><!--[endif]-->Dividend Cut: NYCB is cutting its dividend by
35%. NYCB had been a high dividend yielding stock and attracted a dividend
seeking clientele. To be fair this may be due to regulatory concerns to ensure
the deal’s approval.<o:p></o:p></div>
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<span style="mso-spacerun: yes;"> </span>This deal is a net
negative and a real turkey (sorry for the pun given the season). The deal may
be strategic, but the price and the financial policy changes make it a loser.
When acquiring it is best to keep things simple and to explain clearly your
actions to your shareholders. <o:p></o:p></div>
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J<o:p></o:p></div>
MergerProfhttp://www.blogger.com/profile/14980171226758349881noreply@blogger.com2tag:blogger.com,1999:blog-4483849646274493821.post-26652902220890204212015-11-23T03:30:00.000-05:002015-11-23T03:30:00.673-05:00Another One Bites The Dust: The Perils of Debt Syndication<br /><div class="MsoNormal">
I <a href="http://www.mergerprof.com/2015/10/the-changing-investor-menus-of.html">previously</a>
highlighted the perils of leveraged debt syndications. Another recent failed
transaction is <a href="http://techcrunch.com/2015/08/11/symantec-sells-veritas-division-to-private-equity-group-for-8b/">Veritas</a>-the
seventh broken Euro high yield deal this year. Veritas is a large complex cross
border transaction. At $8B it is the largest LBO in 2015. Carlyle and GIC
(Singapore’s sovereign wealth fund) agreed to purchase Veitas, Symantec’s data
storage unit, in August. The deal takes place in a year in which private equity
has faced high purchase prices due to competition from strategic acquirers.
Thus, Carlyle likely paid a full price for Veritas.<o:p></o:p></div>
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<br /></div>
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Some details of the deal are as follows:<o:p></o:p></div>
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<br /></div>
<div class="MsoListParagraphCxSpFirst" style="mso-list: l1 level1 lfo1; text-indent: -.25in;">
<!--[if !supportLists]--><span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="mso-list: Ignore;">1)<span style="font: 7.0pt "Times New Roman";">
</span></span></span><!--[endif]-->Debt Underwriters: Bank of America, Morgan
Stanley, Goldman Sachs, UBS, Jefferies, Barclays, Citi, and Credit Suisse.<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="mso-list: l1 level1 lfo1; text-indent: -.25in;">
<!--[if !supportLists]--><span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="mso-list: Ignore;">2)<span style="font: 7.0pt "Times New Roman";">
</span></span></span><!--[endif]-->Original Financing Package: $2.45B term loan,
Euro 760MM term loan, $500MM secured notes, and $1.775B unsecured notes. Both
term loans were covenant-lite.<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="mso-list: l1 level1 lfo1; text-indent: -.25in;">
<!--[if !supportLists]--><span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="mso-list: Ignore;">3)<span style="font: 7.0pt "Times New Roman";">
</span></span></span><!--[endif]-->Revised Financing Proposal (because the original
failed): $1.5B term loan, Euro 760MM term loan, $700MM secured notes, and$700MM
retained by the underwriters-never a good sign of the deal’s strength. Both
term loans are covenant-lite.<o:p></o:p></div>
<div class="MsoListParagraphCxSpLast" style="mso-list: l1 level1 lfo1; text-indent: -.25in;">
<!--[if !supportLists]--><span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="mso-list: Ignore;">4)<span style="font: 7.0pt "Times New Roman";">
</span></span></span><!--[endif]-->Leverage: giving full credit to pro forma EBITDA
improvements yields leverage of 4.5X for the senior and 6.5X total debt. The
trailing unadjusted EBITDA leverage is higher. Even at 6.5X pro forma, the
level will raise regulatory concerns as it exceeds their 6X threshold. The
issuer is rated B/B2.<o:p></o:p></div>
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<br /></div>
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Investor concerns include:<o:p></o:p></div>
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<br /></div>
<div class="MsoListParagraphCxSpFirst" style="mso-list: l0 level1 lfo2; text-indent: -.25in;">
<!--[if !supportLists]--><span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="mso-list: Ignore;">1)<span style="font: 7.0pt "Times New Roman";">
</span></span></span><!--[endif]-->Size: largest deal of the year.<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="mso-list: l0 level1 lfo2; text-indent: -.25in;">
<!--[if !supportLists]--><span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="mso-list: Ignore;">2)<span style="font: 7.0pt "Times New Roman";">
</span></span></span><!--[endif]-->Business Risk: data storage and cloud
uncertainty suggest high business risk.<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="mso-list: l0 level1 lfo2; text-indent: -.25in;">
<!--[if !supportLists]--><span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="mso-list: Ignore;">3)<span style="font: 7.0pt "Times New Roman";">
</span></span></span><!--[endif]-->Leverage: see above.<o:p></o:p></div>
<div class="MsoListParagraphCxSpLast" style="mso-list: l0 level1 lfo2; text-indent: -.25in;">
<!--[if !supportLists]--><span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="mso-list: Ignore;">4)<span style="font: 7.0pt "Times New Roman";">
</span></span></span><!--[endif]-->Difficult to Analyze: divisional buyouts are
always hard to evaluate. You are concerned with historical parent cost
allocations, and whether the standalone unit can operate as an independent business.
Usually underwriters require a forensic accounting review, which is shared with
potential investors to give them comfort regarding historical performance. The
review reconstructs the historical financial statements. For some reason that
was not required here. No wonder investors are reluctant to commit. How can you
build reliable reliable debt service models off of unaudited divisional
financial statements? <o:p></o:p></div>
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<div class="MsoNormal">
I don’t think the market is losing faith in leveraged debt.
Rather this appears to be a poorly structured deal agreed to before the mid
August correction by aggressive underwriters trying to win a prestige
assignment. Sometimes you have to be careful about what you wish for as may
just get it. The underwriters are now getting it.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
J</div>
MergerProfhttp://www.blogger.com/profile/14980171226758349881noreply@blogger.com2tag:blogger.com,1999:blog-4483849646274493821.post-66428923800759376502015-11-19T17:25:00.002-05:002015-11-19T17:25:30.074-05:00Acquisition Finance Class in Amsterdam - Still time to Sign Up!<div class="MsoNormal" style="line-height: 14.0pt;">
<span style="font-family: "arial";"><span style="letter-spacing: -0.2px;">I promised to post the compete outline for our upcoming course in Amsterdam on Acquisition Finance. Here is is. There is still time to <a href="http://www.aif.nl/programs/open-enrollment-programs/acquisition-finance-structuring-the-deal.aspx?PID=61" target="_blank">sign up</a> - we hope to meet you there.</span></span></div>
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<span style="font-family: "arial";"><span style="letter-spacing: -0.2px;"><br /></span></span></div>
<div class="MsoNormal" style="line-height: 14.0pt;">
<span style="font-family: "arial";"><span style="letter-spacing: -0.2px;">All the best,</span></span></div>
<div class="MsoNormal" style="line-height: 14.0pt;">
<span style="font-family: "arial";"><span style="letter-spacing: -0.2px;"><br /></span></span></div>
<div class="MsoNormal" style="line-height: 14.0pt;">
<span style="font-family: "arial";"><span style="letter-spacing: -0.2px;">Ralph</span></span></div>
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<b style="mso-bidi-font-weight: normal;"><span style="font-family: "arial"; font-size: 13.0pt; letter-spacing: -.15pt;"><br /></span></b></div>
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<b style="mso-bidi-font-weight: normal;"><span style="font-family: "arial"; font-size: 13.0pt; letter-spacing: -.15pt;">Wednesday
December 9, 2015<o:p></o:p></span></b></div>
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<b><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt;">Time: 09.00
– 13:00<o:p></o:p></span></b></div>
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<!--[if !supportLists]--><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt; mso-fareast-font-family: Arial;">•<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt;">Introduction <o:p></o:p></span></div>
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<br /></div>
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<!--[if !supportLists]--><span style="font-family: "arial"; font-size: 9.5pt; mso-fareast-font-family: Arial;">•<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><span style="font-family: "arial"; font-size: 9.5pt;">Overview
of Acquisition Finance: Structuring the Deal
<o:p></o:p></span></div>
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<span style="font-family: "arial"; font-size: 9.5pt;">This session presents an overview of
the program - outlining advantages, risks and current trends in acquisition
finance. Particular attention is given to sources of gains in acquisition
finance and the opportunities and risks entailed in highly levered
transactions. The following topics will be discussed:<o:p></o:p></span></div>
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<!--[if !supportLists]--><span style="font-family: "courier new"; font-size: 9.5pt; letter-spacing: -.15pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt;">How Acquisition Finance Creates Value<o:p></o:p></span></div>
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<!--[if !supportLists]--><span style="font-family: "courier new"; font-size: 9.5pt; letter-spacing: -.15pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt;">Participants, Products, Risk and Return<o:p></o:p></span></div>
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<!--[if !supportLists]--><span style="font-family: "courier new"; font-size: 9.5pt; letter-spacing: -.15pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt;">The Importance of Markets<o:p></o:p></span></div>
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<!--[if !supportLists]--><span style="font-family: "courier new"; font-size: 9.5pt; letter-spacing: -.15pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt;">The Whole Deal Approach: <o:p></o:p></span></div>
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<!--[if !supportLists]--><span style="font-family: "wingdings"; font-size: 9.5pt; letter-spacing: -.15pt; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;">§<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><!--[endif]--><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt;">Understanding
Participant Motivations<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 14.0pt; margin-left: 1.5in; mso-hyphenate: none; mso-list: l0 level3 lfo1; tab-stops: -.5in; text-indent: -.25in;">
<!--[if !supportLists]--><span style="font-family: "wingdings"; font-size: 9.5pt; letter-spacing: -.15pt; mso-bidi-font-family: Wingdings; mso-fareast-font-family: Wingdings;">§<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><!--[endif]--><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt;">The interaction
of Deal Components<o:p></o:p></span></div>
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<br /></div>
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<!--[if !supportLists]--><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt; mso-fareast-font-family: Arial;">•<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: "arial"; font-size: 9.5pt;">The
Acquisition Process <span style="letter-spacing: -.15pt;"><o:p></o:p></span></span></div>
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<!--[if !supportLists]--><span style="font-family: "courier new"; font-size: 9.5pt; letter-spacing: -.15pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: "arial"; font-size: 9.5pt;">Timeline
of the Acquisition Process<span style="letter-spacing: -.15pt;"><o:p></o:p></span></span></div>
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<!--[if !supportLists]--><span style="font-family: "courier new"; font-size: 9.5pt; letter-spacing: -.15pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: "arial"; font-size: 9.5pt;">Motives
for Acquisition<span style="letter-spacing: -.15pt;"><o:p></o:p></span></span></div>
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<!--[if !supportLists]--><span style="font-family: "courier new"; font-size: 9.5pt; letter-spacing: -.15pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: "arial"; font-size: 9.5pt;">Characteristics
of Targets<span style="letter-spacing: -.15pt;"><o:p></o:p></span></span></div>
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<!--[if !supportLists]--><span style="font-family: "courier new"; font-size: 9.5pt; letter-spacing: -.15pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: "arial"; font-size: 9.5pt;">Types
of Deals<span style="letter-spacing: -.15pt;"><o:p></o:p></span></span></div>
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<!--[if !supportLists]--><span style="font-family: "courier new"; font-size: 9.5pt; letter-spacing: -.15pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: "arial"; font-size: 9.5pt;">Ideal
Qualities for LBO Candidates<span style="letter-spacing: -.15pt;"><o:p></o:p></span></span></div>
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<!--[if !supportLists]--><span style="font-family: "arial"; font-size: 9.5pt; mso-fareast-font-family: Arial;">•<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]--><span style="font-family: "arial"; font-size: 9.5pt;">Key
Participants and Markets in Acquisition Finance <o:p></o:p></span></div>
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</span></span><!--[endif]--><span style="font-family: "arial"; font-size: 9.5pt;">PE
Sponsors <o:p></o:p></span></div>
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<!--[if !supportLists]--><span style="font-family: "courier new"; font-size: 9.5pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: "arial"; font-size: 9.5pt;">Institutional
Equity Investors<o:p></o:p></span></div>
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<!--[if !supportLists]--><span style="font-family: "courier new"; font-size: 9.5pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: "arial"; font-size: 9.5pt;">Management<o:p></o:p></span></div>
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<!--[if !supportLists]--><span style="font-family: "courier new"; font-size: 9.5pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: "arial"; font-size: 9.5pt;">Lenders<o:p></o:p></span></div>
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<!--[if !supportLists]--><span style="font-family: "courier new"; font-size: 9.5pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: "arial"; font-size: 9.5pt;">Corporate<o:p></o:p></span></div>
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<!--[if !supportLists]--><span style="font-family: "courier new"; font-size: 9.5pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: "arial"; font-size: 9.5pt;">Understanding
Markets<o:p></o:p></span></div>
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<!--[if !supportLists]--><span style="font-family: "courier new"; font-size: 9.5pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: "arial"; font-size: 9.5pt;">Current
European Market Overview<o:p></o:p></span></div>
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<!--[if !supportLists]--><span style="font-family: "arial"; font-size: 9.5pt; mso-fareast-font-family: Arial;">•<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: "arial"; font-size: 9.5pt;">Valuing
the Target– a Quick Review <o:p></o:p></span></div>
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<span style="font-family: "arial"; font-size: 9.5pt;">This session provides a review of
valuation tools and models, discussing the strengths and weaknesses of each as
well as their application to acquisition finance. </span><span style="letter-spacing: -.15pt;"><o:p></o:p></span></div>
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<!--[if !supportLists]--><span style="font-family: "courier new"; font-size: 9.5pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: "arial"; font-size: 9.5pt;">Discounted
Cash Flow<o:p></o:p></span></div>
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<!--[if !supportLists]--><span style="font-family: "courier new"; font-size: 9.5pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: "arial"; font-size: 9.5pt;">Multiples<o:p></o:p></span></div>
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<!--[if !supportLists]--><span style="font-family: "courier new"; font-size: 9.5pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: "arial"; font-size: 9.5pt;">Comparable
Transactions<o:p></o:p></span></div>
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<!--[if !supportLists]--><span style="font-family: "courier new"; font-size: 9.5pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: "arial"; font-size: 9.5pt;">Determining
the Discount Rate in DCF <o:p></o:p></span></div>
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<!--[if !supportLists]--><span style="font-family: "courier new"; font-size: 9.5pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: "arial"; font-size: 9.5pt;">Terminal
Value and The Exit Process<o:p></o:p></span></div>
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<!--[if !supportLists]--><span style="font-family: "courier new"; font-size: 9.5pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: "arial"; font-size: 9.5pt;">Valuing
Synergies<o:p></o:p></span></div>
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</span></span><!--[endif]--><span style="font-family: "arial"; font-size: 9.5pt;">Specialized
Cases<o:p></o:p></span></div>
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<br /></div>
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<b><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt;">Time: 13.00
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<b><span style="font-family: "arial"; font-size: 13.0pt; letter-spacing: -.15pt;">Wednesday
December 9<o:p></o:p></span></b></div>
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<b><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt;">Time: 14.00
</span></b><b><span style="font-family: "symbol"; font-size: 9.5pt; letter-spacing: -.15pt; mso-ascii-font-family: Arial; mso-bidi-font-family: Arial; mso-char-type: symbol; mso-hansi-font-family: Arial; mso-symbol-font-family: Symbol;">-</span></b><b><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt;"> 15.30 <o:p></o:p></span></b></div>
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<!--[if !supportLists]--><span style="font-family: "symbol"; font-size: 9.5pt; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]--><span style="font-family: "arial"; font-size: 9.5pt;">Valuing
Late-Stage Companies and Buyouts <o:p></o:p></span></div>
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<br /></div>
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<!--[if !supportLists]--><span style="font-family: "symbol"; font-size: 9.5pt; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]--><span style="font-family: "arial"; font-size: 9.5pt;">Mergers
and Acquisitions: Who Wins? Who Loses <o:p></o:p></span></div>
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<!--[if !supportLists]--><span style="font-family: "courier new"; font-size: 9.5pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: "arial"; font-size: 9.5pt;">Measuring
Abnormal Returns<o:p></o:p></span></div>
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<!--[if !supportLists]--><span style="font-family: "courier new"; font-size: 9.5pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: "arial"; font-size: 9.5pt;">Assumptions
behind Event Studies<o:p></o:p></span></div>
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<!--[if !supportLists]--><span style="font-family: "courier new"; font-size: 9.5pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: "arial"; font-size: 9.5pt;">The
Empirical Evidence<o:p></o:p></span></div>
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<!--[if !supportLists]--><span style="font-family: "courier new"; font-size: 9.5pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: "arial"; font-size: 9.5pt;">Adjusting
for Anticipation<o:p></o:p></span></div>
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<!--[if !supportLists]--><span style="font-family: "arial"; font-size: 9.5pt; mso-fareast-font-family: Arial;">•<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: "arial"; font-size: 9.5pt;">Deals
in the News: including Ahold/Delhaize, ABN-IPO, Perrigo/Mylan, Noikia
Cablevision <o:p></o:p></span></div>
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<b><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt;">Time: 15.30 </span></b><b><span style="font-family: "symbol"; font-size: 9.5pt; letter-spacing: -.15pt; mso-ascii-font-family: Arial; mso-bidi-font-family: Arial; mso-char-type: symbol; mso-hansi-font-family: Arial; mso-symbol-font-family: Symbol;">-</span></b><b><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt;"> 15.45 Break<o:p></o:p></span></b></div>
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<b><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt;">Time:
15.45 </span></b><b><span style="font-family: "symbol"; letter-spacing: -.15pt; mso-ascii-font-family: "CG Times"; mso-char-type: symbol; mso-hansi-font-family: "CG Times"; mso-symbol-font-family: Symbol;">-</span></b><b><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt;">
17.00 </span></b><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt;">Initial<b> </b></span><span style="font-family: "arial"; font-size: 9.5pt;">Case Preparation: "Monmouth” <o:p></o:p></span></div>
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<!--[if !supportLists]--><span style="font-family: "courier new"; font-size: 9.5pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: "arial"; font-size: 9.5pt;">The
management of Monmouth Inc. is considering whether to acquire the Robertson
Tool Company and the value and form that the acquisition should take. Value can be assessed using a variety of
approaches including a DCF with WACC analysis, impact on EPS and market
multiples. The case also requires
consideration of how the offer should be designed and implemented.<o:p></o:p></span></div>
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<b><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt;">Case material<o:p></o:p></span></b></div>
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<!--[if !supportLists]--><span style="font-family: "symbol"; font-size: 6.0pt; letter-spacing: -.15pt; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt;">“Monmouth” </span><span style="font-family: "arial"; font-size: 6.0pt; letter-spacing: -.15pt;"><o:p></o:p></span></div>
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<br /></div>
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<b><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt;">Pre-reading material </span></b><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt;"><o:p></o:p></span></div>
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<!--[if !supportLists]--><span style="font-family: "arial"; font-size: 9.5pt; mso-fareast-font-family: Arial;">•<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt;">Rosenbaum and Pearl: Investment Banking</span><span style="font-family: "arial"; font-size: 9.5pt;"><o:p></o:p></span></div>
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<!--[if !supportLists]--><span style="font-family: "courier new"; font-size: 9.5pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: "arial"; font-size: 9.5pt;">Chapter
1 - "Comparable Companies Analysis”<o:p></o:p></span></div>
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<!--[if !supportLists]--><span style="font-family: "courier new"; font-size: 9.5pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: "arial"; font-size: 9.5pt;">Chapter
2 – “Precedent Transaction Analysis”<o:p></o:p></span></div>
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<!--[if !supportLists]--><span style="font-family: "courier new"; font-size: 9.5pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: "arial"; font-size: 9.5pt;">Chapter
3 – “Discounted Cash Flow Analysis”<o:p></o:p></span></div>
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<!--[if !supportLists]--><span style="font-family: "arial"; font-size: 9.5pt; mso-fareast-font-family: Arial;">•<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: "arial"; font-size: 9.5pt;">Joseph
Rizzi: “Back to the Future Again: Private Equity After the Crisis”, Journal of
Applied Finance, Volume 19, No. 1&2 2009<o:p></o:p></span></div>
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<!--[if !supportLists]--><span style="font-family: "arial"; font-size: 9.5pt; mso-fareast-font-family: Arial;">•<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: "arial"; font-size: 9.5pt;">Valuation
of Late-Stage Companies and Buyouts, UVA-F-1639 by Susan Chaplinsky<o:p></o:p></span></div>
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</span></b>
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<b><span style="font-family: "arial"; font-size: 13.0pt; letter-spacing: -.15pt;">Thursday
December 10<o:p></o:p></span></b></div>
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<b><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt;">Time: 09.00
– 11.30<o:p></o:p></span></b></div>
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<br /></div>
<div class="MsoListParagraphCxSpFirst" style="mso-list: l1 level1 lfo5; mso-pagination: widow-orphan; text-indent: -.25in;">
<!--[if !supportLists]--><span style="font-family: "symbol"; font-size: 9.5pt; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;"> </span></span><!--[endif]--><span style="font-family: "arial"; font-size: 9.5pt;">Debriefing of Day 1 and Introduction
to Day 2<o:p></o:p></span></div>
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<br /></div>
<div class="MsoListParagraphCxSpLast" style="mso-list: l1 level1 lfo5; mso-pagination: widow-orphan; text-indent: -.25in;">
<!--[if !supportLists]--><span style="font-family: "symbol"; font-size: 9.5pt; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;"> </span></span><!--[endif]--><span style="font-family: "arial"; font-size: 9.5pt;">Capital Structure - Theory <o:p></o:p></span></div>
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<!--[if !supportLists]--><span style="font-family: "courier new"; font-size: 9.5pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: "arial"; font-size: 9.5pt;">How
Capital Structure Creates or Destroys Value<o:p></o:p></span></div>
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<!--[if !supportLists]--><span style="font-family: "courier new"; font-size: 9.5pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: "arial"; font-size: 9.5pt;">Capital
Structure Theory – A Review<o:p></o:p></span></div>
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<!--[if !supportLists]--><span style="font-family: "courier new"; font-size: 9.5pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: "arial"; font-size: 9.5pt;">The
Three Impacts of Debt<o:p></o:p></span></div>
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<!--[if !supportLists]--><span style="font-family: "courier new"; font-size: 9.5pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: "arial"; font-size: 9.5pt;">Debt
vs. Equity<o:p></o:p></span></div>
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<!--[if !supportLists]--><span style="font-family: "courier new"; font-size: 9.5pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: "arial"; font-size: 9.5pt;">Empirical
Evidence<o:p></o:p></span></div>
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<div class="MsoListParagraphCxSpLast" style="mso-list: l1 level1 lfo5; mso-pagination: widow-orphan; text-indent: -.25in;">
<!--[if !supportLists]--><span style="font-family: "symbol"; font-size: 9.5pt; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;"> </span></span><!--[endif]--><span style="font-family: "arial"; font-size: 9.5pt;">Capital Structure - Practice <o:p></o:p></span></div>
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<!--[if !supportLists]--><span style="font-family: "courier new"; font-size: 9.5pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: "arial"; font-size: 9.5pt;">Historical
Overview<o:p></o:p></span></div>
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<!--[if !supportLists]--><span style="font-family: "courier new"; font-size: 9.5pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: "arial"; font-size: 9.5pt;">Understanding
the Cycle of Purchase Price Multiples<o:p></o:p></span></div>
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<!--[if !supportLists]--><span style="font-family: "courier new"; font-size: 9.5pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: "arial"; font-size: 9.5pt;">Different
Approach of PE re Valuation and Capital Structure<o:p></o:p></span></div>
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<br /></div>
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<b><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt;">Time:
11.30 </span></b><b><span style="font-family: "symbol"; letter-spacing: -.15pt; mso-ascii-font-family: "CG Times"; mso-char-type: symbol; mso-hansi-font-family: "CG Times"; mso-symbol-font-family: Symbol;">-</span></b><b><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt;">
13.30 Working Lunch</span></b><span style="font-family: "arial"; font-size: 9.5pt;">
Continued Case Preparation:
"Monmouth” <o:p></o:p></span></div>
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<b><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt;">Time: 13.30
– 14.45<o:p></o:p></span></b></div>
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<!--[if !supportLists]--><span style="font-family: "arial"; font-size: 9.5pt; mso-fareast-font-family: Arial;">•<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]--><span style="font-family: "arial"; font-size: 9.5pt;">Discussion
of Monmouth Case <o:p></o:p></span></div>
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<b><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt;">Time: 14.45
– 15:00 Break<o:p></o:p></span></b></div>
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<b><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt;">Time: 15.00
– 16.30<o:p></o:p></span></b></div>
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<!--[if !supportLists]--><span style="font-family: "symbol"; font-size: 9.5pt; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]--><span style="font-family: "arial"; font-size: 9.5pt;">Financing
the Deal <o:p></o:p></span></div>
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<!--[if !supportLists]--><span style="font-family: "courier new"; font-size: 9.5pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: "arial"; font-size: 9.5pt;">Products<o:p></o:p></span></div>
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<!--[if !supportLists]--><span style="font-family: "courier new"; font-size: 9.5pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: "arial"; font-size: 9.5pt;">Building
the Capital Structure<o:p></o:p></span></div>
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<!--[if !supportLists]--><span style="font-family: "courier new"; font-size: 9.5pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: "arial"; font-size: 9.5pt;">Tools<o:p></o:p></span></div>
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<b><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt;">Time: 16.30
– 17.00<o:p></o:p></span></b></div>
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<!--[if !supportLists]--><span style="font-family: "symbol"; font-size: 9.5pt; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]--><span style="font-family: "arial"; font-size: 9.5pt;">Introduction
to the Radnet Case<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 14.0pt; margin-left: 1.0in; mso-hyphenate: none; mso-list: l1 level2 lfo5; tab-stops: -.5in; text-indent: -.25in;">
<!--[if !supportLists]--><span style="font-family: "courier new"; font-size: 9.5pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: "arial"; font-size: 9.5pt;">This
case examines issues surrounding the choice of financing arrangements for the
acquisition of Radiologix. The case follows Mark Stolper, the CFO of RadNet, as
he considers how to raise the $363 million in funds necessary to finance the
acquisition. When completed, the combined firms will be the largest private
diagnostic imaging provider in the United States. When Stolper joined RadNet three
years earlier, he confronted a company with "too much debt, and the wrong
kind of debt." His goal is to finance the acquisition in a way that
further enhances the financial strength and operating flexibility of the
company. Given the large size of funding required, the firm will unlikely be
able to fund the entire transaction with first lien or bank debt. His financial
advisors differ in their recommendations for how to raise the remaining funds.<o:p></o:p></span></div>
<b><span style="font-family: "arial"; font-size: 13.0pt; layout-grid-mode: line; letter-spacing: -.15pt; mso-ansi-language: EN-US; mso-bidi-language: AR-SA; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-US;"><br clear="all" />
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<b><span style="font-family: "arial"; font-size: 13.0pt; letter-spacing: -.15pt;">Thursday
December 10<br />
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<b><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt;">Pre-reading
material <o:p></o:p></span></b></div>
<div class="MsoNormal" style="line-height: 14.0pt; margin-left: .5in; mso-hyphenate: none; mso-list: l0 level1 lfo1; tab-stops: -.5in; text-indent: -.25in;">
<!--[if !supportLists]--><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt; mso-fareast-font-family: Arial;">•<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt;">Joseph Rizzi: “How much debt is right for your deal? The impact of market innovations on debt
capacity” <o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 14.0pt; margin-left: .5in; mso-hyphenate: none; mso-list: l0 level1 lfo1; tab-stops: -.5in; text-indent: -.25in;">
<!--[if !supportLists]--><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt; mso-fareast-font-family: Arial;">•<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt;">Rosenbaum and Pearl: Investment Banking<o:p></o:p></span></div>
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<!--[if !supportLists]--><span style="font-family: "courier new"; font-size: 9.5pt; letter-spacing: -.15pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt;">Chapter 4 - “Leveraged Buyouts”<o:p></o:p></span></div>
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<!--[if !supportLists]--><span style="font-family: "courier new"; font-size: 9.5pt; letter-spacing: -.15pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt;">Chapter 5 - “LBO
Analysis”<o:p></o:p></span></div>
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<b><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt;">Social Event: 17.00
</span></b><b><span style="font-family: "symbol"; font-size: 9.5pt; letter-spacing: -.15pt; mso-ascii-font-family: Arial; mso-bidi-font-family: Arial; mso-char-type: symbol; mso-hansi-font-family: Arial; mso-symbol-font-family: Symbol;">-</span></b><b><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt;"> 18.30 Drinks with AIF<o:p></o:p></span></b></div>
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</span><b><span style="font-family: "arial"; font-size: 13.0pt; letter-spacing: -.15pt;">Friday December 11</span></b><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt;"><o:p></o:p></span></div>
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<b><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt;">Time: 09.00
– 13.00<o:p></o:p></span></b></div>
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<!--[if !supportLists]--><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt; mso-fareast-font-family: Arial;">•<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt;">Debriefing of Day 2 and Introduction to Day 3<o:p></o:p></span></div>
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<!--[if !supportLists]--><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt; mso-fareast-font-family: Arial;">•<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt;">Structuring the Deal: Mitigating Risk <o:p></o:p></span></div>
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<!--[if !supportLists]--><span style="font-family: "courier new"; font-size: 9.5pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: "arial"; font-size: 9.5pt;">The
Most Important Risks of the Deal<o:p></o:p></span></div>
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<!--[if !supportLists]--><span style="font-family: "courier new"; font-size: 9.5pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: "arial"; font-size: 9.5pt;">Mitigating
Deal Risk <o:p></o:p></span></div>
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<!--[if !supportLists]--><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt; mso-fareast-font-family: Arial;">•<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt;">Structuring the Deal <o:p></o:p></span></div>
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<!--[if !supportLists]--><span style="font-family: "courier new"; font-size: 9.5pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: "arial"; font-size: 9.5pt;">Covenants<o:p></o:p></span></div>
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<!--[if !supportLists]--><span style="font-family: "courier new"; font-size: 9.5pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: "arial"; font-size: 9.5pt;">Expanding
Debt Capacity<o:p></o:p></span></div>
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<!--[if !supportLists]--><span style="font-family: "courier new"; font-size: 9.5pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: "arial"; font-size: 9.5pt;">Subordination<o:p></o:p></span></div>
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<!--[if !supportLists]--><span style="font-family: "courier new"; font-size: 9.5pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: "arial"; font-size: 9.5pt;">Due
Diligence <o:p></o:p></span></div>
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<!--[if !supportLists]--><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt; mso-fareast-font-family: Arial;">•<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt;">Hostile Deals, Activists and Arbs <o:p></o:p></span></div>
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<!--[if !supportLists]--><span style="font-family: "courier new"; font-size: 9.5pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: "arial"; font-size: 9.5pt;">Hostile
Takeovers<o:p></o:p></span></div>
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<!--[if !supportLists]--><span style="font-family: "courier new"; font-size: 9.5pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: "arial"; font-size: 9.5pt;">The
Role of Activists<o:p></o:p></span></div>
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<!--[if !supportLists]--><span style="font-family: "courier new"; font-size: 9.5pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: "arial"; font-size: 9.5pt;">The
Importance of Arbs<o:p></o:p></span></div>
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<!--[if !supportLists]--><span style="font-family: "courier new"; font-size: 9.5pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: "arial"; font-size: 9.5pt;">Defensive
Strategies of the Target<o:p></o:p></span></div>
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<!--[if !supportLists]--><span style="font-family: "courier new"; font-size: 9.5pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: "arial"; font-size: 9.5pt;">Understanding
Speculation Spreads and What They Reveal<o:p></o:p></span></div>
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<!--[if !supportLists]--><span style="font-family: "arial"; font-size: 9.5pt; mso-fareast-font-family: Arial;">•<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]--><span style="font-family: "arial"; font-size: 9.5pt;">Continued
Case Preparation: “Radnet Inc.: Financing an Acquisition”<o:p></o:p></span></div>
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<br /></div>
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<b><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt;">Time: 13.00
</span></b><b><span style="font-family: "symbol"; font-size: 9.5pt; letter-spacing: -.15pt; mso-ascii-font-family: Arial; mso-bidi-font-family: Arial; mso-char-type: symbol; mso-hansi-font-family: Arial; mso-symbol-font-family: Symbol;">-</span></b><b><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt;"> 14.00 Lunch<o:p></o:p></span></b></div>
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<b><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt;">Time: 14.00
– 15.00<o:p></o:p></span></b></div>
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<!--[if !supportLists]--><span style="font-family: "symbol"; font-size: 9.5pt; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;"> </span></span><!--[endif]--><span style="font-family: "arial"; font-size: 9.5pt;">Continued Case Preparation: “Radnet
Inc.: Financing an Acquisition”<o:p></o:p></span></div>
<div class="MsoListParagraphCxSpLast" style="margin-left: .25in; mso-add-space: auto;">
<br /></div>
<div class="MsoNormal" style="line-height: 14.0pt; mso-hyphenate: none; tab-stops: -.5in 0in .5in 1.0in;">
<b><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt;">Time: 15.00
– 15.15 Break<o:p></o:p></span></b></div>
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<br /></div>
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<b><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt;">Time:
15.15 – 16.45<o:p></o:p></span></b></div>
<div class="MsoNormal" style="line-height: 14.0pt; mso-hyphenate: none; tab-stops: -.5in;">
<br /></div>
<div class="MsoListParagraph" style="line-height: 14.0pt; mso-hyphenate: none; mso-list: l4 level1 lfo4; tab-stops: -.5in 0in .5in 1.0in; text-indent: -.25in;">
<!--[if !supportLists]--><span style="font-family: "symbol"; font-size: 9.5pt; letter-spacing: -.15pt; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><!--[endif]--><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt;">Discussion of
the Radnet Case <o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 14.0pt; margin-left: 1.0in; mso-hyphenate: none; mso-list: l4 level2 lfo4; tab-stops: -.5in; text-indent: -.25in;">
<!--[if !supportLists]--><span style="font-family: "courier new"; font-size: 9.5pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: "arial"; font-size: 9.5pt;">Operating
flexibility<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 14.0pt; margin-left: 1.0in; mso-hyphenate: none; mso-list: l4 level2 lfo4; tab-stops: -.5in; text-indent: -.25in;">
<!--[if !supportLists]--><span style="font-family: "courier new"; font-size: 9.5pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: "arial"; font-size: 9.5pt;">Composition
of investors<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 14.0pt; margin-left: 1.0in; mso-hyphenate: none; mso-list: l4 level2 lfo4; tab-stops: -.5in; text-indent: -.25in;">
<!--[if !supportLists]--><span style="font-family: "courier new"; font-size: 9.5pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: "arial"; font-size: 9.5pt;">Repayment
considerations<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 14.0pt; margin-left: 1.0in; mso-hyphenate: none; mso-list: l4 level2 lfo4; tab-stops: -.5in; text-indent: -.25in;">
<!--[if !supportLists]--><span style="font-family: "courier new"; font-size: 9.5pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: "arial"; font-size: 9.5pt;">Type
of debt<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 14.0pt; margin-left: 1.0in; mso-hyphenate: none; mso-list: l4 level2 lfo4; tab-stops: -.5in; text-indent: -.25in;">
<!--[if !supportLists]--><span style="font-family: "courier new"; font-size: 9.5pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: "arial"; font-size: 9.5pt;">“The
wrong type of debt”<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 14.0pt; margin-left: .5in; mso-hyphenate: none; mso-list: l4 level1 lfo4; tab-stops: -.5in; text-indent: -.25in;">
<!--[if !supportLists]--><span style="font-family: "symbol"; font-size: 9.5pt; letter-spacing: -.15pt; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><!--[endif]--><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt;">Wrap-up –
Putting it All Together <o:p></o:p></span></div>
<div class="MsoListParagraphCxSpFirst" style="mso-hyphenate: none; mso-list: l4 level1 lfo4; tab-stops: -.5in 0in .5in 1.0in; text-indent: -.25in;">
<!--[if !supportLists]--><span style="font-family: "symbol"; font-size: 9.5pt; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;"> </span></span><!--[endif]--><span style="font-family: "arial"; font-size: 9.5pt;">Concluding comments <o:p></o:p></span></div>
<div class="MsoListParagraphCxSpLast" style="margin-left: .25in; mso-add-space: auto;">
<br /></div>
<div class="MsoNormal" style="line-height: 14.0pt; mso-hyphenate: none; tab-stops: -.5in 0in .5in 1.0in;">
<b><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt;">Time: 16.45
</span></b><b><span style="font-family: "symbol"; font-size: 9.5pt; letter-spacing: -.15pt; mso-ascii-font-family: Arial; mso-bidi-font-family: Arial; mso-char-type: symbol; mso-hansi-font-family: Arial; mso-symbol-font-family: Symbol;">-</span></b><b><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt;"> 17.00<o:p></o:p></span></b></div>
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<br /></div>
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<!--[if !supportLists]--><span style="font-family: "arial"; font-size: 9.5pt; mso-fareast-font-family: Arial;">•<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]--><span style="font-family: "arial"; font-size: 9.5pt;">Completion
of AIF Evaluation Form<span style="letter-spacing: -.15pt;"><br />
<!--[if !supportLineBreakNewLine]--><br />
<!--[endif]--></span><o:p></o:p></span></div>
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<br /></div>
<div class="MsoNormal" style="margin-left: 1.5in; mso-hyphenate: none; tab-stops: -.5in 0in .5in 1.0in; text-indent: -1.5in;">
<b><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt;">Case material</span></b><b><span style="font-family: "arial"; font-size: 10.0pt; letter-spacing: -.15pt; mso-bidi-font-family: "Times New Roman";"><o:p></o:p></span></b></div>
<div class="MsoNormal" style="line-height: 14.0pt; margin-left: .5in; mso-hyphenate: none; mso-list: l0 level1 lfo1; tab-stops: -.5in; text-indent: -.25in;">
<!--[if !supportLists]--><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt; mso-fareast-font-family: Arial;">•<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt;">"Radnet Case”
<i>(to be distributed during class on
Day 1)<b><o:p></o:p></b></i></span></div>
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<br /></div>
<div class="MsoNormal" style="line-height: 14.0pt; margin-left: 1.5in; mso-hyphenate: none; tab-stops: -.5in 0in .5in 1.0in; text-indent: -1.5in;">
<b><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt;">Pre-reading
material <o:p></o:p></span></b></div>
<div class="MsoNormal" style="line-height: 14.0pt; margin-left: .5in; mso-hyphenate: none; mso-list: l0 level1 lfo1; tab-stops: -.5in; text-indent: -.25in;">
<!--[if !supportLists]--><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt; mso-fareast-font-family: Arial;">•<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt;">Rosenbaum and Pearl: Investment Banking<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 14.0pt; margin-left: 1.0in; mso-hyphenate: none; mso-list: l0 level2 lfo1; tab-stops: -.5in; text-indent: -.25in;">
<!--[if !supportLists]--><span style="font-family: "courier new"; font-size: 9.5pt; letter-spacing: -.15pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt;">Chapter 6 - “Sell Side M&A”<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 14.0pt; margin-left: 1.0in; mso-hyphenate: none; mso-list: l0 level2 lfo1; tab-stops: -.5in; text-indent: -.25in;">
<!--[if !supportLists]--><span style="font-family: "courier new"; font-size: 9.5pt; letter-spacing: -.15pt; mso-fareast-font-family: "Courier New";">o<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;">
</span></span><!--[endif]--><span style="font-family: "arial"; font-size: 9.5pt; letter-spacing: -.15pt;">Chapter 7 - “Buy Side M&A”<o:p></o:p></span></div>
<!--EndFragment--><br />
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<br /></div>
MergerProfhttp://www.blogger.com/profile/14980171226758349881noreply@blogger.com0tag:blogger.com,1999:blog-4483849646274493821.post-31972356312637113732015-11-16T03:30:00.000-05:002015-11-16T03:30:00.050-05:00Private Equity: Between a Dog and a Fire Hydrant?<br /><div class="MsoNormal">
S&P Capital IQ-LCD <a href="http://www.leveragedloan.com/category/lbo/">published</a> a report on the
largest LBO transactions of 2015. Some interesting observations include:<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoListParagraphCxSpFirst" style="mso-list: l0 level1 lfo1; text-indent: -.25in;">
<!--[if !supportLists]--><span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="mso-list: Ignore;">1)<span style="font: 7.0pt "Times New Roman";">
</span></span></span><!--[endif]-->Purchase Prices (as multiple of EBITDA):
increased a full turn in the LTM from 10.25X to 11.24X. This is a new high
eclipsing the pre-crisis 2007 record. <o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="mso-list: l0 level1 lfo1; text-indent: -.25in;">
<!--[if !supportLists]--><span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="mso-list: Ignore;">2)<span style="font: 7.0pt "Times New Roman";">
</span></span></span><!--[endif]-->Funded Debt (as multiple of EBITDA): relative
flat at around 6.5X. Regulatory security has depressed leverage levels.<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="mso-list: l0 level1 lfo1; text-indent: -.25in;">
<!--[if !supportLists]--><span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="mso-list: Ignore;">3)<span style="font: 7.0pt "Times New Roman";">
</span></span></span><!--[endif]-->Equity Levels (as percentage of capitalization):
increased to 35% to compensate for higher prices and constrained leverage.<o:p></o:p></div>
<div class="MsoListParagraphCxSpLast" style="mso-list: l0 level1 lfo1; text-indent: -.25in;">
<!--[if !supportLists]--><span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="mso-list: Ignore;">4)<span style="font: 7.0pt "Times New Roman";">
</span></span></span><!--[endif]-->Deal Size: unlike corporate acquirers were the
large deals (over $10B) have reached record levels, current LBOs are smaller in
size. The largest deal PetSmart is $8.9B. This is partly due to the absence of
larger Public-to-Private deals.<o:p></o:p></div>
<div class="MsoListParagraphCxSpLast" style="mso-list: l0 level1 lfo1; text-indent: -.25in;">
<br /></div>
<div class="MsoNormal">
This presents a problem for PE. High prices, stagnate leverage
and high equity will hamper the IRR performance for current deals. PE is forced
to compete against not only corporate strategic acquirers, but also thousands
of PE firms flush with newly raised funds. The current level of PE dry powder
is $540B and growing. PE firms are being forced to deploy their capital into
more expensive deals.<o:p></o:p></div>
<div class="MsoNormal">
Leverage levels, unlike in previous cycles, are unlikely to
loosen anytime soon. Regulators are still concerned with leveraged loan debt
levels exceeding 6X EBITDA. The 2015 Shared National Credit <a href="https://www.fdic.gov/news/news/press/2015/pr15089.html">report</a>
indicates a majority of the special mention credits (i.e. criticized) involve
leveraged loans. Specifically concerning to regulators is poor underwriting
represented by weak covenants, back-ended repayment terms, reliance on
refinancing, and inadequate collateral. It is understandable that banks driven
by shrinking net interest rate margins are attracted to higher risk leveraged
loans with their higher nominal returns. Underwriting such loans this late in
the credit cycle means credit losses are likely to increase-especially in
energy and leveraged loans.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
All of this leads to lower expected fund returns. You can
see this reflected in lower stock prices of public PE firms like <a href="http://www.wsj.com/articles/kkr-swings-to-loss-amid-market-tumult-to-buy-back-shares-1445978848">KKR</a>
and <a href="http://www.wsj.com/articles/carlyle-group-swings-to-loss-1446029792">Carlyle</a>.
The August and November market corrections could slow corporate strategic
acquirers relative to PE. The tightening credit markets, however, will
complicate financing terms, pricing and availability. So, as the saying goes,
PE may find itself caught between the proverbial dog and a fire hydrant, which
means things, can get a little wet.<o:p></o:p></div>
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<br /></div>
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J<o:p></o:p></div>
MergerProfhttp://www.blogger.com/profile/14980171226758349881noreply@blogger.com0tag:blogger.com,1999:blog-4483849646274493821.post-68195510475020034462015-11-12T09:29:00.002-05:002015-11-12T09:29:56.090-05:00Corporate Governance Prison – The Mylan – Perrigo Saga<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
The Mylan – Perrigo saga continues.<span style="mso-spacerun: yes;"> </span>Friday marks the expiration of Mylan NV’s $26
billion dollar tender offer for Perrigo. <span style="mso-spacerun: yes;"> </span>The saga began on April 8 when Mylan
announced its bid which Perrigo’s board rejected.<span style="mso-spacerun: yes;"> </span>Since that time, Mylan has raised its bid
twice and has now announced the tender offer.<span style="mso-spacerun: yes;">
</span>This is a fascinating tale combining mergers, inversions, hostile
takeovers, takeover defenses, differing takeover laws and differing forms of
corporate governance.<span style="mso-spacerun: yes;"> </span></div>
<div class="MsoNormal">
<br /></div>
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Simply put,
Perrigo is shareholder friendly while Mylan is stakeholder friendly.<span style="mso-spacerun: yes;"> </span>To be fair, Perrigo didn’t have much choice
but be shareholder friendly.<span style="mso-spacerun: yes;"> </span>Irish law
limits anti-takeover defenses so the company doesn’t have the options available
to Mylan, now headquartered in the Netherlands.<span style="mso-spacerun: yes;"> </span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
The stakeholder viewpoint allows Mylan to ignore what is in their
shareholders best interest - putting those shareholders in what Perrigo has
called a “corporate governance prison’.<span style="mso-spacerun: yes;">
</span>Indeed, when Mylan itself was a target of Teva Pharmaceuticals, it used
the stakeholder argument in its defense.<span style="mso-spacerun: yes;">
</span>Now, in a hostile deal, Mylan is bidding stock and cash deal offering 2.3 of its
own shares plus $75 in cash for each Perrigo share.<span style="mso-spacerun: yes;"> </span><o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
In response to the ‘governance prison’ charge, Mylan has
promised governance reforms if the deal goes through.<span style="mso-spacerun: yes;"> </span>Don’t count on it.<span style="mso-spacerun: yes;"> </span>If I were tendering, I be exchanging those
Mylan shares for cash immediately, putting the funds into hands I know are
shareholder friendly – my own.<o:p></o:p></div>
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<br /></div>
<div class="MsoNormal">
For more on this saga see our most recent post which has
links to some of the others.<span style="mso-spacerun: yes;"> </span>Part of
that post is reproduced below.<o:p></o:p></div>
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<br /></div>
<div class="MsoNormal">
All the best,<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Ralph<span style="mso-spacerun: yes;"> </span><o:p></o:p></div>
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<br /></div>
<div class="MsoNormal">
<br /></div>
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<h3 class="post-title entry-title" itemprop="name" style="background-color: white; font-family: 'OFL Sorts Mill Goudy TT'; font-stretch: normal; margin: 0.75em 0px 0px; position: relative;">
<span style="font-size: x-small;">September 17, 2015</span></h3>
<h3 class="post-title entry-title" itemprop="name" style="background-color: white; font-family: 'OFL Sorts Mill Goudy TT'; font-size: 28px; font-stretch: normal; margin: 0.75em 0px 0px; position: relative;">
Mylan, Perrigo and the Power of the Board</h3>
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We've written before about Mylan and takeovers (e.g., <a href="http://www.mergerprof.com/2015/07/shareholder-centric-vs-stakeholder.html" style="color: #2288bb; text-decoration: none;" target="_blank">Shareholder Centric or Stakeholder Centric</a> and <a href="http://www.mergerprof.com/2015/04/offense-and-defense-in-drug-industry.html" style="color: #2288bb; text-decoration: none;" target="_blank">Offense and Defense in the Drug Industry</a>). This weeks Wall Street Journal contains an excellent <a href="http://www.wsj.com/articles/attention-shareholders-beware-of-the-board-1442282531" style="color: #2288bb; text-decoration: none;" target="_blank">article</a> by Ron Barusch updating the Mylan story. It presents a very interesting contrast between the takeover laws of Ireland, the Netherlands (where we teach the <a href="http://www.aif.nl/programs/open-enrollment-programs/acquisition-finance-structuring-the-deal.aspx?PID=61" style="color: #2288bb; text-decoration: none;" target="_blank">Acquisition Finance</a> Course) and the US. The facts below are taken from the article.<br /><br />Mylan is attempting to take over Perrigo in a hostile deal. Under Irish law, the directors of Perrigo can express their feelings about the deal, but must let shareholders decide on its merits. If the deal fails, Mylan would have to wait a year before attempting another deal. But the key is that shareholders - the owners of the firm, decide.<br /></div>
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<o:p><span style="background-color: white; font-family: 'Trebuchet MS', Trebuchet, sans-serif; font-size: 13.2px; line-height: 1.4;">Contrast that with the situation of Mylan itself. Mylan ..... the rest of that post can be found <a href="http://www.mergerprof.com/2015/09/mylan-perrigo-and-power-of-board.html" target="_blank">here</a>.</span></o:p></div>
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MergerProfhttp://www.blogger.com/profile/14980171226758349881noreply@blogger.com0tag:blogger.com,1999:blog-4483849646274493821.post-73456970329927021572015-11-09T03:30:00.000-05:002015-11-09T03:30:01.854-05:00IPOs: The Unicorns Moment of Truth<br /><div class="MsoNormal">
It has been said that in finance things take longer to
happen than you would expect, but then unfold faster than you would have
thought. This fact seems to be occurring in the mythical land of unicorns. I am
fascinated with unicorns because their purported valuations seem to violate
basic economic logic. Values not dependent on cash flow, risk and time would
upset how we approach mergers and acquisitions. Rest easy as it appears
unicorns do not violate the first principles of finance. Rather, their financing
round based implied valuations are worse than theoretical (the usual compliant
against discounted cash flow models)-they are just fanciful.<o:p></o:p></div>
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Some many unicorns are getting long in the tooth at 5-7
years of age (tech firms age in dog years). Investors are pressing for
liquidity AKA an IPO. The IPO process or test is exposing some of the
inconvenient facts I have previously highlighted about unicorn implied
valuations. A stark example is provided by the pricing range assigned to the
pending <a href="http://www.wsj.com/articles/square-outlines-ipo-terms-1446812826">Square</a>
IPO. Last year Square was valued at over $6B based on its last financing round.
Fast forward to the present and the IPO values Square in the $4B range. So what
the!@#$ happened?<o:p></o:p></div>
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<br /></div>
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Something could have dimmed the prospects for Square such as
the loss of Startbucks next year and continued large operating losses. Also,
IPO market conditions have softened somewhat following the August correction.
Worse yet is the possibly that Square was never was worth $6B. It seems that
investors in the 2014 financing round did not receive ordinary shares. Rather,
they received “super shares” providing them with protection against an IPO
priced below their financing round value. Basically, they get more shares at
bargain prices to make them whole if the IPO is priced at less than their
investment. Thus, unicorn values may be inflated and exposed during the IPO
process. No wonder many unicorns are trying to postpone going public for as
long as they can. It will get even more interesting after they are public when
they face scrutiny of real market disciple. Perhaps, things may not be so
different for unicorn valuation after all.<o:p></o:p></div>
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MergerProfhttp://www.blogger.com/profile/14980171226758349881noreply@blogger.com0tag:blogger.com,1999:blog-4483849646274493821.post-11824866482619421872015-11-05T03:30:00.000-05:002015-11-05T03:30:02.392-05:00Acquisition Finance: Structuring the DealJoe and I are gearing up for our Acquisition Finance Class in Amsterdam. With the year set to be the biggest yet in M&A there is much to discuss. I'll be sharing this year's outline later, but material on last year's program and a place to sign up can be found <a href="http://www.aif.nl/programs/open-enrollment-programs/acquisition-finance-structuring-the-deal.aspx?PID=61#tabs-1" target="_blank">here</a>.<br />
<br />
For those with an interest in this subject, I recommend the text we use in the class: <a href="http://www.barnesandnoble.com/p/investment-banking-joshua-rosenbaum/1110764496/2672532812710?st=PLA&sid=BNB_DRS_Marketplace+Shopping+Textbooks_00000000&2sid=Google_&sourceId=PLGoP20456&k_clickid=3x20456" target="_blank">Investment Banking, by Rosenbaum and Pearl</a>. It provides nice background reading for the course with rich institutional detail and applied models. <br />
<br />
Material in the course, however, draws on both the rich and recent academic material on this subject and on detailed practical analysis and case examples. Joe's 25 years plus in the field is an ideal compliment to the empirical research I do on M&A. If it fits into your plans, we hope to see you in Amsterdam.<br />
<br />
All the best,<br />
<br />
RalphMergerProfhttp://www.blogger.com/profile/14980171226758349881noreply@blogger.com0tag:blogger.com,1999:blog-4483849646274493821.post-27901811181626245942015-11-02T03:30:00.000-05:002015-11-02T03:30:00.290-05:00Venture Capital and Rational Bubbles<br /><div class="MsoNormal">
This post <a href="http://www.mergerprof.com/2015/10/fear-walking-dead-unicorn.html">continues</a>
my journey to explain the seemingly over priced, high risk and difficult to <a href="http://www.wsj.com/articles/mutual-funds-flail-at-valuing-hot-startups-like-uber-1446174018">value</a>
venture capital market. It is well known that the empirical <a href="https://en.wikipedia.org/wiki/Security_market_line">security market line</a>
is too flat compared to theory. This means higher risk-higher <a href="https://en.wikipedia.org/wiki/Beta_%28finance%29">beta</a> stocks have
lower than predicted returns. Conversely, lower risk-lower beta stocks (just
like the ones Warren Buffett favors) have higher than expected returns. This
phenomenon is called <a href="http://www.econ.yale.edu/~af227/pdf/Betting%20Against%20Beta%20-%20Frazzini%20and%20Pedersen.pdf">betting
against beta</a> (BAB). Two possible reasons exist for its existence. <o:p></o:p></div>
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<br /></div>
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The first is based on leverage constraints facing
institutional investors like pension and endowment funds. These investors are
forced to reach for asset risk to satisfy their higher risk appetites.
Furthermore, leverage constraints may impede margin and short sales ordinarily
used to correct over pricing. Leverage constraints and aversion probably
tightened following the great recession given the failures and near failures on
many undercapitalized institutions like Lehman.<o:p></o:p></div>
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<br /></div>
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A second complementary explanation is provided by <a href="https://en.wikipedia.org/wiki/Behavioral_economics">behavioral economics</a>.
The argument is as follows:<o:p></o:p></div>
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<!--[if !supportLists]--><span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="mso-list: Ignore;">1)<span style="font: 7.0pt "Times New Roman";">
</span></span></span><!--[endif]-->Investors over weight low probability high payoff
events-even those with negative expected values. A simple example is the lotto.
The number of players spikes as the grand prize increases even though the
winning odds fall even lower. The large unlikely payoff dominates the negative
expected value. A technical explanation is players (investors?) prefer positive
<a href="https://en.wikipedia.org/wiki/Skewness">skew</a>. This is especially
true when the wager (investment?) is relatively small compared to investor’s
overall wealth. Thus, as investor wealth tends to be pro-cyclical-so is the
demand for lottery type investments like venture capital (IPOs and Private
Equity as well).<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="mso-list: l0 level1 lfo1; text-indent: -.25in;">
<!--[if !supportLists]--><span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="mso-list: Ignore;">2)<span style="font: 7.0pt "Times New Roman";">
</span></span></span><!--[endif]-->Two additional behavioral effects reinforce the
above.<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: .75in; mso-add-space: auto; mso-list: l1 level1 lfo2; text-indent: -.25in;">
<!--[if !supportLists]--><span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="mso-list: Ignore;">a)<span style="font: 7.0pt "Times New Roman";">
</span></span></span><!--[endif]--><a href="https://en.wikipedia.org/wiki/Representativeness_heuristic">Representativeness</a>-investors
focus on winners like Uber and hope their investments will be winners. They are
ignoring the higher base rate failure of such investments.<o:p></o:p></div>
<div class="MsoListParagraphCxSpLast" style="margin-left: .75in; mso-add-space: auto; mso-list: l1 level1 lfo2; text-indent: -.25in;">
<!--[if !supportLists]--><span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="mso-list: Ignore;">b)<span style="font: 7.0pt "Times New Roman";">
</span></span></span><!--[endif]--><a href="https://en.wikipedia.org/wiki/Overconfidence_effect">Overconfidence</a>-even
if investors realize “home runs” like Uber are rare they believe they possess
special skill enabling them to spot “Ubers”. <o:p></o:p></div>
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<br /></div>
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Add to the above the difficult to value nature of venture
investment and it is easy to see how investors can get carried away in a <a href="http://www.econlib.org/library/Enc/Bubbles.html">rational</a> bubble.<o:p></o:p></div>
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<br /></div>
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A third more traditional factor underlying the current
market is low interest <a href="https://en.wikipedia.org/wiki/Overconfidence_effect">rates</a>. The
Federal Reserve has keep rates artificially low following the great recessions
hoping to stimulate the economy. This means projected cash flows are discounted
at lower rates leading to higher values. Additionally, on the demand side, low
rates forcec investors to search for higher nominal (non risk adjusted) yields
by going further out on the risk curve.<o:p></o:p></div>
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<br /></div>
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Thus, the venture capital market may be experiencing a
rational, albeit still dangerous, bubble.<o:p></o:p></div>
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J<o:p></o:p></div>
MergerProfhttp://www.blogger.com/profile/14980171226758349881noreply@blogger.com0tag:blogger.com,1999:blog-4483849646274493821.post-72417281709198197562015-10-29T21:23:00.001-04:002015-10-29T21:23:08.730-04:00Pfizer and Allergan: Viagra Meets Boxtox<div class="MsoNormal">
<span style="color: black; font-family: Times; font-size: 13.5pt; mso-bidi-font-family: "Times New Roman";">I can't wait to hear the late night talk show
hosts talk about a merger between the makers of Viagra and Botox! But
we'll confine ourselves here to the more technical aspects of this deal.
There are many interesting aspects to this one including the size of the
deal, the continuation of industry trends, the creation of a giant in
Pharmaceuticals, the current price movements of the bidder, target and
competitors, the possibility of an inversion, and the social terms of the deal.<o:p></o:p></span></div>
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<span style="color: black; font-family: Times; font-size: 13.5pt; mso-bidi-font-family: "Times New Roman";">First, this deal could be the largest deal of
the year as Allergan has a market cap of $112.5 Billion and Pfizer has a market cap of $219 Billion - this year is on
pace to be the biggest year yet in M&A. Second, it continues the
consolidation trends we have seen in the pharmaceuticals industry. Third, it
creates the world's largest drugmaker. The combination would surpass Johnson and Johnson (currently
valued at $278 Billion).<o:p></o:p></span></div>
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<br /></div>
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<span style="color: black; font-family: Times; font-size: 13.5pt; mso-bidi-font-family: "Times New Roman";">The
deal would be an inversion, as Allergan is headquartered in Ireland with a
far lower tax rate than Pfizer faces in the US. Expect the US government
to seek to impose restrictions on the move putting the tax benefits of an
inversion in question. See our posts about inversions (<a href="http://www.mergerprof.com/2015/07/tax-inversions-and-economic-reality.html" target="_blank">here</a>, <a href="http://www.mergerprof.com/2014/05/mergers-and-taxes-follow-up-on.html" target="_blank">here</a> and <a href="http://www.mergerprof.com/2014/05/politics-taxes-and-economic-reality.html" target="_blank">here</a>) and the folly of
governmental attempts to restrict inversions rather than addressing the root
issue and making domicile in the US more attractive.<o:p></o:p></span></div>
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<div class="MsoNormal">
<span style="font-size: 18px;">The price movements at the announcement were typical for the bidder and somewhat abnormal for the target. The bidder lost a few percent while the target shares rose only 8%. Typical price jumps for the target would be in the 20% - 40% range. </span><span style="font-size: 18px;"> </span></div>
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<span style="color: black; font-family: Times; font-size: 13.5pt; mso-bidi-font-family: "Times New Roman";"><br /></span></div>
<div class="MsoNormal">
<span style="color: black; font-family: Times; font-size: 13.5pt; mso-bidi-font-family: "Times New Roman";">We've noted many times in these pages about the
impact of mergers on rivals. In particular, our <a href="http://www.mergerprof.com/2012/10/anticipation-acquisitions-and-bidder.html" target="_blank">research</a> has shown how
the rivals of bidders and targets react to deals involving a competitor.
In today's case, the <a href="http://www.theguardian.com/business/2015/oct/29/pfizer-allergan-eigh-up-big-pharma-mega-merger"><span style="color: blue;">Guardian</span></a> reports that the prices of two
competitors (</span><span style="background: white; color: #333333; font-family: Times; font-size: 13.5pt; mso-bidi-font-family: "Times New Roman";">GlaxoSmithKline and Shire)
declined in value as there was some anticipation that they would be Pfizer's
target instead of Allergan. This illustrates both the anticipation effects embedded in a
firm's stock price and the reaction when those anticipated effects are put into
question. Many social terms of the deal remain to be determined, including
what happens to Allergan's CEO and how many layoffs might occur as part of the
deal. </span><span style="color: black; font-family: Times; font-size: 13.5pt; mso-bidi-font-family: "Times New Roman";"><o:p></o:p></span></div>
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<span style="background: white; color: #333333; font-family: Times; font-size: 13.5pt; mso-bidi-font-family: "Times New Roman";"><br /></span></div>
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<span style="background: white; color: #333333; font-family: Times; font-size: 13.5pt; mso-bidi-font-family: "Times New Roman";">One senses that in this market, there is more to come. There will be a lot to talk about during our December course in Amsterdam.</span></div>
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<o:p>All the best,</o:p></div>
<div class="MsoNormal">
<o:p><br /></o:p></div>
<div class="MsoNormal">
<o:p>Ralph </o:p></div>
<span style="background-color: white; color: #333333; font-family: 'Guardian Text Egyptian Web', Georgia, serif; line-height: 24px;"><br /></span>
<br />MergerProfhttp://www.blogger.com/profile/14980171226758349881noreply@blogger.com0tag:blogger.com,1999:blog-4483849646274493821.post-85463473986968927962015-10-26T03:30:00.000-04:002015-10-26T03:30:04.050-04:00Fear the Walking (Dead) Unicorn<br /><div class="MsoNormal">
I posted several notes <a href="http://www.mergerprof.com/2015/02/venture-capital-pricing-bubble-or.html">here</a>,
<a href="http://www.mergerprof.com/2015/03/venture-capital-valuation-confusion.html">here</a>
and <a href="http://www.mergerprof.com/2015/05/game-or-illusion-unicorn-valuations.html">here</a>
trying to make sense of inflated late round technology valuations. My
conclusion was the valuations were illusory rationalizations used to justify
inflated prices. The private market valuation of these firms suffered from
being unregulated, questionable accounting, lack of comparability due to
differing provisions (e.g. liquidation preferences), and lack of short selling.
The result is momentum based pricing driven by the optimism of the last
investor. The number of previously rare unicorns (private firms with values
exceeding $1B) increased to 124 in July of this year. Eventually, however, you
run out of optimism when an event occurs causing investors to re-examine their
assumptions and reduce their risk appetite leading to lower pricing. That
something was the August <a href="http://www.mergerprof.com/2015/08/what-f-just-happened-again.html">correction</a>.<o:p></o:p></div>
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<br /></div>
<div class="MsoNormal">
You only really accurately value a private firm when you
make the initial investment, and then when you exit. Exits had been delayed for
many later stage tech firms. Only 14% of 2015 IPOs were tech <a href="http://www.wsj.com/articles/tech-startups-feel-an-ipo-chill-1445309822">related</a>.
The reasons (excuses?) given for the lack of tech IPOs was twofold. First, the
founders did not want the hassle of public market scrutiny. Second, they did
not need an IPO liquidity event because they could always do a “private IPO”
(oxymoron?) by accessing private investor cash in subsequent financing rounds
(at assumed higher valuation levels). Both reasons are nonsense.<o:p></o:p></div>
<div class="MsoNormal">
In reality they wanted to avoid the evaluation of numerous
hard-nosed investors both at the time of the IPO and the on-going
trading-including short selling. You need a public market to get liquid; it is hard
to access public markets at sky high prices. <o:p></o:p></div>
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<br /></div>
<div class="MsoNormal">
Many tech founders and investors who confused bull market
valuations for liquidity are now discovering the difference between paper and
real liquidity. Over 40% of 2015 tech IPOs like Novo Cure are being <a href="http://fortune.com/2015/10/20/where-did-all-the-tech-ipos-go-2/">priced</a>
near or below their last private financing round valuation. This fact has not
gone unnoticed by private investors. They are balking at high implied
valuations in later financing rounds forcing firms to accept lower values. For
example, Blackrock which lead a prior $350M financing round for Dropbox has
marked down its investment by 24%. <o:p></o:p></div>
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<br /></div>
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Pricing represents a short term belief in expected operating
performance. Investors should gauge the gap between expectations and reality.
This means not falling in love with stories about market growth and technology
without considering how those factors translate into revenues and ultimately
cash. </div>
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<br /></div>
<div class="MsoNormal">
This involves understanding the following:<o:p></o:p></div>
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<br /></div>
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<!--[if !supportLists]--><span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="mso-list: Ignore;">1)<span style="font: 7.0pt "Times New Roman";">
</span></span></span><!--[endif]-->Market Characteristics: some markets have
difficult characteristics making it difficult to yield superior returns. Use <a href="https://en.wikipedia.org/wiki/Porter_five_forces_analysis">Porter's</a> 5
forces framework as a starting point.<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="mso-list: l0 level1 lfo1; text-indent: -.25in;">
<!--[if !supportLists]--><span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="mso-list: Ignore;">2)<span style="font: 7.0pt "Times New Roman";">
</span></span></span><!--[endif]-->Business Model: who will the firm achieve and
maintain market share and pricing power when facing competitors, new entrants
and substitutes?<o:p></o:p></div>
<div class="MsoListParagraphCxSpLast" style="mso-list: l0 level1 lfo1; text-indent: -.25in;">
<!--[if !supportLists]--><span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="mso-list: Ignore;">3)<span style="font: 7.0pt "Times New Roman";">
</span></span></span><!--[endif]-->Execution: inept managers can negate attractive
markets and credible business models.<o:p></o:p></div>
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<br /></div>
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If you claim this is hard because of profound uncertainty
then recognize you are not investing. Rather you are speculating based on what
you hope someone else will pay for the firm. This someone else can and does
change his mind leading to wild price swings like those experienced this
August. This in turn can turn your hoped for unicorns into unicorpses.<o:p></o:p></div>
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MergerProfhttp://www.blogger.com/profile/14980171226758349881noreply@blogger.com0tag:blogger.com,1999:blog-4483849646274493821.post-39923925518549417272015-10-22T13:53:00.001-04:002015-10-22T13:53:53.348-04:00A Few Working Papers on Mergers (and Finance)I just attended the Financial Management Association International meetings in Orlando, Florida. The FMA also holds European, Asian and other meetings, but the one in North America is the annual one and draws a large crowd. The FMA itself consists of over 7000 academics and practitioners interested in best practices in finance. The way we find 'best practices' is typically through analyzing empirical data - often samples of thousands of observations to find out what is increasing value and what is not increasing value. Topics analyzed range from all the aspects of mergers one can imagine to capital structure, dividend policy, agency theory, option pricing, investments, banking, regulation, working capital and much more.<br />
<br />
The working papers presented at this conference are just that - works in progress that will improve from the careful criticism of peers. Ultimately, academics hope their working papers are published in leading academic journal and influence theory and practice. Indeed, what we teach in the business schools is designed to be cutting edge practice and is (or should be) heavily influenced by current research and conditions. Textbooks are three to five years out of date by the time they are published. <br />
<br />
Rather than comment on individual papers, I am adding the link to the complete <a href="http://www.fma.org/Orlando/OrlandoProgram.htm" target="_blank">program</a> which itself has links to individual papers. This way readers can note the breadth of topics covered and choose those of interest. Of course, you can find papers on any specific topic (i.e, mergers) with the search function (control + f on my computer). Not all of these papers are at the stage where they are informative of 'best practices'. Some of them are. I sift through research carefully before presenting in executive education sessions but our next session in Amsterdam is in early December and my Drexel EMBAs in early January. Many of my practitioner colleagues find scanning even the topics to be a way to stay current and get new ideas and in the best scenarios, get ahead of the competition.<br />
<br />
All the best,<br />
<br />
RalphMergerProfhttp://www.blogger.com/profile/14980171226758349881noreply@blogger.com0tag:blogger.com,1999:blog-4483849646274493821.post-1596157647397565262015-10-19T03:30:00.000-04:002015-10-19T03:30:02.931-04:00Dell EMC Merger: Return of the Master<br /><div class="MsoNormal">
Michael Dell’s deal skills are second to none-including the
Great Donald (Trump that is-the current presidential contender and author of
“The Art of the Deal”). Michael took Dell PC (Dell) <a href="http://www.mergerprof.com/2013/01/dell-lbo-beat-goes-on.html">private</a>
at a very attractive price in 2013 utilizing clever vendor financing and <a href="http://www.investopedia.com/terms/h/high_yield_bond.asp">high yield bonds</a>.
Now he is capitalizing on an activist motivated seller to make a beautifully
structured <a href="http://finance.yahoo.com/news/dell-proposed-acquisition-emc-67-200108878.html">acquisition</a>
of EMC, which will be the subject of numerous cases studies.<o:p></o:p></div>
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<br /></div>
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Both EMC and Dell are suffering serious business risk issues
reflected in their declining revenues. EMC’s data storage business is moving
towards the cloud, while PCs face a shift to alternative devices. Also, putting
together the firms to create a technology conglomerate runs counter to others
in the industry like Hewlett Packard that are spinning off divisions to achieve
more focus.<o:p></o:p></div>
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<br /></div>
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Let’s consider the following:<o:p></o:p></div>
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<div class="MsoListParagraphCxSpFirst" style="mso-list: l0 level1 lfo1; text-indent: -.25in;">
<!--[if !supportLists]--><span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="mso-list: Ignore;">1)<span style="font: 7.0pt "Times New Roman";">
</span></span></span><!--[endif]-->Deal Type: the deal is structured more like a
LBO than a corporate acquisition with its high leverage, break-up fees and go
shop clauses especially given the rumored shopping of the PC business for sale
post close. The possible sale would also lower integration risk.<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="mso-list: l0 level1 lfo1; text-indent: -.25in;">
<!--[if !supportLists]--><span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="mso-list: Ignore;">2)<span style="font: 7.0pt "Times New Roman";">
</span></span></span><!--[endif]-->Purchase Price: the purchase price multiple is
around 11X EMC’s EBITDA-more in line with LBO multiples than higher priced
corporate deals. The premium over the pre bid stock price is 20%. This is
probably inflated given the use question value of the <a href="https://en.wikipedia.org/wiki/Tracking_stock">tracking stock</a> being
offer as partial payment. Adjusting for the post announcement fall in EMC’s price
means the actual premium is closer to 13%. Dell appears to be getting a fair
firm at a great price. EMC’s management is under attack by activist <a href="http://www.reuters.com/article/2014/07/21/us-emc-corp-divestiture-idUSKBN0FQ0A120140721">Elliott</a>
Management, and appears to be a very willing seller not necessarily acting in
the best interests of EMC shareholders. Interestingly, Elliot sought the
partial break-up of EMC by spinning off a majority owned subsidiary (VMware).
Lawsuits will surely follow. The $2.5B break-up fee due Dell if EMC walks may
mean EMC’s shareholders are stuck. Dell receives a substantial break-up fee
should a competing bid arise during the go-shop period.<o:p></o:p></div>
<div class="MsoListParagraphCxSpLast" style="mso-list: l0 level1 lfo1; text-indent: -.25in;">
<!--[if !supportLists]--><span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="mso-list: Ignore;">3)<span style="font: 7.0pt "Times New Roman";">
</span></span></span><!--[endif]-->Funding: this is where it gets really
interesting. Dell, Silver Lake (partner in the original Dell LBO), et al are
contributing around $4B in equity (not all cash?). The hard to <a href="http://www.bloomberg.com/news/articles/2015-10-12/dell-dusts-off-dot-com-curio-with-tracking-stock-in-emc-buyout">value</a>
tracking stock representing a currently majority owned EMC subsidiary (VMware)
supposedly represents $13B of the “equity” consideration. My take is the
tracking stock is actually <a href="https://en.wikipedia.org/wiki/Seller_financing">seller</a> financing to
close the funding gap facing Dell. The balance is $10B committed bank debt
(plus a $3B revolver) and $40B in bonds. $5.5B of EMC’s existing formerly
investment grade bonds do not need to be re-financed because they lacked
covenant protection. Based on the combined EBITDA the funded debt multiple is
around 5.5X EBITDA-modest by LBO standards and within banking regulator
guidelines; hence the ability to secure the up-front bank group commitment. The
bond financing portion is huge and market conditions remain unsettled.
Nonetheless, Dell must feel comfortable based on the advice of his advisors
because he is offering EMC $4B if he fails to obtain the financing.<o:p></o:p></div>
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<br /></div>
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Bottom line, Dell gets a modestly priced $67B firm with only
$4B in equity and regains public market access. Hats off to Michael Dell if he
can pull this off. It becomes even better if he can quickly reduce the debt
thru the unloading of the PC business. The deal is not without risks, but my
money is on Michael Dell.<o:p></o:p></div>
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J<o:p></o:p></div>
MergerProfhttp://www.blogger.com/profile/14980171226758349881noreply@blogger.com1tag:blogger.com,1999:blog-4483849646274493821.post-21233933958503142962015-10-15T03:30:00.000-04:002015-10-15T03:30:02.384-04:00AB InBev and SABMiller: Negotiating the Deal<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Negotiating the deal is crucial to bidder success and target
shareholder welfare.<span style="mso-spacerun: yes;"> </span>From the bidder’s
side, increasing the bid premium reduces the ultimate rate of return on
investment, but paying a premium too low could result in a failed offer.<span style="mso-spacerun: yes;"> </span>Target shareholders generally want the
maximum price they can obtain, but other factors also come into play including
timing of the deal, ownership after the deal, seats on the combined firm board,
etc.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Both sides are concerned about deal structure and we’ve said
many times that it is important to bargain on many fronts.<span style="mso-spacerun: yes;"> </span>In addition to the bid premium we must
consider form of payment, structure of the deal, timing, taxation, residual
ownership, warranties and representations, employee and stakeholder welfare,
regulatory concerns and numerous other factors.<span style="mso-spacerun: yes;">
</span><o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
The maximum price a bidding firm should pay is the estimated
net present value of the target under their control.<span style="mso-spacerun: yes;"> </span>But paying this amount produces a NPV of zero,
with no room for error.<span style="mso-spacerun: yes;"> </span>The minimum
price a public target will accept is generally the pre-offer market price.<span style="mso-spacerun: yes;"> </span>Where the final deal settles in this range is
determined by the relative bargaining power of the two sides.<span style="mso-spacerun: yes;"> </span>Numerous factors go into bargaining power
including ownership structure (concentrated or dispersed, toeholds owned by the
bidding firm, the percentage of shares controlled by management, etc).<span style="mso-spacerun: yes;"> </span><o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Bargaining power is also impacted by how important the deal
is to each side and this is related to the alternatives available to bidder and
target. Is this bidder the only firm that can purchase this target?<span style="mso-spacerun: yes;"> </span>Advantage – Bidder.<span style="mso-spacerun: yes;"> </span><o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Are many bidders vying for the target?<span style="mso-spacerun: yes;"> </span>Are obvious synergies available to many parties?<span style="mso-spacerun: yes;"> </span>Advantage target..<span style="mso-spacerun: yes;"> </span>Is the target management really anxious to
cash out?<span style="mso-spacerun: yes;"> </span>Is the timing of the deal
crucial to the bidder, etc.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
There is considerable empirical evidence on negotiating
tactics and shareholder welfare.<span style="mso-spacerun: yes;"> </span>An
overriding finding is that target shareholder value is maximized by management
that forcefully negotiates, but does not ultimately block the deal.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
A good illustration of these elements is the AB InBev
acquisition of SABMiller.<span style="mso-spacerun: yes;"> </span>According to
the <a href="http://www.wsj.com/articles/sabmiller-ab-inbev-agree-on-deal-in-principle-1444717547" target="_blank">Wall Street Journal</a>, both sides stood to gain from the deal but SABMiller’s
chairman was convinced that AB InBev wanted the deal more.<span style="mso-spacerun: yes;"> </span>His resistance and negotiation led to a
sweetened offer – a 50% premium over the pre-offer (and rumor) market price and
a $3 billion breakup fee if the deal doesn’t go through. <span style="mso-spacerun: yes;"> </span>Other aspects of the deal including the social
terms (who stays on the board, the name of the combined firm, etc.<span style="mso-spacerun: yes;"> </span>are yet to be disclosed.<span style="mso-spacerun: yes;"> </span>Also unclear is the degree to which
regulatory authorities will oppose the deal or force concessions.<span style="mso-spacerun: yes;"> </span><o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
SABMiller’s ability to negotiate these terms is even more
interesting given that Altria Group, Inc which owns about 27% of the target
signaled they would back a lower bid.<span style="mso-spacerun: yes;">
</span>But SAB’s chairman Jan du Plessis was also active in courting large
shareholders, getting <span style="color: #333333; font-family: Times; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman";">Colombia’s
Santo Domingo family on his side.<span style="mso-spacerun: yes;"> </span>The
family controls about 14% of the company and is the second largest shareholder.</span><span style="font-family: Times; font-size: 10.0pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman";"><o:p></o:p></span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
The skill of SAB’s chairman, comes in part, from
experience.<span style="mso-spacerun: yes;"> </span>According to the WSJ he was
chairman of Rio Tino PLC when it fended off a takeover bid from Glencore
PLC.<span style="mso-spacerun: yes;"> </span><o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
All the best,<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Ralph<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
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MergerProfhttp://www.blogger.com/profile/14980171226758349881noreply@blogger.com0tag:blogger.com,1999:blog-4483849646274493821.post-29893493283346074172015-10-12T03:30:00.000-04:002015-10-12T03:30:00.615-04:00The Changing Investor Menus of Acquisition Finance<br /><div class="MsoNormal">
Low interest rates have encouraged investors to increase
their risk appetite in search of yield. Issuers and arrangers have accommodated
them with aggressive deals and financing structures; thereby supporting growing
M&A volume. These usually work out until something happens. The August <a href="http://www.mergerprof.com/2015/08/what-f-just-happened-again.html">correction</a>
is one of those things. Investors, post correction, have paused to reassess
their marked down portfolios, and have reduced their risk appetites. This
presents problems for unfunded deals structured in the pre correction 1H15, but
are only now coming to investors for financing. We previously examined this
problem in 2013 with <a href="http://www.mergerprof.com/2013/09/rue21-deal-to-rue.html">Rue21</a> in
which the loan underwriters incurred large losses.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
A current example of the same problem is FULLBEAUTY BRANDS
(Beauty). Beauty is an on-line plus sized clothing retailer owned by PE firms
Charles and Webster Capital since 2013. In March this year Beauty levered up to
pay its owners $215 Mln via a <a href="http://www.investopedia.com/terms/d/dividendrecap.asp">special dividend</a>,
and announced <a href="http://www.bloomberg.com/news/articles/2015-03-18/fullbeauty-brands-said-to-plan-250-million-u-s-ipo-this-summer">plans</a>
for a summer $250 Mln IPO. The IPO window was wide open at that time. It
subsequently closed late summer resulting in its owners switching to plan B-the
sale of the firm. Apax, the same PE firm as in Rue21, agreed to <a href="https://www.pehub.com/2015/08/apax-to-acquire-controlling-stake-in-fullbeauty-brands/">acquire</a>
(secondary buyout) Beauty for undisclosed amount funded in part by $1.650B in <a href="http://www.wsj.com/articles/goldman-j-p-morgan-struggle-to-sell-loans-backing-a-buyout-1444157502">loans</a>
underwritten by JP Morgan Chase, Goldman, Jefferies, and Deutsche. <span style="mso-spacerun: yes;"> </span>JP Morgan Chase and Jefferies were also
involved in Rue21.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Some details are as follows:<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoListParagraphCxSpFirst" style="mso-list: l0 level1 lfo1; text-indent: -.25in;">
<!--[if !supportLists]--><span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="mso-list: Ignore;">1)<span style="font: 7.0pt "Times New Roman";">
</span></span></span><!--[endif]-->Loan Facilities:<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle">
$820 Mln <a href="http://www.gaebler.com/First-and-Second-Lien-Loans.htm">First</a> Lien
Term Loan -7 year term at LIBOR+450 BPS<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle">
$345 Mln Second Lien Term Loan -8 year term
at LIBOR+850 BPS<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="mso-list: l0 level1 lfo1; text-indent: -.25in;">
<!--[if !supportLists]--><span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="mso-list: Ignore;">2)<span style="font: 7.0pt "Times New Roman";">
</span></span></span><!--[endif]-->Leverage<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle">
First Lien-4.7X EBITDA<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle">
Second Lien (total)-6.7X<o:p></o:p></div>
<div class="MsoListParagraphCxSpLast" style="mso-list: l0 level1 lfo1; text-indent: -.25in;">
<!--[if !supportLists]--><span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="mso-list: Ignore;">3)<span style="font: 7.0pt "Times New Roman";">
</span></span></span><!--[endif]-->Rating “B-“<o:p></o:p></div>
<div class="MsoListParagraphCxSpLast" style="mso-list: l0 level1 lfo1; text-indent: -.25in;">
<br /></div>
<div class="MsoNormal">
The loan underwriters are experiencing sluggish demand for
the loans based on several factors. First, increased concern over a slowing
economy is dragging down retailer prospects. Next, the deal is highly levered
at 6.7X, which exceeds bank regulatory <a href="http://www.occ.gov/news-issuances/bulletins/2013/bulletin-2013-9.html">guidelines</a>
and reduces the potential investor base. Non bank loan investors (<a href="http://www.investopedia.com/terms/c/clo.asp">CLO</a>s) usually fill the
gap, but have suffered portfolio losses during the summer correction. They are
becoming more credit quality sensitive-especially toward higher risk second
lien loans.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
The Beauty loan syndication is still a work in process. The
underwriters’ options, absent a rebound in investor risk appetite, are somewhat
limited. Attempts to increase loan pricing or reduce leverage are unlikely to
be received well by Apax, absent bear market pricing or structural <a href="http://www.law360.com/articles/683231/a-primer-on-market-flex-provisions">flex</a>
provisions. More likely, they will be forced to offer deeper discounts at their
expense (loss) and hold larger than planned portions on the loans.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Like war, most of the time acquisition finance is calm and
boring. It is, however punctuated by brief moments of terror when investors
risk preferences changes.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
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MergerProfhttp://www.blogger.com/profile/14980171226758349881noreply@blogger.com0tag:blogger.com,1999:blog-4483849646274493821.post-10395537870924747392015-10-08T03:30:00.000-04:002015-10-08T03:30:00.831-04:00ActivistsThis weeks WSJ had a special feature on the <a href="http://www.wsj.com/articles/activist-investors-helping-or-hindering-1444067712" target="_blank">success of activists</a> looking at 71 activist campaigns. For those who missed it, I recommend taking a look. The bottom line is that some activists are associated with gains in value and some not. That's not a surprising conclusion. Anecdotal analyses such as this one are interesting but are generally on a small scale and have a difficult time controlling for all of the various factors that can influence outcomes.<br />
<br />
A more thorough analysis is contained in a recent article entitled: <a href="http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2555701" target="_blank">Myopic Investor Myth Debunked:The Long-term Efficacy of Shareholder Advocacyin the Boardroom</a>. They examine a sample of 1,039 activist campaigns. In fairness, these authors reach a similar conclusion as the WSJ: activist representation on the board is the vehicle through which meaningful gains are produced.<br />
<br />
In the same WSJ edition are the stories about Nelson Peltz investing $2.5 billion in GE (resulting in a 5.3% stock boost) and news that Ellen Kullman will retire after 'winning' an activist campaign at DuPont. <br />
<br />
All the best,<br />
<br />
Ralph<br />
<br />
<br />
<br />
<br />MergerProfhttp://www.blogger.com/profile/14980171226758349881noreply@blogger.com0tag:blogger.com,1999:blog-4483849646274493821.post-7555526861916368842015-10-05T03:30:00.000-04:002015-10-05T03:30:03.269-04:00Managers, Pigeons and M&A<br /><div class="MsoNormal">
Nine month 2015 M&A <a href="http://www.nytimes.com/2015/10/01/business/dealbook/merger-boom-extends-its-run.html?_r=0">activity</a>
is within 2% of the pre-crisis 2007 record. Most of the buyers are strategic
corporate. Even LBO <a href="http://www.bloomberg.com/news/articles/2015-09-30/u-s-private-equity-mega-deals-signal-more-to-come-before-reset">volume</a>
recovered in 3Q15 driven by large levels of PE dry powder. As <a href="http://www.mergerprof.com/2015/08/merger-activity-record-year.html">Ralph</a>
outlined there are many reasons, some good and others not so good, for the
increased volume. A sometimes neglected reason for M&A growth is based on <a href="http://www.simplypsychology.org/operant-conditioning.html">B.F. Skinner</a>
who influenced animal (pigeons) behavior thru rewards.<o:p></o:p></div>
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Investors have reacted positively to buyer M&A <a href="http://www.wsj.com/articles/investors-give-cold-shoulder-to-deals-1443463297?tesla=y">announcements</a>
for the last 3 years. This is in contrast to their negative reaction for the
1996-2011period subject to <a href="http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1819782">anticipation</a>
effect adjustments. Since the end of the great recession, investors have
rewarded firms who could profitably reinvest capital; those who could not were rewarded
for the return of cash via dividends and repurchases. The initial acquisition,
2012-2014, spurt involved lower prices, both premiums and multiples, strong
strategic rationale, and smaller targets. Bottom line they were attractive
deals.<o:p></o:p></div>
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Current late in the cycle acquisitions are getting pricey in
terms of premiums over bull market inflated stock prices (40 %+) and multiples
often exceeding 12 X EBITDA. Furthermore, they are becoming quite large.
Although dollar volumes are up the number of transactions is actually down this
year. This is reflected in the number of large $10B+ deals, which now total 47.
Larger deals combined with higher premiums put more acquirer shareholder value
at risk (<a href="http://connection.ebscohost.com/c/articles/12641656/shareholders-value-at-risk-acquisitions">SVAR</a>).
Additionally, larger deals involve increased integration risk. Consequently,
investors are justifiably becoming concerned with the recent number of higher
risk announced acquisitions. Some managers, like Skinner’s pigeons, have been
conditioned to think (all-most?) acquisitions will be positively received by
investors, and are sailing full speed ahead.<o:p></o:p></div>
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<br /></div>
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Just like investors, mangers need to become more discriminating
about acquisitions. This means addressing the following issues:<o:p></o:p></div>
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<br /></div>
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<!--[if !supportLists]--><span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="mso-list: Ignore;">1)<span style="font: 7.0pt "Times New Roman";">
</span></span></span><!--[endif]-->Red <a href="http://www.mergerprof.com/2014/01/m-red-flags.html">Flags</a>: be
prepared to sit out current late stage acquisitions that involve SVAR greater
than 20% of the acquirer’s pre bid market value due to size and pricing
premiums unless you are REALLY REALLY sure.<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="mso-list: l0 level1 lfo1; text-indent: -.25in;">
<!--[if !supportLists]--><span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="mso-list: Ignore;">2)<span style="font: 7.0pt "Times New Roman";">
</span></span></span><!--[endif]-->Timing: remember the best of deals are made
during the worst of times; while the worst of deals are made during the best of
times-like now. <o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="mso-list: l0 level1 lfo1; text-indent: -.25in;">
<!--[if !supportLists]--><span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="mso-list: Ignore;">3)<span style="font: 7.0pt "Times New Roman";">
</span></span></span><!--[endif]--><a href="http://www.mergerprof.com/2015/06/mergers-and-acquisitions-elusive-search.html">Growth</a>:
not all growth is good. The key is return on invested capital. Overpriced deals
relative to value received never work.<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="mso-list: l0 level1 lfo1; text-indent: -.25in;">
<!--[if !supportLists]--><span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="mso-list: Ignore;">4)<span style="font: 7.0pt "Times New Roman";">
</span></span></span><!--[endif]--><a href="http://www.mckinsey.com/insights/corporate_finance/are_you_still_the_best_owner_of_your_assets">Best
Owner</a>: unless you are the best owner of the target you are likely to fall
prey to the winner’s curse.<o:p></o:p></div>
<div class="MsoListParagraphCxSpLast" style="mso-list: l0 level1 lfo1; text-indent: -.25in;">
<!--[if !supportLists]--><span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="mso-list: Ignore;">5)<span style="font: 7.0pt "Times New Roman";">
</span></span></span><!--[endif]-->Strategic Basis: why are you buying? The best
answers include achieving economies of <a href="https://en.wikipedia.org/wiki/Economies_of_scale">scale</a> or <a href="https://en.wikipedia.org/wiki/Economies_of_scope">scope</a>, expand
geography by expanding into adjacent markets, and to improve operations of a
poorly run target.<o:p></o:p></div>
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<br /></div>
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Managers, just like Skinner’s pigeons, cannot expect
positive investor reaction to all acquisitions. Investors are evaluating the
fundamentals of each deal based on factors similar to those previously stated.
This does not mean all M&A is bad again. Rather, it means managers need to
be more selective just like investors and less like pigeons.<o:p></o:p></div>
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MergerProfhttp://www.blogger.com/profile/14980171226758349881noreply@blogger.com0tag:blogger.com,1999:blog-4483849646274493821.post-67854428486254176062015-10-01T03:30:00.000-04:002015-10-01T03:30:10.758-04:00Mergers, Acquisitions and Restructuring: A Waste of Talent?I'm always surprised when I hear someone suggest that people doing deals are wasting their talents. The usual laments are that these individuals would better serve society if they "actually did something." When pressed, this phrase is finally explained by statements like "I mean actually produce something or perform a useful service rather than just shuffling papers."<br />
<br />
Hmmm. Let's think about this. Let's take the typical executive who spends their day "producing goods or services." Presumably they better serve society by better meeting the needs of consumers - you know - the people who choose what to buy with their hard earned dollars. I suppose these executives better serve society with high quality goods or inexpensive goods or some combination of these traits. <br />
<br />
So good signs of a productive executive are increasing sales, reducing costs, eliminating unproductive assets and (yikes) making a profit! <br />
<br />
Now I'm not suggesting that all deals or dealmakers are good, but those are precisely the attributes that characterize the best mergers! So maybe we need a few more bumper stickers suggesting "Consuming? Thank your local investment banker!"<br />
<br />
Just sayin'<br />
<br />
RalphMergerProfhttp://www.blogger.com/profile/14980171226758349881noreply@blogger.com0tag:blogger.com,1999:blog-4483849646274493821.post-5160691108391543772015-09-28T21:27:00.001-04:002015-09-28T21:27:04.255-04:00Share Repurchases and Agency Costs Revisited<br /><div class="MsoNormal">
Ralph and I engaged in a debate about the use and abuse of
share repurchases <a href="http://www.mergerprof.com/2013/01/share-repurchases-part-1-shareholders.html">here</a>
, <a href="http://www.mergerprof.com/2013/01/repurchases-part-2-positive-side.html">here</a>
and <a href="http://www.mergerprof.com/2013/01/repurchases-part-3-joe-responds.html">here</a>.
I thought it might be useful to revisit the issue as repurchases are on pace to
eclipse the pre crisis 2007 <a href="http://www.wsj.com/articles/the-new-bond-market-debt-investors-wary-as-offerings-fuel-buybacks-1442859162?tesla=y">record</a>.<o:p></o:p></div>
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<br /></div>
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First some review. The major motives for share repurchases
include:<o:p></o:p></div>
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<br /></div>
<div class="MsoListParagraphCxSpFirst" style="mso-list: l0 level1 lfo1; text-indent: -.25in;">
<!--[if !supportLists]--><span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="mso-list: Ignore;">1)<span style="font: 7.0pt "Times New Roman";">
</span></span></span><!--[endif]-->Reduce Option Dilution: less of an issue once
the accounting <a href="https://en.wikipedia.org/wiki/Employee_stock_option">rules</a>
changed and require the expensing of options.<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="mso-list: l0 level1 lfo1; text-indent: -.25in;">
<!--[if !supportLists]--><span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="mso-list: Ignore;">2)<span style="font: 7.0pt "Times New Roman";">
</span></span></span><!--[endif]-->Valuation Signal: useful to close a <a href="https://www.divestopedia.com/definition/1065/valuation-gap">value gap</a>.
Management signifies its belief in future cash flows by return cash to
shareholders. Can be strong when debt financed. Usually in response to real or
imagined activist threats.<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="mso-list: l0 level1 lfo1; text-indent: -.25in;">
<!--[if !supportLists]--><span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="mso-list: Ignore;">3)<span style="font: 7.0pt "Times New Roman";">
</span></span></span><!--[endif]-->Dividend Alternative: with growth elusive and
CAPEX modest free cash flow is building. Firms need to do something with cash
piles or face criticism (e.g. Apple and Icahn). Either acquire (M&A is also
at a record pace this year) or return the cash thru dividends or repurchases.<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="mso-list: l0 level1 lfo1; text-indent: -.25in;">
<!--[if !supportLists]--><span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="mso-list: Ignore;">4)<span style="font: 7.0pt "Times New Roman";">
</span></span></span><!--[endif]-->Rebalance the Capital Structure: debt financed repurchases
are being used to capitalize on cheap debt market conditions. Could achieve the
same result using a debt financed special dividend.<o:p></o:p></div>
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<!--[if !supportLists]--><span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="mso-list: Ignore;">5)<span style="font: 7.0pt "Times New Roman";">
</span></span></span><!--[endif]-->Manage EPS (i.e. earn bonuses): hard to increase
earnings late in the economic recovery cycle. Thus, incentive to reduce share
count via repurchases to achieve EPS target.<o:p></o:p></div>
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<br /></div>
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Warren Buffett <a href="http://www.fool.com/investing/general/2014/08/09/warren-buffett-the-only-time-share-buybacks-make-s.aspx">reminds</a>
us to repurchase only when the price paid is less than the firm’s intrinsic
value; otherwise, remaining shareholders will suffer a value loss. You would
expect firms to repurchase shares when their prices are low. The evidence,
however, indicates they repurchase when prices are high. This propensity to buy
high is consistent with my suspicion repurchases are used to manage EPS, and
not because managers are bad market timers. Share prices are also likely to
have recovered later in cycle as well (i.e. they are relatively high).
Consequently, management is likely to manufacture EPS growth thru repurchases
at high prices. <o:p></o:p></div>
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<br /></div>
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Interesting empirical support for this conjecture is
provided by <a href="http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2276156">Almeida,
et al</a>. They find the probability of repurchases is higher for firms that
would have just missed their EPS forecast without the repurchase compared to
firms that just beat their forecast. This suggests managers are likely to use
repurchases to meet analyst EPS forecasts. Furthermore, they find managers are
willing to cut investments in favor of EPS motivated repurchases. It appears
late cycle repurchases, just like late cycle M&A, tend to have higher risk
of being overpriced. In fact, record repurchases and M&A volumes may
suggest the market has peaked (cyclical leading indicators?).<o:p></o:p></div>
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<br /></div>
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I am all for returning excess cash to shareholders. My
concern is over the best method to return the cash-dividends or repurchases. My
preference is to keep it simple-use dividends, regular or special, unless
management can demonstrate a compelling alternative reason. Taxes may be such a
reason. Nonetheless, since most shares are held by institutions this may not as
important as you would think. Boards should carefully examine repurchase
requests for firms experiencing difficulty in achieving analyst EPS
forecasts-there may be an agency cost problem lurking in the request.<o:p></o:p></div>
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MergerProfhttp://www.blogger.com/profile/14980171226758349881noreply@blogger.com0tag:blogger.com,1999:blog-4483849646274493821.post-39950621157486034082015-09-24T03:30:00.000-04:002015-09-24T03:30:10.089-04:00Board Changes and the Director Labor Market: The Case of Mergers<div>
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<br />
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<span style="font-family: Times, Times New Roman, serif;">Boards of directors
perform the critical tasks of monitoring and advising management and it is
logical to suspect that the necessary skills vary with the nature of a
particular firm. That is, a board should be chosen with consideration of
the needs associated with advising and monitoring a particular business.
So what happens to boards after a merger? After all, mergers change the
nature of a firm, sometimes in dramatic ways. Do boards change as well?
<o:p></o:p></span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<span style="font-family: Times, Times New Roman, serif;">In a recently revised
working paper, David Becher, Jared Wilson and I examine this question. However,
to ascertain whether board changes around mergers are significantly different
from the status quo, we needed a benchmark of normal board changes. To
our surprise, there was little information available in the literature.
Consequently, our work provides evidence on changes around mergers but
also provides a benchmark for normal non-merger changes. <o:p></o:p></span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<span style="font-family: Times, Times New Roman, serif;">The abstract is
below:<o:p></o:p></span></div>
<div class="MsoNormal">
<br /></div>
<div align="center" class="MsoNormal" style="text-align: center;">
<b><span style="font-family: Times, Times New Roman, serif;">Board Changes and the
Director Labor Market: The Case of Mergers<o:p></o:p></span></b></div>
<div align="center" class="MsoNormal" style="text-align: center;">
<i><span style="font-family: Times, Times New Roman, serif;">David Becher, Ralph Walkling and Jared
Wilson<o:p></o:p></span></i></div>
<div align="center" class="MsoNormal" style="text-align: center;">
<br /></div>
<div class="MsoNormal">
<span style="font-family: Times, Times New Roman, serif;">Abstract: <o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-family: Times, Times New Roman, serif;">We examine the
stability and composition of acquirer boards around mergers, contrasting
changes with the same firms in non-merger years and a sample of non-merging
firms. Contrary to perceived wisdom, the post-merger board changes
substantially and variation is significantly different from both non-merger
years and non-merging firms. Adjustments reflect firms upgrading skills
associated with executive and deal experience and bargaining between targets
and acquirers rather than agency motives. Conversely, director selection in
non-merger years is driven by general skills and diversity. Our analyses
provide insight into the dynamic nature of board structure and characteristics
valued in the director labor market.<o:p></o:p></span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<span style="font-family: Times, Times New Roman, serif;">The complete paper
may be downloaded <a href="http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2625798" target="_blank">here</a>.<o:p></o:p></span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<span style="font-family: Times, Times New Roman, serif;">All the best,<o:p></o:p></span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<span style="font-family: Times, Times New Roman, serif;">Ralph<o:p></o:p></span></div>
<div class="MsoNormal">
<br /></div>
<!--EndFragment--></div>
<div style="font-family: Trebuchet, Tahoma, 'Myriad Roman', Arial, Helvetica, sans-serif; font-size: 11px;">
<span style="font-family: Myriad Roman, Arial, Helvetica, Sans-serif; font-size: x-small;"></span></div>
</div>
</div>
MergerProfhttp://www.blogger.com/profile/14980171226758349881noreply@blogger.com0tag:blogger.com,1999:blog-4483849646274493821.post-21358785550747857982015-09-21T03:30:00.000-04:002015-09-21T03:30:08.585-04:00Hewlett Packard‘s 21st Century Adventures: Stupid Is as Stupid Does<br /><div class="MsoNormal">
Hewlett Packard and its shareholders have suffered during
the first 15 years of this century. I previously highlighted the issues <a href="http://www.mergerprof.com/2012/12/hewlett-packard-failed-growth-strategy.html">here</a>
and <a href="http://www.mergerprof.com/2013/02/tech-wreck-dell-apple-and-hp-developing.html">here</a>.
The underlying problem is an attachment by HP’s CEOs starting with Carly
Fiorina and continuing with current CEO Meg Whitman to a doomed attempt by a mature
low-growth, hardware-based, old tech conglomerate to regain its growth mojo
thru acquisition related consolidation. Back in 2013 I <a href="http://www.mergerprof.com/2013/09/schumpeters-ghost-and-hewlett-packard.html">recommended</a>
an alternative path to grow old gracefully by managing for cash and returning
it to shareholders instead of growth. This is a difficult recommendation for
most managers to accept; they seem instinctively opposed to shrinking even when
it is the <a href="http://www.mergerprof.com/search?q=power+of+subtraction">right</a>
thing to do. I thought it might be interesting to see how HP has progressed as
it approaches the split of its PC and printing business from its services
group. <o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Some of the items I suggested and HP’s reactions are as
follows:<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoListParagraphCxSpFirst" style="mso-list: l0 level1 lfo1; text-indent: -.25in;">
<!--[if !supportLists]--><span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="mso-list: Ignore;">1)<span style="font: 7.0pt "Times New Roman";">
</span></span></span><!--[endif]-->Improved Efficiency: lots of cost/job
cuts-54,000 with another 30,000 planned. Unfortunately, margins and returns
have remained weak as core revenues continue to decline. So “A” for effort but
“C” for impact.<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="mso-list: l0 level1 lfo1; text-indent: -.25in;">
<!--[if !supportLists]--><span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="mso-list: Ignore;">2)<span style="font: 7.0pt "Times New Roman";">
</span></span></span><!--[endif]-->Refocus Product Portfolio: still burdened with
overly board product lines. Remains a work in process with a grade of “C”. <o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="mso-list: l0 level1 lfo1; text-indent: -.25in;">
<!--[if !supportLists]--><span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="mso-list: Ignore;">3)<span style="font: 7.0pt "Times New Roman";">
</span></span></span><!--[endif]-->Improve Focus: the split/spin off of the PC and
printer divisions to HP, Inc and the service units to Hewlett Packard
Enterprise should improve focus. Additionally, it allows more tailored
financial polices-see # 4 and 5 below. Grade “A”.<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="mso-list: l0 level1 lfo1; text-indent: -.25in;">
<!--[if !supportLists]--><span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="mso-list: Ignore;">4)<span style="font: 7.0pt "Times New Roman";">
</span></span></span><!--[endif]-->Improve Balance Sheet: the balance sheet and
ratings were weakened by a disastrous series of acquisitions. The company’s net
debt position was reduced to “0” prior to the spinoff. Post split, Inc will have
a net debt of $2.3B while Enterprise will have $5.5B more cash than debt. Grade
“A”.<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="mso-list: l0 level1 lfo1; text-indent: -.25in;">
<!--[if !supportLists]--><span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="mso-list: Ignore;">5)<span style="font: 7.0pt "Times New Roman";">
</span></span></span><!--[endif]-->Improve Capital Discipline (i.e. increase
shareholder distributions): dividends have increased, but represent only 13% of
free cash flow (FCF) compared to IBM’s over 30%. Post split, however, Inc will
payout 50-75% of FCF while Enterprises FCF payout is targeted at 50%. Grade
“A”.<o:p></o:p></div>
<div class="MsoListParagraphCxSpLast" style="mso-list: l0 level1 lfo1; text-indent: -.25in;">
<!--[if !supportLists]--><span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="mso-list: Ignore;">6)<span style="font: 7.0pt "Times New Roman";">
</span></span></span><!--[endif]-->Curtail Acquisitions: acquired relatively small <a href="http://www.usatoday.com/story/tech/2015/03/02/hp-aruba/24251081/">Aruba</a>
Networks (revenues around $700 Mln) for $2.7B earlier this year. Seems to make
strategic sense with manageable integration risk. CEO Whitman <a href="http://recode.net/2015/09/15/hp-will-cut-as-many-as-30000-more-jobs-after-split/">recently</a>
stated their M&A goal is not to do anything (again?)-sounds like a sensible
approach to me. Grade “B”.<o:p></o:p></div>
<div class="MsoListParagraphCxSpLast" style="mso-list: l0 level1 lfo1; text-indent: -.25in;">
<br /></div>
<div class="MsoNormal">
Lots of unanswered questions remain for the spun off
divisions; overall grade-“A-“ Whitman has done “ok”. My concern is with
revenue, margins and returns under pressure as reflected in a stagnating stock
price, the HP entities will fall prey to the growth fetish and “do something
stupid” again. Initially, Enterprise headed by Whitman will have more financial
slack to do something stupid. Let’s hope that HP Inc and Enterprises accept
financial reality and maturity by focusing on efficiency and capital disciple
instead of growth. Their empires may be smaller, but their shareholders will be
richer. Let’s hope the HP entities have fewer future adventures than they had
over the first of the 21<sup>st</sup> century.<o:p></o:p></div>
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<br /></div>
<div class="MsoNormal">
Joe</div>
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MergerProfhttp://www.blogger.com/profile/14980171226758349881noreply@blogger.com0tag:blogger.com,1999:blog-4483849646274493821.post-53326544206671742962015-09-17T11:50:00.000-04:002015-09-17T11:50:06.466-04:00Mylan, Perrigo and the Power of the BoardWe've written before about Mylan and takeovers (e.g., <a href="http://www.mergerprof.com/2015/07/shareholder-centric-vs-stakeholder.html" target="_blank">Shareholder Centric or Stakeholder Centric</a> and <a href="http://www.mergerprof.com/2015/04/offense-and-defense-in-drug-industry.html" target="_blank">Offense and Defense in the Drug Industry</a>). This weeks Wall Street Journal contains an excellent <a href="http://www.wsj.com/articles/attention-shareholders-beware-of-the-board-1442282531" target="_blank">article</a> by Ron Barusch updating the Mylan story. It presents a very interesting contrast between the takeover laws of Ireland, the Netherlands (where we teach the <a href="http://www.aif.nl/programs/open-enrollment-programs/acquisition-finance-structuring-the-deal.aspx?PID=61" target="_blank">Acquisition Finance</a> Course) and the US. The facts below are taken from the article.<br />
<br />
Mylan is attempting to take over Perrigo in a hostile deal. Under Irish law, the directors of Perrigo can express their feelings about the deal, but must let shareholders decide on its merits. If the deal fails, Mylan would have to wait a year before attempting another deal. But the key is that shareholders - the owners of the firm, decide.<br />
<br />
Contrast that with the situation of Mylan itself. Mylan was a takeover target earlier this year when Teva Pharmaceuticals made a bid for the firm. Mylan blocked the attempt by forming a "stichting", an independent foundation that is required to consider the interests of all stakeholders before approving a deal. Giving the stichting voting control effectively blocks hostile takeovers. Shareholders, the true owners of the company, lose the right to tender their shares for a premium. <br />
<br />
Here is where it gets really interesting. Shareholders <i>can</i> remove directors - but only with two-thirds of the voting shares and even then replacements are named by the board! If the entire board is removed, "...the former chairman - that's right, the one who was just unseated- gets the powers of the board."<br />
<br />
The article also discusses the shift in the US towards a more shareholder friendly governance structure with the elimination of poison pills and staggered boards and concludes by noting that Mylan escaped such moves when it became incorporated in the Netherlands earlier in a tax inversion.<br />
<br />
Interesting reading and a warning to shareholders - the residual claimants and owners of the firm.<br />
<br />
All the best,<br />
<br />
RalphMergerProfhttp://www.blogger.com/profile/14980171226758349881noreply@blogger.com0tag:blogger.com,1999:blog-4483849646274493821.post-65383885433554738802015-09-14T07:27:00.000-04:002015-09-14T07:27:13.833-04:00Banks and the Clustering of Mergers and Acquisitions Activity<br /><div class="MsoNormal">
Industry structural changes are a major M&A catalyst.
The changes inhibit incumbent firms’ ability to create shareholder value. This
is reflected in the current <a href="http://www.wsj.com/articles/whats-driving-merger-and-acquisition-activity-1441846542">clustering</a>
of M&A activity in the healthcare, technology and oil and gas industries.
Banking has also seen increased activity in the number of deals. The deals have
been primarily in the smaller community and regional bank segments. Hence,
dollar volume is still off pre crisis levels. Larger Too-Big-To-Fail banks are
still reluctant to seek regulatory approval. Nonetheless, banking has
structurally changed since the financial crisis as reflected in weaker
operating performance. Many bank, however, have yet to adjust to the changes.<o:p></o:p></div>
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This is reflected in lower economic returns, ROE less cost
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performance. Pressure is building, primarily from activists, to improve
returns. Banks who “get it” will enjoy improved returns and values e.g. Warren
Buffet’s favorite bank Wells Fargo. They will likely force changes upon weaker
banks that “don’t get it” like Bank of America which trades below book value.
This will spur increased banking M&A-initially smaller transactions until a
larger deal is pushed thru the regulatory log jam. My thoughts on this matter
are outlined in <a href="http://www.americanbanker.com/bankthink/the-quiet-crisis-in-banks-shareholder-value-1076602-1.html?zkPrintable=true">my</a>
attached American Banker BankThink comment.<o:p></o:p></div>
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MergerProfhttp://www.blogger.com/profile/14980171226758349881noreply@blogger.com0tag:blogger.com,1999:blog-4483849646274493821.post-52115518245400647672015-09-10T03:30:00.000-04:002015-09-10T03:30:02.258-04:00Competition, Consolidation and the FTC: The Staples and Office Depot DealThe Staples and Office Depot Merger is in the news. Today's <a href="http://www.wsj.com/articles/ftc-intensifies-antitrust-review-of-staples-office-depot-merger-1441743704" target="_blank">WSJ</a> reports that the FTC is seeking sworn legal statements about the impact of the merger from those potentially impacted. Here are a few quick thoughts:<br />
<br />
<br />
<ul>
<li>Catalysts for merger include changes in technology. In this case, the internet has had at least two impacts on the office supply market. First, we are using less paper than before, shifting to a less-paper if not paperless economy. Second, the internet has given rise to rivals like Amazon and Walmart.</li>
<li>These changes suggest the need for consolidation. Both firms have closed hundreds of stores and two years ago Office Depot acquired Office Max.</li>
<li>Competition brought about the need to consolidate. Ironically, the FTC worries that too little competition will remain if the deal goes through. This, of course, depends on how one views the market and which products, competitors and regions are included in the analysis.</li>
<li>The <a href="http://www.mergerprof.com/2012/12/speculation-spreads-and-market-pricing.html" target="_blank">Speculation Spread</a> on this deal is huge. The journal quotes the deal value for Office Depot at $10.35 with the current price of $7.64. That's a 35% spread! If the deal closes in three months that suggests a 142% gain on an annualized basis. Of course, the spread is a direct indication that the market is highly skeptical the deal will be completed.</li>
</ul>
<div>
One thing is certain. Something <i>will </i>change in this market. Too few dollars chasing too many goods - combined with the fixed costs of the physical presence of the stores, insures this will happen. We'll know more in October when the deadline for FTC action occurs.</div>
<div>
<br /></div>
<div>
All the best,</div>
<div>
<br /></div>
<div>
Ralph</div>
MergerProfhttp://www.blogger.com/profile/14980171226758349881noreply@blogger.com0tag:blogger.com,1999:blog-4483849646274493821.post-87143879776113635632015-09-07T09:14:00.005-04:002015-09-07T09:14:52.416-04:00The Great Lie: Syngenta’s Rejection of Monsanto’s Bid<div class="MsoNormal" style="margin-left: 1.0in; text-indent: .5in;">
<br /></div>
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Hostile takeovers are a struggle by competing management
groups over the control of the target’s assets. It involves a valuation dispute
over which group has the best strategy yielding the highest value. The target’s
management and investors frequently have different agendas. Management seeks
job preservation; while shareholders want value. Consequently, the usual management
response to an unsolicited bid, when supported by a compliant board, is to say
no. The “no” characterizes the bid as undervalued and inadequate.<span style="mso-spacerun: yes;"> </span>Of course, sometimes this is just a “play
hard” tactic to negotiate a better price. More often than not it is just no
especially when management lacks a substantial ownership in the target and has
little to gain from the takeover.<o:p></o:p></div>
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<br /></div>
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Syngenta’s <span style="mso-spacerun: yes;"> </span><a href="http://www.dw.com/en/monsanto-drops-syngenta-takeover-bid/a-18676414">rejection</a>
of Monsanto’s twice <a href="http://www.cnbc.com/2015/08/24/monsanto-raises-takeover-offer-for-syngenta-values-firm-at-47-billion.html">revised</a>
unsolicited $47B takeover is a prime example of management self interest
trumping shareholder desires. Monsanto’s offer represented a 45% premium to
Syngenta’s pre bid share price. Also, it included a $3B breakup fee (about 10%
of Syngenta market cap) should the deal not receive anti-trust approval <span style="mso-spacerun: yes;"> </span>(a real concern) within 18 months. When
Monsanto finally gave up and withdrew its offer Syngenta’s shares dropped 18%
while Monsanto’s rose 8.5%. Syngenta, facing angry shareholders subsequently <a href="http://www.wsj.com/articles/syngenta-moves-to-calm-disappointed-shareholders-1441258802?mod=pls_whats_news_us_business_f">announced</a>
a $2B share repurchase funded thru a combination of asset sales and debt.<o:p></o:p></div>
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<br /></div>
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Legally, it is very difficult to overcome the inadequate
offer defense. All management and the board need to do is to get a report from
a credible independent third party, for a fee of course, that places a higher
value on the standalone target than the offer. Shareholders are then left with
trying to replace the board and ultimately management at either the next
shareholders meeting or a special meeting.<o:p></o:p></div>
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Now let’s look at some reasons why Syngenta’s management
should be challenged:<o:p></o:p></div>
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<br /></div>
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<!--[if !supportLists]--><span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="mso-list: Ignore;">1)<span style="font: 7.0pt "Times New Roman";">
</span></span></span><!--[endif]-->Fact versus belief: Monsanto’s offer is a fact
while management’s value estimate is a belief. The belief seems a stretch give
the size of improvements needed to equal the upfront 45% premium.<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="mso-list: l0 level1 lfo1; text-indent: -.25in;">
<!--[if !supportLists]--><span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="mso-list: Ignore;">2)<span style="font: 7.0pt "Times New Roman";">
</span></span></span><!--[endif]-->Why now? Why hasn’t Syngenta achieved the
improvements already? If a new team is involved why should they be any
different than prior management?<o:p></o:p></div>
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<!--[if !supportLists]--><span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="mso-list: Ignore;">3)<span style="font: 7.0pt "Times New Roman";">
</span></span></span><!--[endif]-->Why haven’t investors (the market) bought into
the plan as reflected in a higher stock price? Are investors stupid or may be Syngenta’s
investor relations group hasn’t explained it well enough? Alternatively,
management’s plan may not represent the highest value for investors.<o:p></o:p></div>
<div class="MsoListParagraphCxSpMiddle" style="mso-list: l0 level1 lfo1; text-indent: -.25in;">
<!--[if !supportLists]--><span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="mso-list: Ignore;">4)<span style="font: 7.0pt "Times New Roman";">
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i.e. betting their jobs on achieving the plan? Shouldn’t they post the plan’s
metrics and timing and agree to fall on their sword if they fail to achieve it?<o:p></o:p></div>
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while management’s plan is to be achieved in the future and is subject to
execution risk.<o:p></o:p></div>
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In my view, this case represents a brazen agency conflict
between management and shareholders. As one investor put it-management needs to
be reminded that shareholders and not management own the company. Hopefully
management will be so reminded at the next shareholder meeting. </div>
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<br /></div>
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J<o:p></o:p></div>
MergerProfhttp://www.blogger.com/profile/14980171226758349881noreply@blogger.com0