MERGERS, ACQUISITIONS, AND CORPORATE RESTRUCTURINGS PDF
Preview MERGERS, ACQUISITIONS, AND CORPORATE RESTRUCTURINGS
M A ERGERS, CQUISITIONS, C AND ORPORATE R ESTRUCTURINGS F E OURTH DITION P A. G ATRICK AUGHAN JOHNWILEY&SONS,INC. M A ERGERS, CQUISITIONS, C AND ORPORATE R ESTRUCTURINGS F E OURTH DITION M A ERGERS, CQUISITIONS, C AND ORPORATE R ESTRUCTURINGS F E OURTH DITION P A. G ATRICK AUGHAN JOHNWILEY&SONS,INC. Thisbookisprintedonacid-freepaper. Copyright2007byJohnWiley&Sons,Inc.Allrightsreserved. PublishedbyJohnWiley&Sons,Inc.,Hoboken,NewJersey. PublishedsimultaneouslyinCanada. 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FormoreinformationaboutWileyproducts,visitourWebsiteathttp://www.wiley.com. LibraryofCongressCataloging-in-PublicationData: Gaughan,PatrickA. Mergers,acquisitions,andcorporaterestructurings/PatrickA. Gaughan.—4thed. p.cm. Includesindex. ISBN:978–0–471–70564–2 (cloth) 1.Consolidationandmergerofcorporations. 2.Corporate reorganizations. I.Title. HD2746.5.G382007 658.1(cid:1)6—dc22 2006020848 PrintedintheUnitedStatesofAmerica. 10987654321 C ONTENTS Preface xi About the Web Site xiii Part 1 Background 1 1 Introduction 3 RecentM&ATrends 3 Definitions 12 ValuingaTransaction 12 TypesofMergers 13 ReasonsforMergersandAcquisitions 14 MergerFinancing 14 MergerProfessionals 15 MergerArbitrage 16 LeveragedBuyoutsandthePrivateEquityMarket 17 CorporateRestructuring 18 MergerNegotiations 19 MergerApprovalProcedures 21 Short-FormMerger 22 FreezeoutsandtheTreatmentofMinorityShareholders 23 PurchaseofAssetsComparedwithPurchaseofStock 23 StructuringtheDeal 24 AssumptionoftheSeller’sLiabilities 24 AdvantagesofAssetAcquisitions 24 AssetSelloffs 25 ReverseMergers 25 HoldingCompanies 26 2 History of Mergers 29 MergerWaves 29 WhatCausesMergerWaves? 29 FirstWave,1897–1904 30 SecondWave,1916–1929 36 The1940s 39 ThirdWave,1965–1969 40 TrendsettingMergersofthe1970s 47 vi CONTENTS FourthWave,1984–1989 53 FifthWave 59 Summary 67 3 Legal Framework 69 LawsGoverningMergers,Acquisitions,andTenderOffers 70 SecuritiesLaws 70 OtherSpecificTakeoverRulesintheUnitedStates 84 InternationalSecuritiesLawsRelatingtoTakeovers 85 BusinessJudgmentRule 91 StateAntitakeoverLaws 92 RegulationofInsiderTrading 98 AntitrustLaws 100 RecentTrendsinAntitrustEnforcementintheUnitedStates 107 MeasuringConcentrationandDefiningMarketShare 109 EuropeanCompetitionPolicy 114 AntitrustRemedies 114 Summary 116 4 Merger Strategy 117 Growth 117 Synergy 124 OperatingSynergy 126 Diversification 136 OtherEconomicMotives 145 HubrisHypothesisofTakeovers 157 OtherMotives 163 TaxMotives 165 Summary 165 Part 2 Hostile Takeovers 169 5 Antitakeover Measures 171 ManagementEntrenchmentHypothesisversusStockholderInterestsHypothesis 172 PreventativeAntitakeoverMeasures 173 ChangingtheStateofIncorporation 196 ActiveAntitakeoverDefenses 197 InformationContentofTakeoverResistance 231 Summary 233 6 Takeover Tactics 234 PreliminaryTakeoverSteps 236 TenderOffers 240 CONTENTS vii OpenMarketPurchasesandStreetSweeps 258 AdvantagesofTenderOffersoverOpenMarketPurchases 260 ArbitrageandtheDownwardPricePressuresAroundM&AAnnouncements 263 ProxyFights 263 Summary 281 Part 3 Going Private Transactions and Leveraged Buyouts 283 7 Leveraged Buyouts 285 Terminology 285 HistoricalTrendsinLBOs 286 CostsofBeingaPublicCompany 295 ManagementBuyouts 297 ConflictsofInterestinManagementBuyouts 299 FinancingforLeveragedBuyouts 309 CapitalStructureofLBOs 314 SourcesofLBOFinancing 315 ReturnstoStockholdersfromLBOs 317 ReturnstoStockholdersfromDivisionalBuyouts 317 ReverseLBOs 319 EmpiricalResearchonWealthTransferEffects 324 ProtectionforCreditors 325 Summary 328 8 Trends in the Financing of Takeovers and Going Private Transactions 330 TrendsinCashversusStockPercentageofTakeoverFinancing 331 ShareholderWealthEffectsandMethodsofPayment 335 PrivateEquityMarket 340 HedgeFunds 348 ComparisonofPrivateEquityFundsandHedgeFunds 352 HedgeFundandPrivateEquityFundConvergence 353 JunkBondsFinancingofTakeovers 355 StapledFinancing 373 SecuritizationandM&AFinancing 374 Summary 375 9 Employee Stock Ownership Plans 378 HistoricalGrowthofESOPs 378 TypesofPlans 380 CharacteristicsofESOPs 380 LeveragedversusUnleveragedESOPs 381 viii CONTENTS CorporateFinanceUsesofESOPs 381 VotingofESOPShares 383 CashFlowImplications 383 ValuationofStockContributedintoanESOP 384 EligibilityofESOPs 384 PutOptionsofESOPs 384 DividendsPaid 385 ESOPsversusaPublicOfferingofStock 385 EmployeeRiskandESOPs 387 SecuritiesLawsandESOPs 388 TaxBenefitsofLESOPs 388 BalanceSheetEffectsofESOPs 389 DrawbacksofLESOPs 389 ESOPsandCorporatePerformance 390 ESOPsasanAntitakeoverDefense 392 ESOPsandShareholderWealth 393 ESOPsandLBOs 394 Summary 397 Part 4 Corporate Restructuring 399 10 Corporate Restructuring 401 Divestitures 403 DivestitureandSpinoffProcess 413 WealthEffectsofSelloffs 421 EquityCarve-outs 434 VoluntaryLiquidations,orBustups 437 TrackingStocks 439 MasterLimitedPartnershipsandSelloffs 440 Summary 442 11 Restructuring in Bankruptcy 443 TypesofBusinessFailure 443 CausesofBusinessFailure 444 BankruptcyTrends 446 U.S.BankruptcyLaws 452 ReorganizationversusLiquidation 453 ReorganizationProcess 454 BenefitsoftheChapter11ProcessfortheDebtor 459 CompanySizeandChapter11Benefits 459
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