The Concise Guide to Mergers, Acquisitions and Divestitures: Business, Legal, Finance, Accounting, Tax and Process Aspects

240 Pages·2007·0.99 MB·English

by  Robert L. Brown

pal-brown-ch00fm.qxd 8/17/07 1:42 PM Page i
The Concise Guide to Mergers,
Acquisitions and Divestitures
This page intentionally left blank
pal-brown-ch00fm.qxd 8/21/07 11:27 AM Page iii
The Concise Guide to Mergers,
Acquisitions and Divestitures
Business,Legal,Finance,Accounting,
Tax and Process Aspects
Robert L.Brown
With a Tax Chapter by Richard Westin
pal-brown-ch00fm.qxd 8/21/07 11:27 AM Page iv
The Concise Guide to Mergers,Acquisitions and Divestitures
Copyright © Robert L.Brown,2007.
All rights reserved.No part ofthis book may be used or reproduced in any manner what-
soever without written permission except in the case ofbriefquotations embodied in
critical articles or reviews.
First published in 2007 by
PALGRAVE MACMILLAN™
175 Fifth Avenue,New York,NY 10010 and
Houndmills,Basingstoke,Hampshire,England RG21 6XS.
Companies and representatives throughout the world.
PALGRAVE MACMILLAN is the global academic imprint ofthe Palgrave
Macmillan division ofSt.Martin’s Press,LLC and ofPalgrave Macmillan Ltd.
Macmillan© is a registered trademark in the United States,United Kingdom and other
countries.Palgrave is a registered trademark in the European Union and other countries.
ISBN-13:978-0-230-60078-2
ISBN-10:0-230-60078-6
Library ofCongress Cataloging-in-Publication Data
Brown,Robert L.,JD
Concise guide to mergers,acquisitions,and divestitures :business,legal,finance,account-
ing,tax,and process aspects / Robert Brown ;with a tax chapter by Richard Westin.
p.cm.
Includes bibliographical references and index.
ISBN 0-230-60078-6 (alk.paper)
1.Consolidation and merger ofcorporations—Handbooks,manuals,etc.2.Corporate
divestiture—Handbooks,manuals,etc.3. Corporations—Finance—Handbooks,manu-
als, etc. 4. Corporations—Accounting—Handbooks, manuals, etc. 5. Corporations—
Taxation—Handbooks,manuals,etc. I.Westin,Richard A.,1945– II.Title.
HD2746.5.B765 2007
658.1'6—dc22 2007010135
A catalogue record ofthe book is available from the British Library.
Design by Scribe Inc.
First edition:November 2007
10 9 8 7 6 5 4 3 2 1
Printed in the United States ofAmerica.
pal-brown-ch00fm.qxd 8/21/07 11:27 AM Page v
Contents
List ofTables vii
Introduction ix
1 Business 1
2 Legal:Part 1 29
3 Legal:Part 2 57
4 Finance 85
5 Accounting 117
6 Tax,by Richard Westin 133
7 Process 171
8 Divestiture 203
Notes 213
Index 225
This page intentionally left blank
pal-brown-ch00fm.qxd 8/17/07 1:42 PM Page vii
List of Tables
Table 1.1 Largest Technology Mergers over Past Five Years 2
Table 1.2 Largest Private-Equity Buyouts of2006 3
Table 3.1 HSR Filing Fees 76
Table 3.2 HSR Second Requests 77
Table 4.1 Types ofStock 88
Table 4.2 Types ofDebt 95
Table 4.3 Credit Ratings 102
Table 5.1 Accounting Methods in Mergers 118
Table 5.2 Accounting Methods in Acquisition ofStock 118
Table 5.3 Key Requirements for Pooling ofInterest 125
Table 5.4 Passive Security Investments 127
Table 5.5 Acquisition ofStock Methods 127
Table 6.1 Nontaxable Reorganizations 139
Table 6.2 Type A Subsidiary Mergers 142
Table 6.3 Management Buy-Outs 149
Table 6.4 Tax-free Divestitures 165
Table 7.1 Major Provisions ofConfidentiality Agreement 173
Table 7.2 Major Provisions ofTerm Sheet for Asset Purchase 175
Table 7.3 Major Provisions ofDue Diligence Checklist 181
Table 7.4 Major Provisions ofAsset Purchase Agreement 186
Table 7.5 Time Schedule for Securities Offering 196
Table 8.1 Ratio ofDebt to Net Worth in Percent 204
Table 8.2 Percent Change in Bankruptcy Filings by Time Period 205
and Geographical Region
Table 8.3 Public Company Bankruptcy Filings in 2001 205
This page intentionally left blank
pal-brown-ch00fm.qxd 8/17/07 1:42 PM Page ix
Introduction
Irecently took a European executive to his first U.S.basketball game.Although
I had received two tickets in the first row,for the first halfofthe game I took
him to seats up much higher that I had also received tickets for.I wanted him to
get an overview of the game before getting close to see the details.My concern
was that ifwe started by being in the front row,he would get lost in the specifics
without understanding the overall process.
In the business context ofthis book,over the past several decades,I have been
involved in many major mergers and acquisitions—some ofthem worth over $1
billion.In other cases,clients have moved in the opposite direction by selling off
or closing subsidiaries,divisions,branches,and offices.During that time I have
often had clients ask for a standard reference book that they could use to under-
stand the process before undertaking a merger,acquisition,or divestiture.
Unfortunately,I have had to refer them to multi-volume studies,each on a
different aspect ofsuch transactions.Most ofthe books have been so intense that
clients have become lost looking not just at the trees but also at the leaves,with-
out being able to see the forest.Using my basketball analogy,they became lost in
different parts ofthe game and could not see the integrated whole picture—the
passing,set-up,plays,and strategy.
This book is an attempt to show you the dynamics of mergers,acquisitions,
and divestitures without drowning you in so many details that you lose sight of
the underlying game.
You will learn about the key business trends driving the increase in mergers,
acquisitions, and divestitures.You will also learn about the stages in any deal,
including the investigation,negotiation,and underappreciated postclosing inte-
gration.You will also learn how to set up your team—both internal and external
members—as well as handling issues of concern to shareholders and directors.
You will also learn about the key forms ofmergers and acquisitions—asset,stock,
merger,and others.
From a legal standpoint,you will learn about the major issues affecting suc-
cessors,employers,creditors,shareholder,boards ofdirectors,as well as various
third parties such as managers,bankers,and ESOPS.You will also learn about
securities, antitakeover, and antitrust rules and how they affect mergers and
acquisitions.Special cases ofregulated industries and rules for foreign investors
will also be covered.
In finance,you will learn about the types ofequity and debt financing,includ-
ing rights and funding sources of each.There are also special sections on junk
bonds,leveraged and management buyouts,and valuation.