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Corporate Finance > Section 15 > Flashcards

Section 15 Flashcards

1
Q

Name the phases of an evolution of a deal

A

indication of interest; letter of intent executed; negotiation; closing; post-closing

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2
Q

Elaborate on efficiency theory:

A

synergies

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3
Q

what do financial synergies result in?

A

lower costs of capital

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4
Q

what do operational synergies result in?

A

stem from combining operations of hitherto separate units (joint sales force) from knowledge transfers

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5
Q

explain managerial synergies

A

realized when bidders managers posses superior planning and monitoring abilities that benefit the targets’ performance

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6
Q

define monopoly theory in relation to mergers

A

believes mergers are planed to achieve market power, gaining market share, wealth transfer from customers to shareholders (beatrice)

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7
Q

explain disturbance theory

A

changing macroeconomic circumstances and economic conditions (internet, digitalization, e-business (time warner AOL, google, motorola); financial crisis (constellation-midamerican)

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8
Q

describe valuation theory

A

argues that mergers are planned and executed by mangers who have better information about targets value than stock market (underpriced target, like constellation and midamerican)

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9
Q

what is the first rule of successful acquisitions?

A

based on business, not financial or strategy

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10
Q

what is the second rule about acquisitions?

A

acquirer must consider what it can contribute to acquisition, not reverse

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11
Q

what is third rule of mergers?

A

acquisition requires common core of unity between acquiring and acquired company

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12
Q

what is fourth rule of mergers?

A

acquirer must respect the business, products, and customers of the acquired company, as well as its values

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13
Q

Beatrice company founded when?

A

1891 as small creamery

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14
Q

beatrice growth was led by what?

A

acquisition

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15
Q

beatrice after growth turned into?

A

diversified consumer and industrial products firm

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16
Q

beatrice participated in more than..?

A

400 acquisitions, 90 divestures (Esmark, take over of E-JI Holdings)

17
Q

what is the first distinct period of beatrice?

A

1890-1939: moving from local creamery into national company

18
Q

what is second distinct period of beatrice?

A

1940-1976: diversification into foods and beyond

19
Q

what is third period of beatrice?

A

1977-1986: large scale acquisitions and change in strategy

20
Q

what is fourth period of beatrice?

A

1986-1990: lbo and divestures

21
Q

period 1 for beatrice how did they do?

A

they grew and prospered during this period of dairy acquisitions

22
Q

what was the source of value in dairy acquisitions for beatrice in 1st period?

A

economy of scale in marketing and production

23
Q

in period 2, what kind of acquisition did beatrice make?

A

first non-dairy acquisition of La Choy Food (Chinese speciality). 1943

24
Q

in 1955 what acquisition did beatrice make?

A

DL Clark (national candy bar manufacturer)

25
Q

in 1964 what kind of acquisition did beatrice make?

A

bloomfield industries (food service equipment for restaurants). unrelated diversification

26
Q

what were factors of success for beatrice in period 1 and 2?

A

decentralized organizational structure; centralized control of funds; ability to bring capital and professional management techniques to small private firms; almost all acquisitions were family held private firms

27
Q

what were some obstacles during 1st and 2nd period for beatrice?

A

commercial banks hesittant to lend to small unsophisticated mangement team; imperfect external capital markets; benefit of an internal capital market

28
Q

characterize period 3 for Beatrice

A

management and strategic changes by new CEO; five executive presidents to supervise sections of operations to concentrate on corporate goals; headcount in HQ goes from 160 to 750

29
Q

what were some corporate perks for beatrice in 3rd period?

A

hq moved to Chicago and occupied luxurious four and a half floor office

30
Q

describe free cash flow for beatrice in 3rd period

A

problem: analysts and invstors calling for stock buy back; new CEO disagreed saying he thought he had better use of money

31
Q

what was the new acquisition strategy for beatrice in period 3?

A

bought publically traded Tropicana products for $490M in cash and preffered stock. over six times the size of their largest acquisition. then in 85 $2.7Bn takeover of Esmark

32
Q

describe destruction of value from their acquisitions

A

street skeptical of Dutt’s leadership; almost $2Bn in market value destroyed; every acquisiton that’s larger than $30M was met with reduction in value; every divesture or withdrawal is increase in market value

33
Q

Describe Period 4

A

Dutt resigned August 86; LBO KKR rumors; KKR offered $45 per share; KKR finally bought at $50 a share then largest LBO ever; premium of 53% in price

34
Q

KKR recaptured…?

A

all value lost during Rasmussen-Dutt period ($1bn); brought in 4 esmark execs to manage beatrice; spun off bulk of business in nine major sales in 2 year period; $3.5Bn in proceeds in 86; paid down all bank debt in first year

35
Q

Describe results of LBO of beatrice

A

changed strategy and restored confience in governance of firm; restored decentralized organizational structure; reduction in HQ staff of 70% down to 12 people and streamlined operations

36
Q

what did beatrice initially do that was so profitable?

A

bought small private companies with limited access to capital markets/bank financing - added value by providing internal capital and training

37
Q

by the mid 1970’s…?

A

availability of high yield bonds securitized commercial lends for small firms; influence of professionally trained managers into ranks of american management

38
Q

what is a cost of integration?

A

disadvantage of corporate ownership. weakened incentives due to lack of equity stake for the unit managers

Corporate Finance (13 decks)

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