Section 15

Question 1

Name the phases of an evolution of a deal

Answer 1

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

Question 2

Elaborate on efficiency theory:

Answer 2

synergies

Question 3

what do financial synergies result in?

Answer 3

lower costs of capital

Question 4

what do operational synergies result in?

Answer 4

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

Question 5

explain managerial synergies

Answer 5

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

Question 6

define monopoly theory in relation to mergers

Answer 6

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

Question 7

explain disturbance theory

Answer 7

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

Question 8

describe valuation theory

Answer 8

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)

Question 9

what is the first rule of successful acquisitions?

Answer 9

based on business, not financial or strategy

Question 10

what is the second rule about acquisitions?

Answer 10

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

Question 11

what is third rule of mergers?

Answer 11

acquisition requires common core of unity between acquiring and acquired company

Question 12

what is fourth rule of mergers?

Answer 12

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

Question 13

Beatrice company founded when?

Answer 13

1891 as small creamery

Question 14

beatrice growth was led by what?

Answer 14

acquisition

Question 15

beatrice after growth turned into?

Answer 15

diversified consumer and industrial products firm

Question 16

beatrice participated in more than..?

Answer 16

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

Question 17

what is the first distinct period of beatrice?

Answer 17

1890-1939: moving from local creamery into national company

Question 18

what is second distinct period of beatrice?

Answer 18

1940-1976: diversification into foods and beyond

Question 19

what is third period of beatrice?

Answer 19

1977-1986: large scale acquisitions and change in strategy

Question 20

what is fourth period of beatrice?

Answer 20

1986-1990: lbo and divestures

Question 21

period 1 for beatrice how did they do?

Answer 21

they grew and prospered during this period of dairy acquisitions

Question 22

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

Answer 22

economy of scale in marketing and production

Question 23

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

Answer 23

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

Question 24

in 1955 what acquisition did beatrice make?

Answer 24

DL Clark (national candy bar manufacturer)

Question 25

in 1964 what kind of acquisition did beatrice make?

Answer 25

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

Question 26

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

Answer 26

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

Question 27

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

Answer 27

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

Question 28

characterize period 3 for Beatrice

Answer 28

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

Question 29

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

Answer 29

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

Question 30

describe free cash flow for beatrice in 3rd period

Answer 30

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

Question 31

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

Answer 31

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

Question 32

describe destruction of value from their acquisitions

Answer 32

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

Question 33

Describe Period 4

Answer 33

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

Question 34

KKR recaptured...?

Answer 34

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

Question 35

Describe results of LBO of beatrice

Answer 35

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

Question 36

what did beatrice initially do that was so profitable?

Answer 36

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

Question 37

by the mid 1970's...?

Answer 37

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

Question 38

what is a cost of integration?

Answer 38

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