term 2 lecture 9 corporate restructing

Question 1

what is corporate restructuring?

Answer 1

changes in the corporate control or ownership strucutre

Question 2

what are the main forms of corporate restructuring?

Answer 2

mergers and acquistions, leveraged buyouts and management buyouts, leveraged recapitalisation

Question 3

what is the definition of a consolidation?

Answer 3

both companies terminate their legal existance, and a new company arises

Question 4

what is the definition of a statutor merger?

Answer 4

often referred to as an aquistion, one company ceases to exist. all of its assets and liabilities are taken over by the acquiring company

Question 5

what is a horizontal merger?

Answer 5

companies are in the same line of business, often competitors such as walt disney and lucasfilms

Question 6

what is a vertical merger?

Answer 6

companies that are in the same line of production eg supplier customer. an example is PayPal and ebay

Question 7

what is a conglomerate merger?

Answer 7

companies that are in unrelated lines of buissness

Question 8

what are the types of mergers by transaction characteristics?

Answer 8

Question 9

what is a merger wave?

Answer 9

peaks of heavy activity followed by quiet troughs of few transactions in the takeover market. greatest takeover activity occurred in the 60s, 80s, 90s, 00s/

Question 10

what was the type of mergers that most commonly occurred in the 60s?

Answer 10

1960s: known as the conglomerate wave (firms acquired others in unrelated businesses believing that managerial expertise can easily be transferred to other areas).

Question 11

what was the type of merger that most commonly occurred in the 80s?

Answer 11

hostile takeovers, where acquired firms were subsequently broken into pieces and sold

Question 12

what was the type of merger that most commonly occurred in the 90s

Answer 12

strategic or global deals which were likely to be friendly and in related areas. goal was to enhance global competitiveness

Question 13

what was the type of merger that most commonly occurred in the 00s?

Answer 13

consolidation in many industries and the larger role played by private equity (large frims were taken private)

Question 14

what are the three main motives for mergers?

Answer 14

creating value, cross border mergers and dubious mergers

Question 15

what are the subreasons for creating value in mergers?

Answer 15

synergy, growth, increasing market power, acquiring unique capabilities or resources and unlocking hidden value

Question 16

what are the subreasons for cross border mergers in merger?

Answer 16

exploiting market imperfections, overcoming adverse government policy, technology transfers , entering new markets and following clients

Question 17

what are the subreasons for dubious motives in mergers?

Answer 17

diversification and mangers personal incentives

Question 18

Answer 18

Question 19

Answer 19

Question 20

what is the historically cited reason to merge?

Answer 20

Question 21

why is the historically cited reason to merge not the sole determining of the success of a merger?

Answer 21

Question 22

what is a leveraegd buyout?

Answer 22

a group of investors or firms acquires another firm using debt financing: large part of the purchase price is financed by loans and junk bonds. the acquired firms assets are used as collateral because the only time the investors will need the money is if the tender offer succeeds, the banks lending the money can be certain that the investors will have control of the collateral.

Question 23

what is a management buyout?

Answer 23

leveraged buyout where the acquiring group is led by the target firms management

Question 24

what are the benefits to tendering shareholders from an LBO?

Answer 24

appreiciating prices due to bidding contest plus premium received

Question 25

what are the benefits to an acquiring group: gains after the LBO?

Answer 25

value created by the new management, increased tax shield, reduction in agency costs and easier monitoring reducing costs of being a public company: these costs include administrative costs inside the company as well as regulatory costs and compliances with the stock exchange requirments

Question 26

what are the impact on debt holders on LBO's?

Answer 26

they experience losses as their bonds are downgraded

Question 27

what are the buyout costs?

Answer 27

cost of financial distress, managers become undiversified and may be less willing to take risks. inappropriate investment policy because of high leverage

Question 28

what is the process of leveraged restructuring?

Answer 28

1) borrow a large amount 2) buy back own shares or pay large special cash dividend

Question 29

what are the motives of leveraged recapitalisation?

Answer 29

reduce taxes due to tax shield effect defence against takeover attempts (shark repellent)

Question 30

what are dual class share issues?

Answer 30

the issue of a second class of common stock. inferior voting rights and higher dividend payments (usually exchanged for existing shares.

Question 31

what are the motives of dual class share issues?

Answer 31

consolidation of decision making - could benefit founding families or top management

Question 32

what are examples of dual class share issue?

Answer 32

berkshire hathaway. ford, google

Question 33

what is the definition of divestitures?

Answer 33

selling assets, divisions , subsidaroes to another corporation or combination of corporations or inidivuals

Question 34

what are the motives for divestitutres for the seller of assets?

Answer 34

for the seller of the asset, divestitutures allow focus on core business or to raise funds, sale to pay back debt for example after an LBO anti takeover defense - sell crown jewels so they are not attractive anymore

Question 35

what are the motives for divestitutres for the buyer?

Answer 35

for the buyer of assets, it strengthens the existing business

Question 36

what are the motives for divestitures by Kaplan and weisbach (1992)?

Answer 36

Question 37

what are spinoffs?

Answer 37

a new independent company created by detaching part of parent companies assets. its shares are distributed to the existing shareholders of the parent company. non cash special dividends are commonly used to spin off a subsidiary as a separate company

Question 38

what are the two advantages of a spin off?

Answer 38

they avoid the transaction costs associated with a subsidiary sale the special dividend is not taxed as a cash distribution

Question 39

how can the spin offs be represented before an after graphically?

Answer 39

Question 40

what are equity carve outs?

Answer 40

also known as partial divestitures, it is when the parent company sells a percentage of the equity of a subsidiary to the public stock market. they then receive cash for the percentage sold and can sell any percentage but often up to 20% of the stock

Question 41

how can equity carve outs be represented graphically?

Answer 41

Question 42

what is privatisation?

Answer 42

the sale of a government owned company to private investors

Question 43

what is nationalisation?

Answer 43

publicly owned firms are taken over by the government