Professional Documents
Culture Documents
MERGERS AND
AQUISITIONS
Acquisition
Merger
Amalgamation
Meaning
Acqu
isitio
n
i.
Merging of two
organization in to one.
ii. It is the mutual decision.
iii. Merger is expensive than
acquisition(higher legal
cost).
iv. Through merger
shareholders can increase
their net worth.
v. It is time consuming as
the company has to
maintain legal issues.
vi. Dilution of ownership
occurs in merger.
ACQUISITION
i.
ii.
iii.
iv.
v.
vi.
However, shareholders may then buy and sell stocks from either
company independently; this potentially makes investment in the
companies more attractive, as potential share purchasers can
invest in only the portion of the business they think will have the
most growth.
LEVERAGED BUYOUT
Leveraged Buyout
Leveraged Buyout
Characteristics
Often, the assets of the company being acquired are used as collateral fo
Deal Structure
Cash Transaction
The receipt of cash for shares by
Share Transaction
Securities
Deal Financing
Secured
Senior debt Long term
Granted against qualified
assets
Unsecured
Also known as
Intermediate debt
medium term
Generally up to 5 years
subordinated debt
No collateral to fall back
higher interest rates
Mezzanine Layer
Financing
Has both the
characteristics of debt
and equity
Warrants can be issued
which provide the equity
nature to this type of
financing
Motives
Synergy
Synergy value is created from economies of integrating a
target and acquiring a company; the amount by which the
value of the combined firm exceeds the sum value of the two
individual firms
V VAT -(VA VT )
Where VA-T Combined Synergy
VA & VB Individual Synergies
Economies of Scale
Economies of Scope
Complementary Strengths
Financial Motives
Reduced cash flow variability
Increase in debt capacity
Reduction in average issuing costs
Fewer information problems
Tax Benefits
CASE ANALYSIS
RJR Nabisco
Pre-Offer Operating
Plans
Conflicts of Interests in
MBO
Managers
When
Thus,
Proposed Solution
Neutralised
The
appointment of an independent
financial advisor
Mandated
auctions of corporations
presented with an MBO
The offer valued RJR Nabisco at $17 billion. The offer stood at
$75 a share, 34% above the pre-offer price of $55.875
It had acquired 35
companies before it put its
RJRN bid
KKR
KKRs
Offered
RJR Nabisco
Management
Group
KKR Acquisition
Group
Oct-19
Nov-04
Nov-25
Nov-29
Dec-01
$112/sh.
$101/sh.
$100/sh.
$92/sh.
$75/sh.
$109/sh.
$106/sh.
$94/sh.
$90/sh.
$118/sh.
$84 Cash
$24 Preferred Stock
$4 Common Stock
$88 Cash
$9 Preferred Stock
$4 Other Security
$90 Cash
$6 Preferred Stock
$4 New Common Stock
$84 Cash
$8 Debt Securities
Bidder did not specify
form of payment
$81 Cash
$18 Preferred Stock
$10 Debentures
$80 Cash
$18 Preferred Stock
$8 Convertible Bond
$75 Cash
$11 Preferred Stock
$8 Convertible Bond
$78 Cash
$12 Securities
$110 Notes
$3 Other Securities
$5 Warrants
Greed Downside of
Management Bid
Rationale
KKRs
Current Scenario
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