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MERGERS & ACQUISITIONS

MERGERS & ACQUISITIONS. Leonid Sopotnitskiy. Part 1. Restructuring a business. Restructuring activities. Acquisitions Mergers Strategic alliances Demergers Divestitures. Friendly Hostile Takeover. Vertical Horizontal Congeneric Conglomerate Accretive Dilutive. Spin-out

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MERGERS & ACQUISITIONS

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  1. MERGERS & ACQUISITIONS Leonid Sopotnitskiy

  2. Part 1 Restructuring a business

  3. Restructuring activities • Acquisitions • Mergers • Strategic alliances • Demergers • Divestitures • Friendly • Hostile • Takeover • Vertical • Horizontal • Congeneric • Conglomerate • Accretive • Dilutive • Spin-out • Spin-off • Disposal • Joint Ventures • Minor investments • Franchising • Licensing

  4. Cheaper transaction Gain control via majority stake Triple taxation Minority resistance Ineffective managerial decisions Holding companies in M&A +VS- 66% INEFFECTIVE 2 to 3

  5. ESOP(Employee Stock Ownership Plan) ESOP-Fund 4. Finance 1. Loan 3. Shares 5. Interest Creditor SPONSOR 2. Guarantee

  6. ESOP as an M&A-tool “Shell” company ESOP-Fund 4. Finance 3. Shares Subsidiary SHARES 1. Loan 5. Interest Creditor Parent Co. 2. Guarantee

  7. Part 2 Participants

  8. Investment Bankers • Deal clarification • Consulting services • IPO

  9. Lawyers • Corporate law • Antimonopoly law • M&A code • Tax law • Pension planning • Real-estate law • Securities • Court experts

  10. Other participants • Accountants • Proxy-hunters • PR-agents • Institutional investors (pension funds, insurance companies, etc.) • Arbitrage traders (a.k.a. “Arbs”)

  11. Short “shark” Buy “shark” Sell target Long target Arbitrage trading SPI 70 + 10 60 + 20 40 t Takeover announcement Deal successful Shares converted (1Q) (3Q)

  12. Part 3 HQ behind the scenes

  13. Synergy • Operational effect • Financial effect 1 + 1 = 3

  14. Market leadership Strategy realignment Taxes Cross-selling Empire building Managers’ hubris Diversification Undervalued assets (q-ratio) Common stimuli

  15. Why do M&A deals fail? • Overestimated synergy • Low integration tempo • Bad strategy • Cultural conflicts • Core-business conflicts • Oversized targets • Careless deal clearance (by investment bankers) • Financing errors

  16. Part 4 Acquisitions & takeovers

  17. Friendly acquisitions • Voluntary General Offering (VGO) • Deal through board negotiations • Willfulness of both parties • Late announcements + - • Lack of surprise • Preliminary SPI-growth risk

  18. Hostile approach Premium per share Board Complement Equity structure Corporate regulations Defense analysis Factor complexity S U C C E S S

  19. Black Knight in action • Dodging board negotiations • Direct shareholder contact • Proxy-fighting (becoming a trustee) • Preliminary press-release • Psychological pressure on the board directors • Various takeover strategies & tactics

  20. Takeover strategies • “Bear hug” • Proxy battles • Pre-tender concealed buying spree • Tender offer • Toehold strategy

  21. Takeover decision tree Friendly LOI Aggressive actions Y N Bear hug Negotiations Refusal N Y Negotiations Proxy battle Y Renegotiate Tender offer Open market Court Fulfill offer Complex N

  22. Reverse takeovers(APO) • Avoid IPO expenses • 12-months’ procedure (i.e. time-saving tool) • Fundamental changes in business • Search for an effective floating mechanism

  23. PLC PIPE deals (Private Investment in Public Equity) PRIVATE INVESTOR M A R K E T

  24. Part 5 Defense mechanism

  25. Poison pills Shark repellents Golden & silver parachutes Green mail Pac-man defense White knight ESOP Leveraged recapitalization Possible measures

  26. “Poison pills” • Preferred stock plan • Flip-over rights plan (discount option) • Ownership flip-in plan (1:1 exchange option) • Back-end rights plan • Poison put

  27. Preferred stock plan 18,5% 25% BLACK KNIGHT TARGET DEAL MARKET 1:1,06 S S S S P S P S P 18,5% 25% 18,5% 25% 18,5% 25% 8,3% 33% 8,3% 33% 8,3% 33% 1 000000 shares 943 396 shares + 500 000 P 1 943396 shares 1 000000 shares 74 % VS 26 %

  28. To be continued… Thank you!

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