Preface xi

PART I: BACKGROUND

Chapter 1: Introduction 3

Recent M&A Trends 3

Terminology 12

Valuing a Transaction 15

Types of Mergers 15

Merger Consideration 16

Merger Professionals 17

Merger Arbitrage 20

Leveraged Buyouts and the Private Equity Market 21

Corporate Restructuring 21

Merger Negotiations 23

Merger Agreement 30

Merger Approval Procedures 30

Deal Closing 32

Short-Form Merger 33

Freeze-Outs and the Treatment of Minority Shareholders 33

Reverse Mergers 34

Holding Companies 38

Chapter 2: History of Mergers 41

Merger Waves 41

What Causes Merger Waves? 42

First Wave, 1897–1904 42

Second Wave, 1916–1929 48

The 1940s 49

Third Wave, 1965–1969 49

Trendsetting Mergers of the 1970s 56

Fourth Wave, 1984–1989 62

Fifth Wave 67

Sixth Merger Wave 73

Chapter 3: Legal Framework 75

Laws Governing Mergers, Acquisitions, and Tender Offers 76

Other Specific Takeover Rules in the United States 88

International Securities Laws Relating to Takeovers 89

U.S. State Corporation Laws and Legal Principles 98

State Antitakeover Laws 101

Regulation of Insider Trading 109

Antitrust Laws 111

Measuring Concentration and Defining Market Share 117

European Competition Policy 121

Chapter 4: Merger Strategy 125

Growth 125

Synergy 136

Operating Synergy 138

Diversification 148

Types of Focus Increases 154

Focus Increasing Asset Sales Increase Firm Values 154

Explanation for the Diversification Discount 155

Do Diversified or Focused Firms Do Better Acquisitions? 159

Other Economic Motives 159

Hubris Hypothesis of Takeovers 169

Do Managerial Agendas Drive M&A? 173

Other Motives 177

PART II: HOSTILE TAKEOVERS

Chapter 5: Antitakeover Measures 187

Management Entrenchment Hypothesis versus Stockholder Interests Hypothesis 188

Rights of Targets Boards to Resist: United States Compared to the Rest of the World 189

Preventative Antitakeover Measures 189

Changing the State of Incorporation 214

Active Antitakeover Defenses 214

Information Content of Takeover Resistance 247

Chapter 6: Takeover Tactics 249

Preliminary Takeover Steps 250

Tender Offers 257

Advantages of Tender Offers over Open Market Purchases 272

Proxy Fights 279

Chapter 7: Hedge Funds as Activist Investors 291

Macroeconomic Foundations of the Growth of Activist Funds 294

Hedge Funds as Acquirers 301

PART III: GOING-PRIVATE TRANSACTIONS AND LEVERAGED BUYOUTS

Chapter 8: Going-Private Transactions and Leveraged Buyouts 311

Terminology 311

Historical Trends in LBOs 312

Management Buyouts 319

Conflicts of Interest in Management Buyouts 323

U.S. Courts’ Position on Leveraged Buyout Conflicts 325

Financing for Leveraged Buyouts 332

Returns to Stockholders from LBOs 340

Returns to Stockholders from Divisional Buyouts 341

Empirical Research on Wealth Transfer Effects 346

Protection for Creditors 347

Intra-industry Effects of Buyouts 347

Chapter 9: The Private Equity Market 349

History of the Private Equity and LBO Business 349

Private Equity Market 350

Secondary Market for Private Equity Investments 369

Chapter 10: The Junk Bond and the Leveraged Loan Market and Stapled Financing 371

History of the Junk Bond Market 371

Leveraged Loan Market 382

Stapled Financing 386

PART IV: CORPORATE RESTRUCTURING

Chapter 11: Corporate Restructuring 391

Divestitures 393

Divestiture and Spin-Off Process 404

Market Liquidity and the Decision to Divest a Unit 406

Round-Trip Wealth Effects 406

Wealth Effects of Sell-Offs 407

Managerial Ownership and Sell-Off Gains 410

Activists and Sell-Offs 410

Shareholder Wealth Effects of Spin-Offs: U.S. versus Europe 416

Equity Carve-Outs 421

Voluntary Liquidations or Bust-Ups 427

Tracking Stocks 428

Master Limited Partnerships and Sell-Offs 430

Chapter 12: Restructuring in Bankruptcy 433

Types of Business Failure 434

Causes of Business Failure 435

Bankruptcy Trends 440

U.S. Bankruptcy Laws 444

Reorganization versus Liquidation 445

Reorganization Process 446

Benefits of the Chapter 11 Process for the Debtor 453

Prepackaged Bankruptcy 457

Workouts 461

Corporate Control and Default 469

Liquidation 469

Investing in the Securities of Distressed Companies 471

Chapter 13: Corporate Governance 477

Structure of Corporations and Their Governance 477

Golden Parachutes 486

CEO Severance Payments 490

Reform of Excesses of Golden Parachutes and Severance Payments 491

Managerial Compensation, Mergers, and Takeovers 491

CEO Compensation and Power 493

Compensation Characteristics of Boards That Are More Likely to Keep Agency Costs in Check 496

Role of the Board of Directors 496

Regulatory Standards for Directors 506

Antitakeover Measures and Board Characteristics 507

Disciplinary Takeovers, Company Performance, CEOs, and Boards 510

Merger Strategy and Corporate Governance 511

CEO Compensation and M&A Programs 511

Do Boards Reward CEOs for Initiating Acquisitions and Mergers? 512

CEO Compensation and Diversification Strategies 513

Agency Costs and Diversification Strategies 513

Interests of Directors and M&As 514

Managerial Compensation and Firm Size 516

Corporate Control Decisions and Their Shareholder Wealth Effects 516

Does Better Corporate Governance Increase Firm Value? 518

Corporate Governance and Competition 519

Executive Compensation and Postacquisition Performance 519

Mergers of Equals and Corporate Governance 520

Chapter 14: Joint Ventures and Strategic Alliances 531

Contractual Agreements 531

Comparing Strategic Alliances and Joint Ventures with Mergers and Acquisitions 532

Joint Ventures 532

Strategic Alliances 538

Chapter 15: Valuation 547

Valuation Methods: Science or Art? 549

Managing Value as an Antitakeover Defense 550

Benchmarks of Value 550

How the Market Determines Discount Rates 562

Valuation of the Target’s Equity 575

Marketability of the Stock 575

Takeovers and Control Premiums 578

Valuation of Stock-for-Stock Exchanges 583

Shareholder Wealth Effects and Methods of Payment 583

Exchange Ratio 589

Fixed Number of Shares versus Fixed Value 597

Merger Negotiations and Stock Offers: Halliburton vs Baker Hughes 597

International Takeovers and Stock-for-Stock Transactions 598

Desirable Financial Characteristics of Targets 598

Chapter 16: Tax Issues in M&A 607

Financial Accounting for M&As 608

Taxable versus Tax-Free Transactions 608

Tax Consequences of a Stock-for-Stock Exchange 611

Asset Basis Step-Up 612

Changes in the Tax Laws 613

Role of Taxes in the Merger Decision 614

Role of Taxes in the Choice of Sell-Off Method 616

Organizational Form and M&A Premiums 616

Capital Structure and Propensity to Engage in Acquisitions 617

Leverage and Deal Structure 618

Taxes as a Source of Value in Management Buyouts 618

Miscellaneous Tax Issues 619

Glossary 623

Index 633

Description
The comprehensive guide to mergers, acquisitions, and corporate restructurings
Mergers, Acquisitions, and Corporate Restructurings is an all-inclusive guide to M&As that illustrates how restructuring can be used successfully, how each form works, and the laws that govern them. This updated edition includes the latest statistics, research, graphs, and case studies on the private equity market, ethics, legal frameworks, and corporate governance, presented in a more approachable, manageable way. Written from a practical and historical perspective, this book carefully analyzes the strategies and motives that inspire M&As, the legalities involved each step of the way, and the offensive and defensive techniques used during hostile acquisitions.

Corporate restructurings are indispensable in building a new generation of re-engineered companies with the power and resources to compete on the global playing field. This book covers the full spectrum of transactions, from megadeals to downsizing, and takes a fresh look at restructuring and how it is being used to revitalize and supercharge companies.

Learn how corporate restructuring helps companies compete
Discover the common impetus behind M&As
Understand the laws and rules that govern the field
Examine more effective strategies for hostile acquisitions
The slowdown in the world's economy means that mergers and corporate restructuring will likely increase. It is essential for students and professionals to fully understand the concepts and mechanics behind these transactions, and Mergers, Acquisitions, and Corporate Restructurings is the comprehensive guide to the field.