BOD votes

Form 425 - communication in merger

S-4 is filed

Shareholer vote

Comparable Companies Analysis

Precedent Transaction Comparables

valuation in an M&A

 Use valuation measurements or multiples

total dollar valuation is guaranteed by altering number of shares based on buyer stock price

when parent divests a division

shareholders retain original share and receive shares newly created in new entity

no immediate tax consequence

hopeful that combination of two entities will have greater value than one

Corporation is split into pieces

will either own shares in orginal parent or in split off entity

no tax liability

private company buys a shell company and swaps shares for a majority stake in publicly traded shell corporation

allows for private companies to ovtain publicly listed status

can improve liquidity of company

subsidiary of buyer merger with target company and provide subsidiary service

reverse triangualar merger is to keep contract of target in place

involves two firms at different levels of production chain

jewelry manufacturer purchases gold supplier

forward extension - purchase vendor

backward extension - purchase upstream suppliers

combine two companies in direct competition

increases margins with bigger market share

involves two companies that sell same produts in different markets

culture is big issue

conglomerate merger

buyer and targer sell completely different product in differnt market

seek to achieve synergies through strengths of different divisions

nonbinding commitment to move forward with transaction

contains anticipated pricing, reasons for price adjustment, deal structure, currency, time frame for due diligence, exclusivity, break-up fees, no shop agreement (works exclusively towards a closing) or go shop (seek out other biders), earn out provision, employment contract issue

targets BOD does not support transaction

companies have takeover defenses to repel unwanted acquirer

company issues right to existing shareholders to dilute the % of target owned by hostile bidder

makes it more expensive to acquire control

Requires that vast majority of BOD members agreee of significant issues

severance payment to senior officer in event of takeover

cannot exceed 3x individual annualized compensation or tax implications arise

1.       Sign engagement letter – legal relationship between investment banker and buyer/seller in M&A

2.       Develop contact list of potential buyers

3.       Create the teaser of a business profile

4.       Confidentiality agreements

5.       Confidential information memorandum

6.       Distribution of the initial bid procedures letter sets deadline for prospective bids

7.       Creation of a data room to facilitate the requests for confidential information

8.       Conducting Management presentations

9.       Collect initial bids

10.   Evaluation of initial bids

11.   Term sheet creation

12.   Final bid procedures letter and seller includes draft definitive agreement

§  Firm offer, not a range

13.   Final bid placement where remaining bidders submit final bids which contain firm purchase price

14.   Select the Winner

15.   Signing definitive agreement

16.   Fairness opinion that explains the effort to obtain best price and the shareholder interests were protected

§  Must disclose any material relationships the banker has with issuer including stapled financing

17.   Signing and closing the deal

Reorganization

Debtor in possession (DIP)- company reorganizes structure to pay off debt

 Closes current bank accounts and open DIP accounts

  For creditors to accept the reorganization plan, creditors need 2/3 the $ amount and  ½ total # of creditors to accept the plan

Debtor in possession financing is provided for capital infusion and has highest priority in terms of being paid back

 Section 363 – allows sale of noncore assets by approval of bankruptcy court

Liquidation

 Trustee appointed to handle liquidation

Payment Priority:

   Admin expenses Section 503(b)

     Claims under Section 502(f)

         Employee back wages

         Employee benefit plan

Owners to preferred and common stockholders 

buyer goes directly to shareholder when seeking to acquire shares in company

Tender offers need to be open for 20 business days (with additional 10 days if price is increased)

 shareholders must be notified within 10 days of tender offer

management may provide recommendation whether to accept or decline

to extend offer, must make public announcement no later than 9am next day of business after expiration

buyer in a tender may not buy additional shares in open market once tender has commenced

cannot tender shares short, only long tenders

can buy nonconvertible debt of issuer

 Exemptions: in agency basis, principal basis not as market maker, by an affiliate

prohibits trading while in possesion of material, nonpublic information

must disclose this information

Rule 14d-10

best price rule

provides equal treatment of all shareholders in tender offer

no one can receive a higher price for their shares

company makes a tender offer for its own shares

usually conducted through a dutch auction

going private transactions

when company buys its own securities to become delisted

file schedule 13e-3

filed when tender offer acquires more than 5% of company shares

filed within 10 days of transaction

applies when securities are offered as result of M&A

doesn't cover securities sold in private placement or IPO

Resale can occur if:

 Shares sold under accordance with Rule 144,  Person not affiliate of issuer and held securities for 6 months, Person not an affiliate for past 3 months and held securities for 1 year

written communication is allowed once a public announcement of business combination is released

Must be filed with SEC (not FINRA)

a notice may be required to be published concerning the transfer of assets containing only limited information

Permitted information:

  Name of person whose assets are sold and other parties

  Brief description of business and transaction occurring

Date, time, and place

designed to facilitate communications and disclosures made by companies engage in stock and cash tender offers

 Greater communication allowed for investor prior to filing registration, proxy statement, or tender offer

Antitrust law that requires companies to file notice with FTC and Antitrust Divisiion 

 Two tests to determine filing:

   1 company has 130.3M in revenues and assets while other company has 13M and aggregate stock and assets are 65.2M

        Transaction itself is valued at 260.7M