Mergers Acquisitions And Other Restructuring Activities 3rd Edition Donald DePamphilis - Solutions

Why is financing the transaction sometimes referred to as a reality check?Solutions to all asterisked questions are provided in the Student Study Guide on the CDROM accompanying this book. Solutions
How might lender restrictions affect how GWM could manage the combined firms? Cite examples.
Why is it important to include the effects of anticipated synergy in the financing plan?
To what extent do you believe that lenders will tend to focus on the credibility of the assumptions underlying the business plan? Why?
In your judgment, how might Durand have used GWM’s business plan to obtain financing?
What challenges did GWM face in obtaining financing? What assurances would the lenders want from GWM?
Why is it important to begin planning for integration before closing?
Why is it important to integrate these businesses quickly? Identify both benefits and risks.
Describe the challenges GWM faced in integrating the two firms. What do you believe were the greatest risks? How did GWM attempt to overcome these risks? What would you have done differently? Be
What was the form of payment used by GWM to acquire GGT? (Describe the composition of the purchase price.) Why was this form selected? Was the purchase price taxable or not taxable to GGT
What risks was Durand accepting in agreeing to close the deal although several significant liabilities were found during due diligence? Why did he agree to close without reducing the final purchase
Describe the process of offers and counter offers, which resulted in a negotiated agreement. What might you have done differently?
Suppose that another CD-ROM media company is sold during the negotiations between GWM and GGT and that the P/E ratio paid for the comparable transaction was higher than what GWM was offering for GGT.
What additional information would you like to have to make a more informed valuation of GGT?*
What factors did Durand consider in structuring the initial purchase price offer to Chang? What other factors should he have considered?*
What were the primary sources and destroyers of value identified by GWM during due diligence? Of these, which do you consider most important and why? How did GWM’s management deal with these
Describe how GWM developed its preliminary valuation of GGT. What challenges did GWM encounter, and how were they overcome? How was the preliminary valuation to be used by GWM? What most concerned
How was the initial offer price determined? Was it a single purchase price or a range?Why might it have been expressed in terms of a range? How was the purchase price premium determined?
In valuing GGT, Perez used various valuation techniques including discounted cash flow and recent comparable transactions methods. Perez also could have used a variety of other techniques. Indicate
GWM would incur significant expenses in conducting due diligence and engaging in what could become protracted negotiations. What protections could GWM have taken to minimize its expenses or to help
What legal documents did GWM and GGT sign before proceeding with due diligence?Why are these documents important and how do they protect the parties involved in the potential transaction? What, if
Describe various techniques that GWM could have used to identify potential acquisition targets. Describe those that they actually used. How did they actually make initial contact with GGT management?
What were the key assumptions made in the GWM business plan used to justify the acquisition of GGT? Consider key assumptions, both explicit and implicit, with respect to the following areas: the
Describe GWM’s primary business objectives and acquisition plan objectives. How did the acquisition plan objectives support the realization of GWM’s business plan objectives?
GWM’s acquisition plan identified key objectives, resource capability, the target industry, and appropriate limits for completing an acquisition. Were all the objectives adequately quantified, and
Did an acquisition make sense for GWM to realize its business strategy? Why or why not? Describe the motives for the acquisition. (Hint: Consider the traditional motives for acquisitions outlined in
Identify the range of reasonable options available to GWM to grow its business. Discuss the key advantages and disadvantages of each option. Of the available options, which would you have selected
Give examples of GWM’s potential competitors, and describe how they might compete with GWM. What could GWM do to minimize these risks?
Identify GWM’s primary strengths and weaknesses as compared with the competition.How can this information be used to identify threats to and opportunities for GWM?*
Describe the industry or market in which GWM competed in terms of the following:customers, suppliers, current competitors, potential entrants, and product substitutes.How should this information be
What are the primary options available to a failing firm? What criteria might the firm use to select a particular option?
Why would creditors make concessions to a failing firm?
What are the primary factors contributing to business failure?
What factors contribute to the high positive abnormal returns to shareholders before the announcement of a voluntary bust-up?
What are the advantages and disadvantages of tracking stocks to investors and to the firm?
Why would a firm decide to voluntarily split up?
Under what conditions is a spin-off tax free to shareholders?
What are the major differences between a spin-off and an equity carve-out?
How would you decide when to sell a business?
How do tax and regulatory considerations influence the decision to exit a business?
What are the common reasons for the termination of a business alliance?
What are the advantages and disadvantages of the various organizational structures that could be used to manage a business alliance?
Discuss ways of valuing tangible and intangible contributions to a JV.
Why is defining the scope of a business alliance important?
What is a limited liability company? What are its advantages and disadvantages?
Why is a handshake agreement a potentially dangerous form of business alliance? Are there any circumstances under which such an agreement may be appropriate?
What factors are critical to the success of a business alliance?
What are the primary motives for creating a business alliance? How do they differ from the motives for a merger or acquisition?
Compare and contrast a corporate and partnership legal structure.
Under what circumstances does a business alliance represent an attractive alternative to a merger or acquisition?
How does the risk of an LBO change over time? How can the impact of changing risk be incorporated into the valuation of the LBO?
Is it possible for an LBO to make sense to equity investors but not to other investors in the deal? If so, why? If not, why not?
Describe some of the legal problems that can arise from an improperly structured LBO.
Describe a typical LBO’s preferred capital structure in the 1970s and early 1980s, and compare it to what you think the structure would look like today.
What are the primary uses of junk bond financing?
What are the primary factors that explain the magnitude of the premium paid to pre-LBO shareholders?
How do loan and security covenants affect the way in which an LBO is managed? Note the differences between positive and negative covenants.
What are the primary ways in which an LBO is financed?
Describe how and why LBO strategies have changed since the early 1970s.
What potential conflicts arise between management and shareholders in an MBO? How can these conflicts be minimized?
What are the primary conditions that must be satisfied for a transaction to be deemed nontaxable by the Internal Revenue Service?
What are the reasons some acquirers choose to undertake a staged or multistep takeover?
What are the advantages and disadvantages of a statutory merger?
What are the advantages and disadvantages of a purchase of stock from the perspective of the buyer and seller?
What are the advantages and disadvantages of a purchase of assets from the perspective of the buyer and seller?
How does the purchase method of accounting affect the income statement, balance sheet, and cash-flow statements of the combined companies?
Describe techniques used to “close the gap” when buyers and sellers cannot agree on price.
What are the reasons acquirers may choose a particular form of acquisition vehicle?
Provide two examples of how decisions made in one area of the deal-structuring process are likely to affect other areas.
Describe the deal-structuring process.
Why might shell corporations have value?
What is the importance of Revenue Ruling 59–60?
What is the difference between the concept of fair market value and fair value?
How can an analyst determine if the target firm’s costs and revenues are understated or overstated?
Give examples of private company costs that might be understated, and explain why.
What is the marketability discount, and what are common ways of estimating this discount?
What are the common ways of estimating the capitalization rate?
What is the capitalization rate, and how does it relate to the discount rate?
What factors should be considered in adjusting target company data?
Why is it more difficult to value privately held companies than publicly traded firms?
Financial Corporation wants to acquire Great Western Inc. Financial has estimated the enterprise value of Great Western at $104 million. The market value of Great Western’s long-term debt is $15
You have been asked to estimate the beta of a high-technology firm that has three divisions with the following characteristics.Division Beta Market Value ($ Millions)Personal computers 16 100
The following information is available for two different common stocks: Company A and Company B.Company A Company B Free cash flow per share at the end of year 1 $1.00 $5.00 Growth rate in cash flow
Titanic Corporation has reached agreement with its creditors to voluntarily liquidate its assets and to use the proceeds to pay off as much of its liabilities as possible. The firm anticipates that
In the year before going public, a firm has revenues of $20 million and net income after taxes of $2 million. The firm has no debt, and revenue is expected to grow at 20%annually for the next 5 years
Siebel Incorporated, a nonpublicly traded company, had 2002 earnings before interest and taxes of $33.3 million, which is expected to grow at 5% annually into the foreseeable future. The firm’s
LAFCO Industries believes that its two primary product lines, automotive and commercial aircraft valves, are becoming obsolete rapidly. Its free cash flow is diminishing quickly as it loses market
BigCo’s chief financial officer is trying to determine a fair value for PrivCo, a nonpublicly traded firm that BigCo is considering acquiring. Several of PrivCo’s competitors, Ion International
Ergo Unlimited’s current year’s free cash flow is $10 million. It is projected to grow at 20% per year for the next 5 years. It is expected to grow at a more modest 5% beyond the fifth year. The
Carlisle Enterprises, a specialty pharmaceutical manufacturer, has been losing market share for 3 years since several key patents have expired. Free cash flow is expected to decline rapidly as more
Sematech has achieved a dominant market position in its targeted market. Its huge market share makes it unlikely that the firm can grow faster than the growth rate of the overall market, which is
No Growth Incorporated had operating income before interest and taxes in 2002 of$220 million. The firm was expected to generate this level of operating income indefinitely.The firm had depreciation
Abbreviated financial statements are given for Fletcher Corporation in the following table:2001 2002 Revenues $6000 $6900 Operating expenses 5200 6000 Depreciation 160 180 Earnings before
HiFlyer Corporation does not currently have any debt. Its tax rate is .4 and its unlevered beta is estimated by examining comparable companies to be 2.0. The 10-year bond rate is 6.25%, and the
ABC Incorporated shares are currently trading for $32 per share. The firm has 1.13 billion shares outstanding. In addition, the market value of the firm’s outstanding debt is $2 billion.The 10-year
Explain how you would value a patent under the following situations: a patent without any current application, a patent linked to an existing product, and a patent portfolio.
How is the liquidation value of the firm calculated? Why is the assumption of orderly liquidation important?
Why do increasing P/E ratios increase the attractiveness of stock-for-stock exchanges for acquiring companies?
In your judgment, does valuing a firm using the weighted average valuation method make sense? If yes, why? If no, why not?
Do small changes in the assumptions pertaining to the estimation of the terminal value have a significant impact on the calculation of the total value of the target firm? If so, why?

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Mergers Acquisitions And Other Restructuring Activities 3rd Edition Donald DePamphilis - Solutions

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