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

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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 to all the questions are provided in the Online Instuctor’s Guide available for instructors using
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 specific.
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 shareholders? Explain your answer.
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 price? What could he have done to protect GWM from other known or unknown liabilities?*
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. How would this information affect negotiations?What would Chang’s likely position be? How could
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 issues? Do you agree with what they did? Why or why not?
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 GWM’s management about the financial forecast they had received from GGT? What adjustments did
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 other ways in which GGT could have been valued. What are the strengths and weaknesses of the
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 it recover any costs incurred if the acquisition could not be completed? Why might GGT agree to
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 any, risks are involved in signing these documents?
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? Why was this approach selected? What are the potential risks involved in contacting a potential
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 market, financial performance, acquisition tactics, valuation, and integration.*
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 they have associated completion dates? What other key objectives and limits for managing the
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 Chapter 1.)
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 and why?*
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 used by GWM management to develop a long-term strategy?*
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 million, and cash balances in excess of the firm’s normal working capital requirements are $3
You have been asked to estimate the beta of a high-technology firm that has three divisions with the following characteristics.Division Beta Market Value ($ Millions)Personal computers 16 100 Software 20 150 Computer mainframes 12 250a. What is the beta of the equity of the firm?b. If the
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 per share 8% 4%Beta 1.3 .8 Risk-free return 7% 7%Expected return on all stocks 13.5% 13.5%a.
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 it will be able to sell off its assets in an orderly fashion, realizing as much as 70% of the book
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 and 5% annually thereafter. Net profit margins are expected to remain constant throughout. Annual
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 combined federal, state, and local tax rate is 40%; capital spending will equal the firm’s rate of
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 share to new firms entering its industry. LAFCO has $200 million in debt outstanding. Senior
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 and Zenon, are publicly traded. Ion and Zenon have P/E ratios of 20 and 15, respectively. Moreover,
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 firm estimates that its cost of capital is 12% during the next 5 years and then will drop to 10%
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 competitive generic drugs enter the market. Projected cash flows for the next 5 years are $8.5
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 expected to be 8% annually through the foreseeable future. Its net income in 2002 was $15 million.
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 expenses of $10 million that same year. Capital spending totaled $20 million during 2002. At the end
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 interest and taxes 640 720 Less interest expense 50 50 Less taxes 236 268 Equals: net income 354
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 historical risk premium over the risk-free rate is 5.5%. Next year, HiFlyer expects to borrow up to 75%
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 Treasury bond rate is 6.25%. ABC has an outstanding credit record and has earned a AAA rating from
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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