Mergers, Acquisitions, and Corporate Restructurings, 3rd Edition

634 Pages·2002·3.43 MB·English

by  Patrick A. Gaughan

Ui-xii/Gaughan_FM 10/25/01 6:10 PM Page iii
MERGERS, ACQUISITIONS,
AND CORPORATE
RESTRUCTURINGS
THIRD EDITION
UNIVERSITY EDITION
PATRICK A. GAUGHAN
JOHN WILEY & SONS, INC.
001-022/Gaughan-01/P01 10/25/01 5:51 PM Page 2
Ui-xii/Gaughan_FM 11/1/01 11:15 AM Page i
MERGERS, ACQUISITIONS,
AND CORPORATE
RESTRUCTURINGS
THIRD EDITION
UNIVERSITY EDITION
Ui-xii/Gaughan_FM 10/25/01 6:10 PM Page ii
Wiley Mergers and Acquisitionsseries
Buying and Selling Businesses:Including Forms,Formulas,and Industry Secrets
by William W. Bumstead
Cost of Capital:Estimation and Applicationsby Shannon Pratt
Joint Ventures:Business Strategies for Accountants,Second Editionby Joseph M. Morris
Mergers and Acquisitions:Business Strategies for Accountants,Second Edition
by Joseph M. Morris
Intellectual Property Assets in Mergers and Acquisitionsby Lanning Bryer and
Melvin Simensky
Nonprofit Mergers and Alliances:A Strategic Planning Guideby Thomas A. McLaughlin
Partnershift:How to Profit from the Partnering Trend,Second Editionby Ed Rigsbee
Valuation for M&A:Building Value in Private Companiesby Frank C. Evans and
David M. Bishop
Winning at Mergers and Acquisitions:The Guide to Market-Focused Planning and
Integrationby Mark N. Clemente and David S. Greenspan
Ui-xii/Gaughan_FM 10/25/01 6:10 PM Page iii
MERGERS, ACQUISITIONS,
AND CORPORATE
RESTRUCTURINGS
THIRD EDITION
UNIVERSITY EDITION
PATRICK A. GAUGHAN
JOHN WILEY & SONS, INC.
001-022/Gaughan-01/P01 10/25/01 5:51 PM Page 2
Copyright ©2002 by John Wiley & Sons,Inc.,New York. All rights reserved.
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CONTENTS
Preface xi
Part One Background 1
1 Introduction 3
Definitions 7
Valuing a Transaction 7
Types of Mergers 7
Reasons for Mergers and Acquisitions 8
Merger Financing 8
Merger Professionals 9
Leveraged Buyouts 11
Corporate Restructuring 11
Merger Negotiations 12
Merger Approval Procedures 13
Short-Form Merger 15
Freezeouts and the Treatment of Minority Shareholders 15
Purchase of Assets Compared with Purchase of Stock 16
Assumption of the Seller’s Liabilities 16
Advantages of Asset Acquisitions 16
Asset Selloffs 16
Reverse Mergers 17
Holding Companies 18
Joint Ventures 19
Strategic Alliances 21
References 22
2 History of Mergers 23
The First Wave,1897–1904 23
The Second Wave,1916–29 28
The 1940s 32
The Third Wave,1965–69 32
v
vi CONTENTS
Trendsetting Mergers of the 1970s 40
The Fourth Wave,1981–89 44
The Fifth Wave 51
Summary 54
References 55
3 Legal Framework 57
Overview 57
Laws Governing Mergers,Acquisitions,and Tender Offers 58
Securities Laws 58
Business Judgment Rule 80
Antitrust Laws 82
Antitrust Enforcement in the United States in the Fifth Merger Wave 92
Measuring Concentration and Defining Market Share 93
European Competition Policy 97
State Antitakeover Laws 97
Regulation of Insider Trading 104
A Company’s Obligation to Disclose Merger Negotiations 107
Summary 108
References 109
4 Merger Strategy 111
Growth 111
Synergy 113
Diversification 123
Economic Motives 136
Hubris Hypothesis of Takeovers 147
Other Motives 151
Tax Motives 154
Summary 158
References 161
Part Two Hostile Takeovers 165
5 Antitakeover Measures 167
Management Entrenchment Hypothesis versus Stockholder Interests Hypothesis 168
Preventative Antitakeover Measures 169
Changing the State of Incorporation 196
Active Antitakeover Defenses 197
Information Content of Takeover Resistance 231
Summary 233
References 234
CONTENTS vii
6 Takeover Tactics 238
Preliminary Takeover Steps 240
Tender Offers 244
Open Market Purchases and Street Sweeps 261
Advantages of Tender Offers over Open Market Purchases 263
Proxy Fights 265
Role of the Independent Election Corporation of America 274
Combination of a Proxy Fight and a Tender Offer 281
Proxy Fights and Takeovers in the 1990s 281
Summary 284
References 285
Part Three Leveraged Transactions 289
7 Leveraged Buyouts 291
Historical Trends inLBOs 291
Costs of Being a Public Company 294
Management Buyouts 295
Leveraged Buyout Process 298
Financing for Leveraged Buyouts 301
Capital Structure of Unsecured LBO Firms 306
Sources of LBO Financing 307
LBO Funds 308
LBO Firms 309
Financial Analysis of LBO Candidates 310
Returns to Stockholders from LBOs 311
Returns to Stockholders from Divisional Buyouts 312
Efficiency Gains from LBOs 312
Reverse LBOs 315
Conflicts of Interest in Management Buyouts 317
Empirical Research on Wealth Transfer Effects 321
Protection for Creditors 322
Summary 326
References 327
8 Junk Bonds 330
History 330
Investment Bankers and Junk Bond Financing 334
The Evolutionary Growth of the Junk Bond Market 337
Rating System for Bonds 342
Failed Acquisition Programs and Bond Ratings 346
Z Scores and Zeta Analysis:Credit Evaluation Alternative to Bond Ratings 346
viii CONTENTS
Junk Bond Research 348
Junk Bond Returns:1980–94 357
Diversification of Junk Bond Investments 359
Risk of a Junk Bond Portfolio 359
Bank Loan Financing versus Junk Bond Financing 362
Junk Bonds and Greenmail 363
Regulations Affecting Junk Bond Financing 363
Summary 366
References 367
9 Employee Stock Ownership Plans 370
Historical Growth of ESOPs 370
Types of Plans 372
Characteristics of ESOPs 372
Leveraged versus Unleveraged ESOPs 373
Corporate Finance Uses of ESOPs 373
Voting of ESOP Shares 374
Cash Flow Implications 375
Valuation of Stock Contributed into an ESOP 375
Eligibility of ESOPs 376
Put Options of ESOPs 376
Dividends Paid 376
ESOPs versus a Public Offering of Stock 376
Employee Risk and ESOPs 378
Securities Laws and ESOPs 379
Tax Benefits of LESOPs 379
Balance Sheet Effects of ESOPs 380
Drawbacks of LESOPs 381
ESOPs and Corporate Performance 382
ESOPs as an Antitakeover Defense 385
ESOPs and Shareholder Wealth 385
ESOPs and LBOs 386
Summary 389
References 391
Part Four Corporate Restructuring 393
10 Corporate Restructuring 395
Divestitures 397
Divestiture and Spin-Off Process 403
Wealth Effects of Sell-Offs 409