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M & As pt 2 - Coggle Diagram
M & As pt 2
Leveraged Buy-out
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- Shares in Co acquired w/ debt & Target
Co's (A)s serve as collateral
- Target must generate earnings to
pay debt & interest
3 common themes:
- high debt
- taking firm private
- increase mngmnt incentives to
improve performance
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hostile takeover, often fails in long term - high fin. leverage
REVERSE TAKEOVER
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smaller Co issues many shares, loses control over merged entity to larger S/Hs
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avoid transferring:
- key contracts
- license agreements
- assessed tax loss
VALUATION ISSUES
Target is listed:
- what's current MV
- is mrkt price a true reflection
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LEGAL CONSIDERATIONS
- solvency & liquidity test
- buying (A)s s112 - need 75% S/H approval, court order
- share arrangement s114 - independent expert evaluation, court review for S/Hs aggrieved
- General offer
- Mandatory offer s123 - if you buy 35% or more,
offer to remaining S/Hs
- Compulsory acquisition s124 - can force minority
to sell if 90% accept
- Comparable/Partial offer - offer each S/H if you can exercise 35% or more
- Frustrating actions s126 - can't frustrate offer or deny S/Hs to decide on merge's merits
- Prohibited dealings s127
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PRICE & PAYMENT
Either: Cash, Share issue or Other alternatives & Combos
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CASH VS SHARE FUNDING
CASH
- paid w/ cash on hand or borrowed
- prefer to pay cash if confident about synergies
BUT equity if not sure
- could be raised by debt, opp cost of cash
SHARE ISSUE
- need to determine Exchange Ratio
- ACQUIRING Co's shares used as pmt
- ER = nr of shares the "A" Co to be exchanged for 1 share of "T"
- Calc w/ MVs or relative Earnings
- if MVs can't be used, use valuation methods