1. Mergers & Acquisitions: The Process
Prof. Ian Giddy
New York University

2. The Acquisition Process
Application: The “Stop and Shop” Deal
Motivation for Takeover: Market Value vs. "Realizable Value"
Hostile vs. Friendly Takeover vs Management Buy Out
Restructuring of Debt and Equity Structure
Leveraging and De-Leveraging
Debt Covenants vs. Equity Control
Use of High-Yield Bonds, Bank Debt, Private Placements and Bridge Loan
Pricing and Placing the Securities
Subsequent Refinancing

3. Steps in a Successful Merger and Acquisition Program - Step 1 and 2
1. Manage preacquisition phase
Instruct staff on secrecy requirements
Evaluate your own company
Identify value-adding approach
Understand industry structure, and strengthen core business
Capitalize on economics of scale
Exploit technology or skills transfer
2. Screen Candidates
Identify knockout criteria
Decide how to use investment banks
Prioritize opportunities
Look at public companies, divisions of companies, and
privately held companies

4. Steps in a Successful Merger and Acquisition Program - Step 3 to 5
3. Value remaining candidates
Know exactly how you will recoup the takeover premium
Identify real synergies
Decide on restructuring lan
Decide on financial engineering opportunities
4. Negotiate
Decide on maximum reseervation price and stick to it
Understand background and incentives of the other side
Understand vlue that might be paid by a third party
Establish negotiation strategy
Conduct due diligence
5. Manage postmerger integration
Move as quickly as possible
Carefully manage the process

5. M&A Advisory Services: 1. Role of the Seller's Advisor
Develop list of buyers
Analyze how different buyers would evaluate company
Determine value of the company and advise seller on probable selling price range
Prepare descriptive materials showing strong points
Contact buyers
Control information process
Control bidding process
Advise on the structure of the transaction to give value to both sides
Ensure all nonfinancial terms are settled early
Smooth postagreement documentation

6. M&A Advisory Services: 2. Role of Buyer's Advisor
Thoroughly review target & subs
Advise on probable price range
Advise on target's receptiveness
Evaluate target's options and anticipate actions
Devise tactics
Consider rival buyers
Recommend financial structure and plan financing
Advise on initial approach and follow-up
Function as liason
Advise on the changing tactical situation
Arrange the purchase of shares through a tender offer
Help arrange long term financing and asset sales

7. Case Study: Citigroup
Questions:
How would evaluate the probabilty that there will be positive net economic value out of the combination of Citicorp and Travelers?
Where will the value come from?
How long should it take for the value to be realized?
What factors could destroy value?

8. Value Based Management
Improve strategic and operational decision making
Widen scope of VBM to cover all organizational processes
Focus on key drivers of corporate value
Utilize the Economic Profit and Discounted Cash Flow valuation techniques
Focus business planning around value creation
Develop value oriented targets and performance measurement
Restructure compensation system with an emphasis on creating shareholder value
Evaluate strategic investment decisions in terms of their impact on value
Communicate value of corporate plans to investors and analysts
A Creative
Mindset
An Integrative Process

9. Analytic Framework For Diagnosing Market Performance
1. Review market performance
Determine returns to shareholders compared with other investments
2. Analyze comparative corporate performance
Develop initial picture of company performance that underlies market performance
3. Understand corporate cash flow
Identify where the corporation has been generating and investing cash and the return this investment is generating
4. Synthesize market views
Identify assumptions that form basis for current market value

10. Impact Of Value Based Management On Performance, Examples
Business
Retail Household
goods
Insurance
Banks
Change in Behaviour
Shifted from broad national growth program to focus on building regional scale before expanding
Repositioned product portfolio to emphasize products most likely to create value
Chose growth versus harvest strategy, even though five-year return on equity very similar
Impact
30-40% potential value increase
25% potential value increase
124% potential value increase

11. Impact Of Value Based Management On Performance, Examples
Business
Oil Production
Change in Behaviour
Used new planning and control process to help drive major change program; dramatic improvement in corporate-business dialogue
Impact
Multimillion dollar reduction in planning function through streamlining
Acquisition that likely would not have otherwise happenned
Exposed nonperforming managers

12. Impact Of Value Based Management On Performance, Examples
Business
Telecommunications
Change in Behaviour
Generated ideas for value creation
New service
Premium pricing
Around 40% of planned development projects in one business unit discontinued
Sales force expansion plans completely revised after discovering how much value expansion can destroy
Impact
240% potential value increase in one unit
246% potential value increase in one unit
n/a

13. Framework For PostAcquisition Integration: Steps 1 and 2
1. Clarify purpose/set expectations
Establish a transition mechanism
Manage expectations of acquired management
Reach agreement on top organizational issues
Plan and schedule first postacquisition actions
2. Communicate, control, and plan integration
Reassure key constituencies
Agree on a “get-acquainted” stage
Take the necessary control actions
Plan integration process

14. Framework For PostAcquisition Integration: Steps 3 and 4
3. Develop strategy/basic structure
Organize fact-finding task forces
Establish and test initial working hypothesis
Build a fact-based understanding of the comparative
business systems and market positions of the companies
Identify opportunities for growth and enhancement of
competitive advantage
Rank priorities
4. Refine organization/strategy
review initial strategy, including test of anticipated
operating synergies
Review organizational similarities and differences
Implement strategic and organizational change

19. www.giddy.org Ian Giddy NYU Stern School of Business
Tel ; Fax