executive mba mergers & acquisitions · business restructuring. ... bankruptcy through...
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EXECUTIVE MBA
MERGERS & ACQUISITIONS
Associate Professor David Trende
June - July 2016
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Course Overview
Mergers and acquisitions (M&A) is part of a much wider topic that might best be described as business restructuring. Restructuring involves major change in the way a business is organized and operated. This can range from the restructuring necessary to rescue businesses from bankruptcy through management buyouts, leveraged buyouts, spin-offs, carve-outs, etc. to undertaking major acquisitions of other businesses, in order to achieve rapid growth in size and profitability. Such restructurings require a wide range of business skills including “strategic and operations management; project administration; organizational dynamics; accounting; economics; finance; business, tax and securities law; and negotiation”1. In short, all the skills you have learnt in your core studies, and more. It is this breadth that makes the study of restructuring exciting. However, we must recognize that it is impossible to deal with all types of restructuring in a single course. For that reason we will concentrate on M&A. Merger & acquisition activity is a mainstay of the growth characteristics of large firms. It has been a feature of business life for well over a century. Whilst there have been many merger ’waves’ over the years, this pathway to growth has constantly maintained its importance. This subject briefly touches on the history of, and reasons for, merger & acquisition activity providing a rationale for the study of many of the following elements of the process of merger & acquisitions:
the context of mergers & acquisitions
the constraints and opportunities arising from regulatory considerations
the way in which evaluation of takeover targets be undertaken
the nature and use of term sheets as a useful tool in M&A transactions
valuation and the identification of synergies in acquisitions
the legal and operational due diligence processes
financing considerations in acquisition transactions
the importance of post-deal integration We will use a number of Australian based cases to illustrate the concepts and principles underlying M&A practice for many of the topics we will study during the course. A set of materials is available on Thread and you should make yourself familiar with the cases before the course commences. A great deal of material is provided and it is not intended that you digest every single word of it; you should be using the class powerpoints and readings to seek an understanding of what is driving the outcome of the cases. We will have a number of guests join us in class during the term to present portions of the course content. These guests are active practitioners in the M&A space and bring a wealth of experience and expertise to the classroom. When this is allied to the cumulative experiences of the class members we have a very powerful skill set at our disposal.
1 p XV of the Preface in Donald De Pamphilis, Mergers, Acquisitions, and other Restructuring Activities, Academic Press, 2001.
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Objectives of the Subject
This subject is for people who see active involvement in mergers & acquisitions as part of their future management career. At the end of this subject you should:
Understand the reasons behind the continuing levels of M&A activity.
Appreciate the impact of regulatory considerations on M&A deals.
Understand the interactive elements that make up successful mergers and acquisitions.
Gain a working knowledge of how to go about managing a merger or acquisition.
Topics
The following is the list of topics that will be covered in class. We are joined by numerous M&A practitioners to present on their areas of expertise during the module. It should be noted that our guests’ other commitments may affect their availability and occasional changes may be needed. Thursday 9 June 10.00 - 11.30 Introduction: an overview of the M&A landscape; the four fundamentals 1.00 - 2.30 The regulatory environment & deal structuring 7.00 - 8.30 Strategy & the Search for Targets Saturday 11 June 8.00 - 9.30 Identifying and valuing synergies 10.00 - 11.30 The nature and use of terms sheets 1.00 - 2.30 Due diligence: Japan Post acquisition of Toll Holdings 3.00 - 4.30 Valuation in M&A – Introduction and Price multiple methodology 4.30 - 6.00 Valuation in M&A – Discounted cash flow methodology 7.00 - 8.30 Joint strategy case: David Jones & Woolworths SA Sunday 12 June 1.00 - 2.30 Valuation case: Warrnambool Cheese & Butter 3.00 - 4.00 Acquisition financing Thursday 7 July 10.00 - 11.30 Post-merger integration 1.00 - 2.30 Post-merger integration (continued) 3.00 - 4.30 PMI case: Southcorp & Rosemount 4.30 - 6.00 7.00 – 8.30
Sunday 10 July 9.00 - 11.30 Final examination
Capstone case – Healthscope & Symbion
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Teaching Methodology
During the classes we will use a combination of lecture material, class discussion of concepts and principles and cases to illustrate the application of the concepts and principles in practical situations.
Textbooks
There are no set texts for the course. However, if you wish to purchase a text it should be noted that there are no comprehensive Australian texts covering all the topics in our course. The two texts below are both US books. Although much of the material is relevant it predominantly reflects US principles and practices. J Fred Weston, Mark L Mitchell & J Harold Mulherin, Takeovers, Restructuring, and Corporate Governance, Pearson New International Edition 2014 (Note: if you can pick up a 2004 4th edition it would serve equally well) Donald M DePamphilis, Mergers, Acquisitions, and Other Restructuring Activities, 7th Edition, 2014, Academic Press; an imprint of Elsevier
Faculty Information
Email: [email protected] Phone: Business hours: 03 9593 2022
Assessment
The final grade in the subject will be comprised of the following elements: Syndicate assignment case studies Japan post & Toll Holdings assignment - due at 8.00am on Saturday 11 June 15% Southcorp & Rosemount assignment - due at 3.00pm on Thursday 7 July 15% Individual assignment case study 20% Due date 10.00am on Thursday 7 July Final examination (Hurdle Requirement) 50% A ninety minute exam will be held at 9am on Sunday 10 July with 30 minutes reading and noting time. The exam will be based on a case that will be distributed to students at the beginning of Weekend 2.
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Student Honour Code
Students enrolling in this subject are expected to subscribe to the Student Honour Code. This code is available for consultation on the Current Student webpage.
Late Submission The MBS teaching code states "if [assignments] are not in on time, they are regarded as not submitted. Late assignments will only be graded if (i) the student has applied for special consideration;
and (ii) that application is considered acceptable." Applications for extensions must be made before submission date, and will only be granted in exceptional circumstances.
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Weekend 1
A. SESSION 1 - Thursday 9 June 10.00 – 11.30 am ABOUT M&A
M&A an overview of the landscape and its history
The keys to successful M&A B. OBJECTIVES
To gain an understanding of the context in which mergers and acquisitions take place
C. CONTENT
The M&A landscape o M&A terminology o Types of merger and acquisition o The process of M&A and its elements o M&A and economic turbulence o History – the six merger waves o Who wins and who loses o The importance of culture
The four keys to successful M&A
D. PROCESS Lecture and class discussion E. PREPARATION FOR THIS CLASS
Prior to this session read: o Prof. I Giddy, An Introduction to M&A, New York University o Booz & Co, “Strategic Due Diligence: A Foundation for Success”, June 2006 o M&A Glossary of Terms
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A. SESSION 2 - Thursday 9 June 1.00 – 2.30 pm
REGULATION & STRUCTURING
The regulation of M&A and deal structuring in Australia B. OBJECTIVES
To understand the areas of law relevant to the regulation of M&A
To understand the essential nature of the regulatory rules
To appreciate the impact of those rules in practice
To understand the different types of takeover bids that may be made and their implications
C. CONTENT Regulation
The main rules in Australia: o Corporations Act o FIRB Act o Trade Practices Act o Listing Rules
Corporations Act objectives
The 20% rule
Essential concepts
The main exceptions
D. PROCESS Lecture, case and class discussion E. PREPARATION FOR THIS CLASS
Pre-reading for the course: o Herbert Smith Freehills, Takeovers in Australia, January 2016
Case reading for this session: o “Warrnambool Cheese & Butter: Press Commentary on the Battle for Control”
o “Japan Post’s Acquisition of Toll Holdings” o “The Acquisition of David Jones: Woolworths South Africa’s big bet on retail
Australia”
Structuring
Elements of deal structuring: o Who is the acquirer? o Assets or shares? o How to pay? o How to proceed? o How to position?
Takeover timeline
Bidder’s Statements
Target’s Statements
Action during a bid
The Takeovers Panel
Compulsory acquisition
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A. SESSION 3 - Thursday 9 June 7.00 – 8.30 pm STRATEGY & TARGET SEARCH
Strategy and the search for targets B. OBJECTIVES
To understand the importance of strategy in M&A and its impact on the search for targets
C. CONTENT
Introduction
Strategy in the context of M&A
Mini case: International expansion of REA Group Limited
Why Buy?
Which Markets?
Which Companies?
Mini case: Dubai D. PROCESS Lecture and class discussion E. PREPARATION FOR THIS CLASS
For this session read: o L.E.K.Consulting, Executive Insights, Volume VII, Issue 3 “Screening for Success:
Designing and Implementing a Strategic M&A Screening Process”
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A. SESSION 4 - Saturday 11 June 8.00 – 9.30 am SYNERGIES
Identifying and valuing synergies B. OBJECTIVES
To understand the critical role of synergies in M&A outcomes
C. CONTENT
what are synergies?
identifying synergies
synergies and corporate strategy
measuring synergies
synergies and business strategy
the strategic value of information D. PROCESS Lecture and class discussion E. PREPARATION FOR THIS CLASS
For this session read: o McKinsey & Co, Extract from “Perspectives on Merger Integration”, June 2010
pp 19-22 entitled “Opening the Apperture 1: A McKinsey Perspective on value creation and synergies”
o S. Loomer & A. Harrington, “Sharing Synergies”, Duff & Phelps
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A. SESSION 5 - Saturday 11 June 10.00 am – 11.30 pm TERM SHEETS
The nature and use of term sheets as an acquisition tool B. OBJECTIVES
To understand how term sheets can improve the efficiency of the takeover process C. CONTENT
the nature of term sheets
the purpose of a term sheet
“trying it on” – a term sheet negotiation exercise
The detailed term sheet
Key points D. PROCESS Lecture and class discussion E. PREPARATION FOR THIS CLASS
For this session read: o Six Good Reasons for Term Sheets o The Corrs Guide to Term Sheets
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A. SESSION 6 - Saturday 11 June 1.00 – 2.30 pm
DUE DILIGENCE
Due diligence B. OBJECTIVES
To understand why due diligence matters C. CONTENT
A precursor – confidentiality agreements/deeds
Due diligence: o What is it? o Why conduct it? o How is it done?
Relevance to sale agreements
Warranties and indemnities D. PROCESS Guest presentation and class discussion E. PREPARATION FOR THIS CLASS
For this session read: o GE Capital, “Due Diligence: Main Steps and Factors”, 2012 o Accenture, “M&A Due Diligence: What Corporates can Learn from Private
Equity”, 2011
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A. SESSION 7 - Saturday 11 June 3.00 – 4.30 pm
VALUATION
Valuation in M&A – introduction and price multiple methodology B. OBJECTIVES
To understand valuation in M&A transactions
To understand how price multiple valuation models work
C. CONTENT
the role of valuation in M&A transactions
the valuation methods used in M&A
the nature and measurement of synergies
takeover premiums
the use of price multiples as a valuation methodology
understanding price multiple models D. PROCESS Lecture and class discussion E. PREPARATION FOR THIS CLASS
For this session read: o Trende – A Brief Valuation Summary o Michael J Schill, “Business Valuation: Standard Approaches and Applications”,
Darden Business Publishing, University of Virginia, Jan 2013 o Michael J Schill, “Business Valuation in Mergers and Acquisitions”, Darden
Business Publishing, University of Virginia, Oct 2013
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A. SESSION 8 - Saturday 11 June 4.30 – 6.00 pm VALUATION
Valuation in M&A – DCF methodology B. OBJECTIVES
To understand the nature and use of DCF valuation in M&A transactions C. CONTENT
The nature of discounted cash flow (DC F) valuation methodology
Using DCF in an M&A conte3xt
DCF and price multiples: a comparison
Understanding the elements of DCF D. PROCESS Lecture and class discussion E. PREPARATION FOR THIS CLASS
For this session see readings for Session 7
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A. SESSION 9 - Saturday 11 June 7.00 - 8.30 pm JOINT STRATEGY CASE
THE ACQUISITION OF DAVID JONES: Woolworths SA’s big bet on Australian retail B. OBJECTIVES
To explore corporate strategy in the context of acquisitions C. CONTENT
Discussion of the strategic reasons for Woolworths South Africa’s bid for David Jones
Analysis of whether those reasons represent sound corporate strategy.
Discussion agenda:
o How are Corporate Strategy and M&A related? o Nature of the department store industry o State of the department store industry at the time of the case o Future outlook for the department store industry o How similar are DJ and Woolworths business models? o What strategy has Woolworths pursued in the past? o Is the acquisition of DJs consistent with that strategy or is it on a new path? o Either way, does acquiring DJs make strategic sense? o Is the takeover paying off?
D. PROCESS Class discussion E. PREPARATION FOR THIS CLASS
For this session read: o THE ACQUISITION OF DAVID JONES: Woolworths SA’s big bet on Australian
retail
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A. SESSION 10 - Sunday 12 June 1.00 – 2.30 pm VALUATION APPLICATION A. The valuation of Warrnambool Cheese & Butter
B. OBJECTIVES
To illustrate the application of the price multiples and discounted cash flow (DCF) valuation methodologies in M&A
C. CONTENT
Consider the KPMG valuation of Warrnambool Cheese & Butter in its Independent Expert’s report
The object of the valuation
Elements of the valuation
Methodologies adopted
Critique of the numbers
Discussion of the outcome
D. PROCESS Class discussion E. PREPARATION FOR THIS CLASS
For this session read: o KPMG Independent Expert’s Report, pp 14 - 45 and 61 - 73
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A. SESSION 11 Sunday 12 June 3.00 – 4.00 pm ACQUISITION FINANCING B. To understand the role and importance of financing in the M&A process
B. OBJECTIVES
To provide illustrate the application of the price multiples and discounted cash flow (DCF) valuation methodologies in M&A
C. CONTENT
Consider the elements of determining the financing mix and sources of funds for acquisitions
Why does acquisition financing matter?
Forms of consideration
Concepts of debt capacity
Determining the right financing mix
Execution considerations
An example of determining financing mix (Warrnambool Cheese & Butter)
D. PROCESS Lecture and Class discussion E. PREPARATION FOR THIS CLASS
For this session read: o Trende – Acquisition financing strategies & perspectives
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Weekend 2 A. SESSION 12 - Thursday 7 July 10.00 – 11.30 am POST MERGER INTEGRATION
Planning post-merger integration B. OBJECTIVES
To understand the need for pre-planning post-merger integration. C. CONTENT
Post-merger planning o The key challenges
Realize the synergies Start planning early.
o Developing an approach. Balance is the key A four phased approach The 100 day plan Deal with culture upfront
D. PROCESS Guest presentation and class discussion. E. PREPARATION FOR THIS CLASS
For this session read: o Chapter 36 of Robert F Bruner, Applied Mergers & Acquisitions, John Wiley &
Sons, 2004. o PwC, “Merger Integration Principles”, 2011
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A. SESSION 13 - Thursday 7 July 1.00 – 2.30 pm
POST MERGER INTEGRATION
Implementing post-merger integration B. OBJECTIVES
To promote understanding of the critical importance of reaping expected synergies.
C. CONTENT
Post-merger implementation o Day 1 o Baseline the current position o Identify future options o Prepare for implementation o Track benefits
D. PROCESS
Guest presentation and class discussion E. PREPARATION FOR THIS CLASS
Read the following: o PwC, “Capturing Synergies to Deliver Deal Value”, November 2012
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A. SESSION 14 - Thursday 7 July 3.00 – 4.30 pm
INTEGRATION CASE
How not to do it – Southcorp & Rosemount case B. OBJECTIVES
To promote understanding of the critical importance of post-merger integration – both its planning and execution
C. CONTENT
Discussion agenda: o State of the economy and the wine industry at the time of the case o Brief outline of Southcorp’s business and history o Brief outline of Rosemount’s business and history o The strategic rationale for the acquisitions o What challenges were faced by Southcorp post-acquisition? o How were these challenges dealt with? o What would you have done differently?
D. PROCESS
Class discussion E. PREPARATION FOR THIS CLASS
Read the Southcorp & Rosemount case study
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A. SESSIONS 15 - 16 - Thursday 7 July 3.00 – 8.30 pm
CAPSTONE CASE
Healthscope & Symbion – an interactive syndicate based case
B. OBJECTIVES
To apply the elements of M&A that we have covered in the course to a real world example, thereby promoting understanding of the inter-relationships of all the pieces of a successful deal.
C. CONTENT
The case will comprise three rounds of analysis of a proposed healthcare industry acquisition, in your syndicate rooms.
Each syndicate will prepare a synopsis of its conclusions for each round, recorded on a pre-prepared poster.
Indicative timetable: 3.00 – 3.10 Case introduction 3.10 – 4.00 Round 1 analysis in Syndicate rooms 4.00 – 4.30. Round 1 class discussion 4.30 – 5.30 Round 2 analysis in Syndicate rooms 5.30 – 6.00 Round 2 class discussion 6.00 – 7.00 Dinner 7.00 – 8.00 Round 3 analysis in Syndicate rooms 8.00 – 8.30 Round 3 class discussion and wrap-up
D. PROCESS
Work on the case in syndicate groups over three rounds
Discussion and facilitation of each round by guest presenter E. PREPARATION FOR THIS CLASS
Read the UBS Healthscope and Symbion case