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Mergers Acquisitions and Corporate Restructuring (MACR)

Questions for Preparation


The Allergan Board Under Fire
Assignment Questions

1. Why does Valeant want to buy Allergan?


2. How well did the Allergan Board handle the Valeant offer?
3. Should the Board vote to acquire Salix?

The Walt Disney Co. and Pixar Inc


Assignment Questions

1. Which is greater the value of Pixar and Disney in an exclusive relationship, or the sum of
the value that each could create if they operated independently of one another or who
are allowed to form relationships with other companies? Why?
2. Assuming that Pixar and Disney are more valuable in an exclusive relationship, can the
value be realised through a new contract? Or is common ownership required (i.e. must
Disney acquired Pixar)?
3. If Disney does acquire Pixar, how should Bob Igor and his team organise and manage the
combined entity? What challenges do you foresee, and how would you meet them?

Cisco Systems: New Millennium – New Acquisition Strategy?


Assignment Questions

1. What was Cisco’s corporate strategy during the 1990s? What type of value did Cisco offer
as a parent to its businesses? What was the role of Cisco’s Corporate Development office?
2. What was unique in the way Cisco managed its acquisitions in the 90s? Why did Cisco
represent a benchmark as an acquirer? 

3. What were the limitations of Cisco’s acquisition strategy? 

4. How has Cisco’s acquisition strategy changed over the past five years? 

5. How should Cisco handle the negotiation of IronPort? Which integration approach for
IronPort would you recommend to Palmer? 

Mellon Financial and The Bank of New York
Assignment Questions

1. What is the Value of Cost-saving synergies created by the deal? Assume that
a. The combined company will have a tax rate of 38%;
b. Deposits, short-term borrowings, long term debt and equity, are part of a bank’s
capital structure: “Other Liabilities” are not;
c. An aggregate debt beta of 0.1 is a reasonable estimate of the (average) beta of
debt that supports the assets that give rise to the merger’s synergies;
d. The equity betas reported in Exhibit 2 may be used as estimates for the betas of
the equity that supports the assets that give rise to the synergies; and
e. The market risk premium is 6.2%
2. How much confidence do you have in your estimate of synergies?
3. Will synergy cash-flows allow the banks to increase their debt?
4. Under the terms of the proposed deal, what fraction of the synergies will be captured by
Mellon legacy shareholders? By BNY legacy shareholders? (Legacy shareholders are the
former shareholders of BNY and Mellon after they become shareholders of the new
company.
5. Based on the last closing stock prices, and assuming no synergies, what exchange ratio
would leave the per-share values of Mellon and BNY stock the same? (Zero-premium
exchange ratio) How does the actual exchange ratio differ from this number? Who
benefits from the difference?
6. In the absence of synergies, what exchange ratio would keep the earnings attributed to
each legacy share in Q4 2007 equal before and after the merger?
7. In the absence of synergies, is the proposed deal accretive or dilutive for Mellon
shareholders? For BNY shareholders?
8. How do synergies impact accretion/ dilution analysis?
9. BNY managers have argued that their P/e multiple is temporarily low relative to their
peers because of the “overhang” of recently completed deals. Do you buy their logic or
is this simply a negotiating tactic?
10. In the negotiations with BNY, should Kelly have held out for an exchange ratio that was
more favourable for Mellon? Is he selling out the shareholders of Mellon and the city of
Pittsburgh by doing the deal on disadvantageous terms?

Dow’s Bid for Rohm and Haas


Assignment Questions

1. Why does Dow want to buy Rohm and Haas? Was the $78 per share bid reasonable?
2. What are the major deal risks inherent in this merger transaction? How and to whom
does the merger agreement allocate these key risks? Hint: analyse the various provisions
in case Exhibit 4. What risk does each provision address and which party ultimately bears
the risk?
3. As of early February 2009, what should Andrew Liveris (Dow’s CEO) and what should Raj
Gupta (Rohm and Haas’ CEO) do?
4. If you were the judge (Honourable William B Chandler, III) in the Delaware Court of
Chancery, how would you resolve this legal dispute?
DuPont Corporation: Sale of Performance Coatings
Assignment Questions
1. Assess DPC’s fit within DuPont. What are its prospects going forward as a division within
DuPont versus its potential value to an outside party?
2. How attractive is DPC as an acquisition from a strategic buyer’s or PE firm’s perspective?
What are the potential risks to such a deal?
3. What are some of the important features of APV, and why is it a useful approach for
valuing an LBO?
4. Working from case Exhibit9, relative to the stand-alone value, estimate the dollar
increase in DPC’s value if a PE fund can obtain:
a. 5% revenue growth per annum (versus 4% growth) in each of the next five years
and improve the operating margin to 12% (versus 10%).
b. Assume part a and that the division can be sold at 7.5×EBITDA in five years.
c. Assume part a and part b and that debt financing equal to 6.0× forward EBITDA
can be obtained. Assume that all cash available to pay debt each year (i.e.,
residual cash flow) is used to pay down the LBO debt and that, after five years,
the firm will revert to an all-equity firm.
5. What are some of the advantages and risks of using leverage to finance the investment?
6. If a PE sponsor has a target return of 20% on its funds (equity contribution), what is the
maximum enterprise value it can offer for DPC under parts b and c above?
7. What minimum bid should Ellen Kullman set if she chooses to sell DPC?

Tata Steel: The Acquisition of Corus


Assignment Questions

1. Explore the scope of winner’s curse and managerial hubris in decision making during
negotiations of a merger or acquisition.
2. Identify and evaluate the impact of external environmental factors in terms of Tata Steel
Europe and the United Kingdom in particular.
3. How important is cultural integration and creating a shared vision between the target and
acquirer organisation to making acquisition a success?
4. Discuss the various stages that business organisations go through in the process of mergers
and acquisitions?
5. How will Tata’s leadership bring changes after failure, towards a better future?
Proctor and Gamble in the 21st Century (B) and (C): Welcoming Gillette and Integrating
Gillette
Assignment Questions

1. How did Lafley build trust with Kilts? How did P&G managers try to do the same with members
of the Gillette organisation? Were they successful? Did Gillette trust P&G?
2. Lafley wanted to use Gillette to create the “best consumer products company in the world.”
What sequence of actions did he take to initiate systematic change? 

3. Everything can look like a failure in the middle. Although P&G’s integration planning phase
appeared successful, vulnerabilities had emerged. What were they? 

4. How should integration leaders move forward after the October 1, 2005 change of control?
What should change, remain the same, or be added?
5. What resistance to change did P&G encounter during the physical integration of Gillette’s
systems and people?
6. How did P&G overcome this resistance? What role did the PVP play? Was it enabling or
constraining? How was the merger activity organised and sequenced?
7. As P&G’s COO, what should Bob McDonald do next? How should he address the issues of go-
to-market reinvention, decision-making styles, and people retention? What should he
prioritise and what should his action plan be?

Cengage Learning: Can Apax Partners Salvage This Buyout?


Assignment Questions

1. Why do you believe that in recent years PE sponsors have increasingly chosen to buy debt in
their distressed LBOs?
2. In November 2012, Apax was considering a sizable purchase of Cengage’s debt what are the
pros and cons of this strategy?
3. What issues are raised by buying only senior debt versus allocating some funds to purchase
junior debt?
Assume that Cengage exits the bankruptcy process at the midrange enterprise value of $3,438
million in June 2013. Please analyse the following two debt investment strategies:
• Strategy 1: Apax uses $750 million of its funds to purchase exclusively senior debt at 78%
of par value
• Strategy 2: Apax uses a portion of the $750 million to purchase 25% of the junior debt
trading at 21% of par value and uses the remaining funds to purchase senior debt.
4. What are the estimated returns on Strategy 1, assuming the bankruptcy court follows
absolute priority in settling the claims and Apax can exit its investment in Cngage at 7 x
adjusted EBITDA in 2018?
5. What are the estimated returns on Strategy 2, if absolute priority is violated, the court
awards junior debt holders $250 million in equity in the reorganised firm and Apax can
achieve the same exit in the previous question?
6. Do you believe that the returns on the debt investments are high enough to justify Apax
proceeding with the purchase of Cengage debt? If not, how high a return (level of year-end
2018 adjusted EBITDA and exit multiple) would be needed to justify the investment?
7. Should Apax proceed with the debt investment?

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