Corporate Restructuring: Renovate O’

Rejuvenate

“The Procrastinators”
- Parth Gupta DM21146
- Abhin Dewan DM21103
Great Lakes Institute of Management, Chennai

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25% Ownership Stake in Atol in 2016
• Recession, made company cash constrained, hence a lower stake investment
Financial Recession and • According to US GAAP, >20% ownership stake makes a company associate.
Associate Company Gained advantage, assuming Atol to be a competitor.

• Allowed Novamo to test if the company was the right fit before
Cultural Fit committing to full transaction

• Absorb latest innovations/ copyrights/ IP rights thus giving them

Technology Espoinage competitive advantage

• High growth company with huge potential such as Atol could have
become potential target of other investors.
Diminish Acquisition • Novamo had gained an early mover advantage
Options

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Drop in Shareprice of Atol and Novamo

Unsmooth integration process such as dissatisfaction with minority

shareholders or regulatory issues

Investors expected of higher bid price of $181 vs $164.35

? Unforeseen expenses incurred as a result of the purchase

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Swiss Takeover Laws vs US Takeover Laws (Part I/II)

Swiss USA

• Bidder acquiring shares takes • No requirement to make a mandatory offer

the holdings to 1/3 or more of subjected to conditions like' "control share
Mandatory Offer the target's voting rights (if cash-out" provisions*.
there is no opting-out or opting-
up)

Minority • Following a successful • No compulsory offer mechanism in the

Shareholder public bid. US.
Protection • Bidder can use a second-step merger to
buy out remaining minority
shareholders.

*Bidder gains voting power of a certain % of a company (20% in Pennsylvania, 25% in Maine and 50%+1 in South Dakota), the other shareholders can demand that the bidder purchase their shares at a 4
fair price.
Swiss Takeover Laws vs US Takeover Laws. (Part II/II)

Swiss USA

Protection of minority shareholders Keeps minimum “Mandatory Offer”

• Provides margin of safety. • Provides minimum threshold

• Novamo subjected to the Swiss code’s and same (true) value as
minimum bid rule; pay $181 per share decided in the deal before
in cash to Atol’s minority shareholders increasing the stake (>33%)

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Total Number of Shares Acquired
Price Paid for Number of share
Year % Stake Average price of share
Acquisition purchased (MM)

2016 25% $143 11200 $78.32

2018 52% $181 28100 $155.25

2019 23% $168 12900 $76.79

2019 100% 52200 $310.36

Year Price Offerd per Share Times Nomamo's Shares Novamo Share Price
2018 $153 2.8 $54.64
Price Before Acquisition $54.38
Price After Acquisition $52.81

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Novamo Exercising Call Option @ $181 for 77% stake vs $143 for 25% stake
Novamo Call Option Expectation

1 • Expected higher future cash flows due to • Also the share price have to be adjusted for
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higher growth of Atol in 2016. inflation.

• Novamo must have exercised $181 (vs $164.35 • Market price change of 10.13% .
3 closing price).
4 • Profit from Atol would be > than the price difference
• Price Difference = $ 16.65 $16.65.

Shares % after exercising call option 52%

Total Number of Shares Purchased (MM) $ 310.36
Number of Shares after 52% stake $ 161.39
Price Difference $ 16.65
Least Expected Profit (MM) $ 2687

Novamo expects future cash flows to be more than compensated. Hence exercised it.
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Novamo’s Estimate of $137 per share

$137 per share

• Less future cash Yes, minority should receive the same price
flows due to turmoil
in Atol, hence lower • Maintain agreement according to
Underlying valuations of $137 Minority ‘minority shareholder protection’ for a
Assumptions per share Shareholders bid price of $181 per share.
• Not take advantage of Atol by paying
• However cash flows shareholders of Atol less and Zestle more.
are unknown, so • Timing of both the deals on same day as
cannot proceed when they acquired - Zestle and Atol -
with given data same price to minority shareholders