15.445  Mergers and Acquisitions

For interested students, I have posted some background information on our Wednesday guest speaker, Steve Lipin, along with a couple of articles on the role of PR advisors in M&A.  profG

I want to thank the two groups for a good job today in the Circon class exercise.  I have posted their presentations on Stellar.  profG

I was a little too quick responding to Kwon's question about whether or not courts (in the US vs Canada, for example) had forced companies to pull poison pills during a takeover fight.  What I should have said in reply is that the it would take extenuating circumstances for that to happen.  But that is not the question he asked.  As you saw from later slides, in the Revlon case, the court required Revlon to drop its pill since the company was up for sale.  Another example like that happened 8-9 years later in Paramount vs. QVC, which I cover very briefly in my Advanced Corporate Finance course.  But in addition, the courts did require a pill to be dropped in 1988 in the Interco case, and I probably should have mentioned it in class.  The Interco case has since been overtaken by current takeover law, but at the time it was a potential blow to corporate defenses, and specifically to Kwon's question, it was an example of the court requiring a pill to be pulled.  See you next Monday.  profG

I have heard from some students that they will ignore net debt (debt minus cash) in answering the very first assignment questions, because the wording in footnote 5 of the assignment handout and the table on the top of page 3 of the assignment handout appear to suggest that net debt should be ignored.  Based on my prior experience with this assignment, I would not have expected the footnote or table to be read that way, but I will provide some clarification.  When a questions about what "shareholders... receive in value per share [if you were to] break up/liquidate... [a] company and sell its assets", it is permissible to ignore taxes & various balance sheet adjustments, but it is never permissible to ignore net debt .  Shareholders will always be credited for excess cash [which I usually simplify as being all of the cash], and debt will always have to be repaid before equity value can be computed.  That is fundamental finance & valuation.  That was one of the points that I want to make sure that students got when they answered the homework question.  So once you have calculated the value of net assets, please do subtract net debt.

There may be other confusions from the way I have asked you questions in this assignment - but my best advice from here out is, as in the real world, do the best you can figuring out what would be the correct and logical interpretation of the questions and give it a go.  You should be able to get most of this right, and if you misunderstand something because of the way I might have worded a question, I would guess the TA will be lenient in grading!  Good luck and see you Monday.  profG

A few students have asked what is meant by "combined result" in the Unocal table which I asked you to fill in for the homework assignment.  Combined result simply refers to the combined effect of both the Mesa & Unocal tender offers being completed.  To complete the table, if both the Mesa and Unocal tender offers are completed as proposed, then: (i) what would be the total number of shares held by Mesa, total number of shares outstanding and percentage of shares owned by Mesa - which all of you have probably figured out would be 100%, right?; and (ii) what would have been the cost per share to Mesa of having bought 100% ownership of Unocal.  I hope that explanation is adequate for everybody to successfully complete the table.  See you Monday.  profG