SENIOR EXECUTIVE MBA. Mergers & Acquisitions. David Trende

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1 SENIOR EXECUTIVE MBA Mergers & Acquisitions David Trende September 2016

2 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. 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. 2

3 Topics MERGERS & ACQUISITIONS ASSOCIATE PROFESSOR DAVID TRENDE A. SESSION 1 Session: Tuesday 20 September am ABOUT M&A M&A an overview of the landscape and its history The keys to successful M&A To gain an understanding of the context in which mergers and acquisitions take place The 4 keys to successful M&A 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 Private reading and reflection E. READING For 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 3

4 A. SESSION 2 Session: Tuesday 20 September am REGULATION & STRUCTURING The regulation of M&A and deal structuring in Australia 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 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 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 Lecture and class discussion For this session read: o Herbert Smith Freehills, Takeovers in Australia Legal Guide,

5 A. SESSION 3 Session: Wednesday 21 September am RIGHT REASONS - Strategy To understand the importance of strategy in decisions to acquire Discussion of the strategic reasons of Woolworths South Africa s bid for David Jones Limited. Discussion agenda: 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 for Woolworths? o Is the takeover paying off? Syndicates will prepare case in syndicate rooms for one hour. Subsequent 30 minute class discussion For this session read the case: o THE ACQUISITION OF DAVID JONES: Woolworths South Africa s big bet on retail Australia 5

6 A. SESSION 4 Session: Wednesday 21 September am RIGHT INFORMATION - Due diligence Due diligence To understand why due diligence matters Due diligence roadmap: What is due diligence and why do we do it Due diligence transaction dynamics Objectives of due diligence Due diligence perspectives Scoping and methodology (including materiality issues) Value added due diligence Translating due diligence to the sale agreement: Due diligence and warranties Completion balance sheet adjustments Warranty and indemnity insurance Lecture and class discussion For this session read: o Accenture, M&A Due Diligence: What Corporates can learn from Private Equity, 2013 o GE Capital, Due Diligence: Main Steps and Factors,

7 A. SESSION 5 Session: Thursday 22 September am REGULATION CASE Syndicate assessment question to be handed out at the commencement of the class To determine syndicate s understanding of the application of regulation principles to a practical situation Syndicate preparation of a one page dot point answer to a question on regulation from a real world case. Syndicates will spend one hour in their syndicate rooms preparing their one page answer. There will be a subsequent 30 minute discussion of the case in class. For this session read the case: o JAPAN POST S ACQUISITION OF TOLL HOLDINGS 7

8 A. SESSION 6 Session: Thursday 22 September am RIGHT PRICE - Valuation Valuation in M&A - theory To understand valuation in M&A transactions the role of valuation in M&A transactions the valuation methods used in M&A the nature and measurement of synergies takeover premiums Lecture and class discussion 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 o Loomer & Harrington, Sharing Synergies, Duff & Phelps 8

9 A. SESSION 7 Session: Thursday 22 September pm VALUATION APPLICATION CASE Syndicate assessment question to be handed out at the commencement of the class To consider the importance of synergies in valuation of acquisition targets. B. CONTENT Syndicate preparation of a one page dot point answer to a question on a real world case. Syndicates will spend one hour in their syndicate rooms preparing their one page answer. There will be a subsequent 30 minute discussion of the case in class. For this session read the case: o WARRNAMBOOL CHEESE & BUTTER: Press Commentary on the Battle for Control 9

10 A. SESSION 8 Session: Thursday 22 September pm RIGHT IMPLEMENTATION Post-merger integration Post-merger integration: planning and implementation To understand the need for pre-planning post-merger integration To understand how to maximize post-merger value 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 Guest presentation and class discussion. For this session read: o PwC, Merger Integration Principles, 2011 o PwC, Capturing Synergies to Deliver Deal Value, November

11 A. SESSIONS 9 & 10 Sessions: Friday 23 September pm CAPSTONE CASE Healthscope & Symbion an interactive syndicate-based case To apply the elements of M&A to a real world example, thereby promoting understanding of the inter-relationships of the pieces of a successful deal. 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 A1 poster. Indicative timetable: Case introduction Round 1 analysis in Syndicate rooms Round 1 discussion in theatre Round 2 analysis in Syndicate rooms Round 2 discussion in theatre (Afternoon tea will be available at the conclusion of this discussion) Round 3 analysis in Syndicate rooms Round 3 class discussion and wrap-up Syndicate deliberations; class discussion; guest facilitation Read the UBS Healthscope and Symbion case 11

12 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. Faculty Information Office number: 144 Business telephone: d.trende@mbs.edu Assessment The final grade in the subject will be comprised of the following elements: Syndicate assignment case studies (2 x 10%) Japan Post s Acquisition of Toll Holdings Warrnambool Cheese & Butter Final examination *Hurdle Requirement* (80%) A ninety minute exam will be held on Saturday 24 September. 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. 12