Mergers & Acquisitions

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Mergers & Acquisitions

Lecturer: Marie-Ann Betschinger Course Type: Elective

Course Description:

“Mergers and Acquisitions” introduces the students to the topic of M&As and links strategic with financial considerations. Mergers & Acquisitions gives first insights into the academic literature in the field, but also covers practical aspects. The elective is useful for those intending to work as strategy consultants focusing on such transactions, or those who plan to work in Corporate Strategy functions within firms. Students that are interested in Mergers and Acquisitions as a field of research are encouraged to attend. Course prerequisites:

Students are expected to be familiar with principles of strategic management and basics in finance & statistics.

Course objectives and learning outcomes:

1) Obtain insights into M&A history and trends, economic and managerial motives. 2) Get insights into the empirical academic literature in the field of mergers and

acquisitions.

3) Understand major challenges to merger success and learn how to overcome them. 4) Learn how to assess potential M&A candidates.

5) Learn about acquisition valuation.

6) Understand key factors in M&A deal-making. 7) Learn how to manage post-merger integration. In terms of skills, be able to

8) do an event-study using MS-Excel

9) carry out company and synergy valuations using MS-Excel 10) evaluate information gathered from a variety of sources 11) critically evaluate seller and bidder strategies

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The Methods of Teaching and Knowledge Assessment

The course will be taught in a blocked-format. There will be one week of intense classes. Class attendance is obligatory. Lecture classes will consist of a lecture by the instructor including discussions of the class material. The tutorials apply these new concepts by analyzing M&A data, solving numerical problem sets, or through the discussion of cases or discussion-questions which have been assigned as homework.

The following methods and forms of study are used in the course: - Lectures including class discussion

- MS-Excel applications - Solution of problem-sets - Case discussions

- Final Exam

- Acquisition project appraisal - Self study

The course has 44 contact hours consisting of lectures and tutorials. The lectures are designed to help students to understand the main concepts of the course. The tutorials provide illustrations of the frameworks taught during the lectures. They are interactive and are aimed at enhancing problem solving skills. Students should be prepared to contribute to the discussions and present their work. As the aim of this elective is to develop a thorough understanding of issues relating to mergers and acquisitions, the term group project applies the insights gained during the course on one case. The information on the term project is contained in a separate handout. There will be a final exam at the end of the course.

Grades determination:

The grade is based on class participation (20%), the acquisition proposal (40%), and final exam (40%).

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Main topics:

Part I: Introduction

1) M&As: Introduction • Course Introduction

• M&As and their alternatives • History of M&A in the World Obligatory Literature:

• Martynova M, Renneboog L. 2008: A century of corporate takeovers: What have we learned and where do we stand?, Journal of Banking and Finance 32 (10), 2008: 2148-2152.

• Weston F J, Mitchell M L and Mulherin H J. 2004. Takeovers, Restructuring, and Corporate Governance, 4/e, Pearson Education: Chapter 1 « The Takeover Process » 131-140, Chapter 7 « The Timing of Merger “Activity ».

• Williamson, Oliver 1991. Comparative Economic Organization: The Analysis of Discrete Structural Alternatives. Administrative Science Quarterly. 36: 269-296.

Supplementary Literature:

• Gugler K., Mueller D. C., Yurtoglue B. 2006. The determinants of merger waves. Working Paper SPII 2006-01. Wissenschaftszentrum Berlin.

• Oxley, J. E. 1997. Appropriability hazards and governance in strategic alliances: A

transaction cost approach, Journal of Law, Economics and Organization, 13 (2): 387-409. • Radygin A. 2010. The Russian Mergers and Acquisitions Market: Stages, Features, and

Prospects. Problems of Economic Transition. 52(10): 65-95. 2) M&A Performance

• Theories on M&A • M&A performance • Event Study Methodology • Event Studies in Excel Obligatory Literature:

• Haleblian J., Devers C.E., McNamara G., Carpenter M.A., Davison R.B. 2009. Taking stock of what we know about mergers and acquisitions: A review and research agenda. Journal of Management. 35: 469-502.

• Martynova M, Renneboog L. 2008: A century of corporate takeovers: What have we learned and where do we stand?, Journal of Banking and Finance 32 (10): 2148-2152. • Weston F J, Mitchell M L and Mulherin H J. 2004. Takeovers, Restructuring, and

Corporate Governance, 4/e, Pearson Education: Chapter 6, pp.162-165, Chapter 7, pp.210-216, WMM: Chapter 6 “Appendix: Measurement of Abnormal Returns” 182-201. • Zollo M, Meier D. 2008. What is M&A Performance? Academy of Management

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• Bertrand O, Betschinger M. 2012. Performance of domestic and cross-border acquisitions: Empirical evidence from Russian acquirers. Journal of Comparative Economics 40: 413–437.

• Fan J, Goyal V. 2006. On the patterns and wealth effects of vertical mergers, The Journal of Business, 79 (2): 877-902.

• Jensen M C. 1986. Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers. American Economic Review 76(2): 323-329.

• Palich L.E, Cardinal L.B, and Miller C C. 2000. Curvilinearity in the diversification-performance linkage: An examination in over three decades of research, Strategic Management Journal. 21: 155–174.

Part II: M&A strategies: Acquirors’ and Targets’ perspective 3) M&A Strategy: Acquiror’s perspective

• Acquisition Process

• M&A Strategy Formulation: Acquiror’s perspective • Due Diligence

• Acquisition programs

• Corporate Governance and M&A Obligatory Literature:

• Laamanen T, Keil T. 2008. Performance of Serial Acquirers: Toward an Acquisition Program Perspective. Strategic Management Journal. 29: 663-672.

• Lovallo D, Viguerie P, Uhlaner R, Horn J. 2007. Deals without Delusion. Harvard Business Review, December: 92-99.

• Sudarsanam S. 2009. Creating Value from Mergers and Acquisitions: The Challenges, Prentice Hall.: Chapter 12, pp.351-355, 366-375.

• Weston F J, Mitchell M L and Mulherin H J. 2004. Takeovers, Restructuring, and

Corporate Governance, 4/e, Pearson Education: Chapter 1 « The Takeover Process » pp. 36-40.

• Ahn S, Jiraporn P, Kim Y. 2010. Multiple directorships and acquirer returns. Journal of Banking & Finance 34: 2011–2026.

• Byrd, J. H. 1992. Do outside directors monitor managers? Evidence from tender offer bids. Journal of Financial Economics 32: 195– 221.

• Deutsch Y, Keil T, Laamanen T. 2007. Decision making in acquisitions: the effect of outside directors’compensation on acquisition patterns. Journal of Management 33(1): 30–56.

• Harding D, Rouse T. 2007. Human Due Diligence, Harvard Business Review, April: 124-131.

• Puranam P, Powell BC, Singh H. 2006. Due diligence failure as a signal detection problem, Strategic Organization, 4(4): 319–348.

• Sirower ML, Sahni S. 2006. Avoiding the Synergy Tap: Practical Guidance on M&A Decisions for CEOs and Boards. Applied Corporate Finance, 18 (3): 83-95.

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4) M&A Strategy: Seller & Target perspective

• M&A Planning: Designing & Organizing the seller process • M&A Defense

Obligatory Literature:

• Weston F J, Mitchell M L and Mulherin H J. 2004. Takeovers, Restructuring, and Corporate Governance, 4/e, Pearson Education: Chapter 19.

• Comment R, Schwert W. 1995. Poison or placebo? Evidence on the deterrence and wealth effects of modern antitakeover measures. Journal of Financial Economics. 39 (1): 3-43.

Part III: Valuation

5) Principles of M&A Valuation

• Synergies and Benefits of Control. • Comparables (Companies, Transactions) • Discounted Cash Flow Methods

• Eccles R G, Lanes K L, Wilson T C. 1999. Are you paying too much for an acquisition? Harvard Business Review July-August. 136-146.

• Damodoran A. 2005. The Value of Synergy. Working Paper.

• Damodoran A. 2005. The Value of Control: Implications for Control Premia, Minority Discounts and Voting Share Differentials. Working Paper.

• Weston F J, Mitchell M L and Mulherin H J. 2004. Takeovers, Restructuring, and Corporate Governance, 4/e, Pearson Education: Chapter 9.

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Part IV: The deal 6) Deal Structuring • Premium • Payment Mode • Toehold • Negotiations Obligatory Literature:

• Aiello R J, Watkins MD. 2000. The fine art of friendly acquisition. Harvard Business Review (Nov-Dec): 100-107.

• Rappaport A, Sirower ML. 1999. Stock or Cash: The Trade-Offs for Buyers and Sellers in Mergers and Acquisitions. Harvard Business Review, November-December: 147-158. Supplementary Literature:

• Caselli S, Gatti S, Visconti M. 2006. Managing M&A Risk with Collars, Earn-outs, and CVRs. Journal of Applied Corporate Finance. 18 (4): 91-104.

• Eckbo E B. 2009. Bidding strategies and takeover premiums: A review. Journal of Corporate Finance, 15: 149–178.

• Hayward, M.L.A. and Hambrick, D.C. 1997. Explaining the premiums paid for large acquisitions: Evidence of CEO hubris. Administrative Science Quarterly, 42: 103–127. • Kohers N, Ang J. 2000. Earnouts in Mergers: Agreeing to Disagree and Agreeing to Stay.

Journal of Business. 73 (3): 445-476.

• Martynova M, Renneboog L. 2009. What Determines the Financing Decision in Corporate Takeovers: Cost of Capital, Agency Problems, or the Means of Payment?, Journal of Corporate Finance 15: 290–315.

• Rossi, S, Volpin P. 2004. Cross-Country Determinants of Mergers and Acquisitions. Journal of Financial Economics 74: 277–304.

• Sebenius, James K. (2001): Six Habits of Merely Effective Negotiators, Harvard Business Review, April.

Part V: Integration

7) Integration issues

• Integration challenges

• Restructuring through divestitures • Post-Acquisition Review

• Bruner, 2004, Chapter 36: Framework for Postmerger Integration

• Capron, L., Mitchell, W., & Swaminathan, A. (2001) Asset divestiture following horizontal acquisitions: a dynamic view. Strategic Management Journal, 22, 817–844. • Jemison D B.1996. Corporate Acquisitions: A Process Perspective, Academy of

Management Review 11 (1): 145-163.

• Weston F J, Mitchell M L and Mulherin H J. 2004. Takeovers, Restructuring, and Corporate Governance, 4/e, Pearson Education: Chapter 11: Corporate Restructurings and Divestitures.

• Zollo S. 2004. Deliberate Learning in Corporate Acquisitions: Post-Acquisition Strategies and Integration Capability in US Bank Mergers. Strategic Management Journal. 25: 1233-1256.

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• Barkema H G, Schijven M. 2008. Toward unlocking the full potential of acquisitions: The role of organizational restructuring. Academy of Management Journal, 51(4). 696-722.

• Birkinshaw J, Bresman H, Hakanson L. 2000. Managing the post-acquisition integration process: How the human integration and task integration processes interact to foster value creation. Journal of Management Studies, 37: 395-425.

• Capron L, Guillen M. 2009. National Corporate Governance Institutions and post-acquisition target reorganization. Strategic Management Journal. 30: 803–833.

• Homburg B. 2006. Is speed of integration really a success factor of M&A? An Analysis of the role of internal and external relatedness. Strategic Management Journal. 27: 347-367.

• Lee D, Madhavan R. 2010. Divestiture and Firm Performance: A Meta-Analysis. Journal of Management, 36: 1345-1371.

• Puranam P, Singh H, Zollo M. 2003. A Bird in the Hand or Two in the Bush? Integration Trade-offs in Technology-grafting Acquisitions, European Management Journal 21 (2): 179–184.

• Zollo, M., & Reuer, J.J. (2010). Experience spillovers across corporate development activities. Organization Science, 21(6), 1195–1212.