Finance 480 Mergers, Acquisitions, and Divestitures Steven C. Isberg, Instructor Fall 2003
Office: BC413 Office Hours: Mon: 2:15 p.m. – 4:45 p.m. Thurs: 2:15 p.m. – 4:45 p.m. And by appointment Communication: Voice: 410-837-4995/410-480-2785 Fax: 410-837-5722 e-mail: [email protected]
Course Objectives
The main objectives of this course are to enable students to apply a variety of tools of corporate financial analysis and management to the analysis and understanding of corporate restructuring transactions, of which mergers, acquisitions and divestitures are the most important. Specifically, participants will learn:
the nature of the relationship between the return on investment, cost of capital and the need for restructuring; the history of restructuring and how it relates to trends in financial and economic markets; how to estimate the cost of capital and relate it to capital structure; how to differentiate between the need to restructure assets and financial capital; how to develop and provide analysis for a variety of restructuring transactions, including mergers, acquisitions, divestitures, capital restructurings and bankruptcies; how to value a variety of restructuring transactions; and, what will be the important trends in restructuring in the next five to ten years.
Course Methodology
Students will be involved in a variety of activities including text and journal reading, case discussion and analysis. Time in class will be primarily devoted to coverage of various techniques of financial analysis as applied to restructuring problems, and discussion of readings and cases. Assignments relating to the cases and readings will be given frequently and will advance in stages. The initial stages will involve students completing some analysis and participating in class discussions regarding their results. Short pieces will then be written and submitted for grading.
Grade Determination
See the grade contract document. Mergers, Acquisitions and Divestitures, Syllabus Spring 2002 Page 2
Readings
The principle text for this course is Corporate Restructuring: Managing the Change Process from Within, by Gordon Donaldson, Harvard Business School Press, 1994. This will be augmented by a series of additional readings and case material to be provided in class.
A variety of other readings will be assigned and distributed in class.
Outline of Topics and Readings
1. Return on Investment, Cost of Capital and the Need to Restructure
Reading: Donaldson, Chapter 1-3 Assignment 1: Gulf Oil Buyout Analysis
2. History of Restructuring
Class lecture (Power Point Note Package)
3. Motives and Methods of Restructuring
Reading: Donaldson, Chapters 4-5, and Stewart, G. Bennett III, and David M. Glassman, "The Motives and Methods of Corporate Restructuring"
4. Voluntary Internal Restructuring
Donaldson, Chapters 6-8 Assignment 2: duPont Asset and Capital Structuring
5. Valuation Concepts and Techniques
Readings: Isberg, Steven C., “Whither Cash Flow? Whence Value? Chapters 1 and 2 HBS Note: Adjusted Net Present Value HBS Note: Valuing Companies in Corporate Restructurings Luehrmann, Timothy, “Using APV: A Better Tool for Valuing Operations,” Harvard Business Review, May-June 1997 Mergers, Acquisitions and Divestitures, Syllabus Spring 2002 Page 3
Assignment 3: Northrup Grumman Buyout of TRW
6. Restructuring with Leverage
Donaldson, Chapters 9-10
7. IPO's and Equity Carve-Outs
Schipper, Katherine, and Abbie Smith, "Equity Carve-Outs," in Chew, Donald, Ed. The New Corporate Finance: Where Theory Meets Practice, McGraw-Hill, 1993
Assignment 4: Thermo Electron
8. LBO’s and Hostile Takeovers
Readings: RJR Nabisco1 case material
9. Leveraged Cash Outs and Restructuring with Employee Benefit Plans
Readings: Colt Industries1 Case material
10. Comprehensive Final Case: Seagate Technologies 1 Subject to change pending results of a search for new cases. 1