1. Fundamentals of
Business & Financial Journalism
Week 9: Mergers & Acquisitions (& IPOs)
Jeffrey Timmermans
Monday, 26 November, 12

2. News Quiz
✤ What are some of the reasons HSBC has been in the news recently?
✤ Which area of which city has the highest retail store rents in the
world, and why might that be?
✤ How much of a pay rise is Cathay Pacific’s flight-attendants’ union
seeking for next year, and what’s the significance of that number?
✤ EXTRA CREDIT: What are some of the ways Autonomy allegedly
inflated its profits?
Monday, 26 November, 12

3. Types of M&A
✤ Merger: companies join as “equals”
✤ Acquisition: one company buys another
✤ Take private: all shares in a listed company are purchased from
shareholders (typically by a private equity firm) and the company is
restructured as a private entity before re-listing
✤ Joint venture: two companies form another venture
✤ Reverse takeover: purchase of a listed company by a private company
Monday, 26 November, 12

4. Global M&A activity 2004-2012
Source: Mergermarket
Monday, 26 November, 12

5. Global Private Equity Activity
Source: Mergermarket
Monday, 26 November, 12

6. The M&A process
✤ Initiated by acquirer, target, private equity firm, or investment bank
✤ Mandate of investment banks as advisors
✤ Due diligence/valuation process
✤ Possible emergence of rival bid
✤ Shareholders of target vote on deal / regulatory approval
✤ Unification of operations/possible mass firings
Monday, 26 November, 12

7. Questions to ask
✤ What’s the value of the deal? ✤ What seller will do with
money?
✤ Who’s buying what for what
amount from whom? ✤ Effect on companies’ revenue,
earnings?
✤ Is it a hostile bid?
✤ Is there a large amount of debt
✤ The reasons for the deal – how at the target that will be
it “fits.” assumed by the acquirer?
✤ How buyer is paying: cash,
stock, debt, or a combination?
Monday, 26 November, 12

8. More questions
✤ Are there regulatory or other ✤ What are the fees the banks/
legal concerns? advisors are getting?
✤ Antitrust issues? Political ✤ When is the deal expected to
issues? close?
✤ Who will run the new entity? ✤ How did the market react to the
Changes? announcement of the deal?
✤ What happens to employees?
Transfers? Layoffs?
Monday, 26 November, 12

9. Sourcing in M&A
✤ Investment banks (advisors and rivals)
✤ Management consultants
✤ Institutional shareholders in target (& acquirer)
✤ Shareholder activists
✤ David Webb (HK)
✤ Institutional Shareholder Services (US)
Monday, 26 November, 12

10. Valuations
✤ Cash Deals: Exclude all assumed debt, multiply price-per-share offered
by buyer by number of outstanding shares of target.
✤ ABC offers $1 per XYZ share x 100m XYZ shares = $100M
✤ Stock Deals: Multiply exchange ratio offered by Buyer’s trading price.
ABC offers 0.64 of its shares for each XYZ share:
✤ 0.64 x ABC trading price $2.00 = $1.28/Share for XYZ shareholders
✤ Total Value: $1.28 x XYZ outstanding shares 1.0B = $1.28B
Monday, 26 November, 12