Question 1

Deal structuring is fundamentally about satisfying as many of the primary objectives of the parties involved and deciding how risk will be shared.

Accepted Answer

Structuring involves finding solutions that meet the needs and goals of all parties involved and determining how risks will be allocated and managed. Therefore, the statement is true.

Question 2

The Deutsche-Telekom board decided against a divestiture of T-Mobile or an initial public offering to pursue a reverse merger. What other alternatives to merging its wholly-owned subsidiary T-Mobile with another firm could Deutsche-Telekom have pursued? Be specific. What are the advantages and disadvantages of the other options?

Accepted Answer

Common restructuring strategies that could have been used as an alternative to a reverse merger include a spin-off, split-off or equity carve-out. These options are discussed in Chapters 1 and in considerable detail in Chapter 16.
A spin-off involves the payment of the stock of T-Mobile held by Deutsche-Telekom to its shareholders as a dividend. Procedurally, it is relatively straight forward as the board of directors has the sole right to declare the type (cash or stock) and timing of dividends. Properly structured the dividend would be tax-free to Deutsche-Telekom's shareholders. The distribution would have the added advantage of giving the receiving shareholder the right to determine what to do with the shares: hold or sell. Spin-offs can be complicated by significant amounts of intercompany loans between the parent and the subsidiary. If the parent burdens the subsidiary with excessive amounts of debt before spinning off the unit, the spun-off unit may be forced into bankruptcy. Under fraudulent conveyance laws, the parent may be forced to take back the unit and to pay-off its creditors.
A split-off is similar to a spin-off, in that a firm's subsidiary becomes an independent firm and the parent firm does not generate any new cash. However, unlike a spin-off, the split-off involves an offer to exchange parent stock for stock in the parent firm's subsidiary at an exchange ratio determined by the parent firm. Split-offs most often arise when a portion of the parent firm's shareholders prefer to own the shares of a subsidiary of the parent rather than the parent's shares.
The subsidiary equity carve-out is a transaction in which the parent creates a wholly owned, independent subsidiary, with stock and a management team that are different from the parent's, and issues a portion of the subsidiary's stock to the public. Usually, only a minority share of the parent's ownership in the subsidiary is issued to the public. The cash raised may be retained in the subsidiary or transferred to the parent as a dividend, a stock repurchase, or an intercompany loan. Equity carve-outs exhibit characteristics similar to spin-offs. Both result in the subsidiary's stock's being traded separately from the parent's stock. A potentially significant drawback to the carve-out is the creation of minority shareholders. Equity carve-outs provide an opportunity to raise funds for reinvestment in the subsidiary, paying off debt, or paying a dividend to the parent firm. A carve-out frequently is a prelude to a divestiture, since it provides an opportunity to value the business by selling stock in a public stock exchange. Carve outs can create significant tax liabilities for the parent.

Question 3

In early 2008, a year marked by turmoil in the global credit markets, Mars Corporation was able to negotiate a reverse breakup fee structure in its acquisition of Wrigley Corporation. This structure allowed Mars to walk away
from the transaction at any time by paying a $1 billion fee. Speculate as to the motivation behind Mars and Wrigley negotiating such a fee structure?

Accepted Answer

2008 represented a period in which it often was difficult to get financing for transactions. The breakup fee, which normally applies to the seller to discourage them from seeking another buyer once a contract is signed, allowed Mars to back out of the deal if it could not obtain adequate financing. The fee structure compensated Wrigley for any costs it may have incurred in terms of legal, accounting, and investment banking fees as well as the loss of key employees, customers, or suppliers due to the pending change in ownership.

Question 4

What is the form of acquisition used in this deal? Why might this form have been chosen? What are the advantages and disadvantages of the form of acquisition used in this case study?

Accepted Answer

The answer of What is the form of acquisition used...

Question 5

What forms of acquisition represent common alternatives to a merger? Under what circumstances might these
alternative structures be employed?

Accepted Answer

The answer of What forms of acquisition represent common alternatives...

Question 6

What are the primary disadvantages and advantages of a reverse merger strategy?

Accepted Answer

The answer of What are the primary disadvantages and advantages...

Question 7

Despite disturbing discoveries during due diligence, Mattel acquired The Learning Company (TLC), a leading
developer of software for toys, in a stock-for-stock transaction valued at $3.5 billion on May 13, 1999. Mattel had determined that TLC's receivables were overstated because product returns from distributors were not deducted from receivables and its allowance for bad debt was inadequate. A $50 million licensing deal also had been prematurely put on the balance sheet. Finally, TLC's brands were becoming outdated. TLC had substantially exaggerated the amount of money put into research and development for new software products. Nevertheless, driven by the appeal of rapidly becoming a big player in the children's software market, Mattel closed on the transaction aware that TLC's cash flows were overstated. Despite being aware of extensive problems, Mattel proceeded to acquire The Learning Company. Why? What could Mattel to better protect its interests? Be specific.

Accepted Answer

The answer of Despite disturbing discoveries during due diligence, Mattel...

Question 8

The acquisition vehicle is the legal structure used to acquire the target.

Accepted Answer

An acquisition vehicle is the legal structure used to acquire the target company. It can be in the form of a merger, acquisition, stock purchase, or other legal arrangements that enable the acquiring company to take control of the target's operations, assets, and liabilities.

Question 9

Employee stock ownership plans cannot be legally used to acquire companies.

Accepted Answer

Employee stock ownership plans (ESOPs) can be legally used to acquire companies, typically through a leveraged buyout where the ESOP borrows money to purchase company shares. This allows employees to become part owners of the company they work for, promoting a sense of ownership and potentially increasing motivation and productivity.

Question 10

What are the advantages and disadvantages of a purchase of assets from the perspective of the buyer and seller?

Accepted Answer

The answer of What are the advantages and disadvantages of...

Question 11

In what way might the use of the T-Mobile/MetroPCS impact value?

Accepted Answer

The answer of In what way might the use of...

Question 12

What is the form of payment used in this deal? Why might this form have been selected? What are the advantages and disadvantages of the form of payment used in this deal?

Accepted Answer

The answer of What is the form of payment used...

Question 13

Comment of the following statement. A premium offered by a bidder over a target's share price is not necessarily a fair price; a fair price is not necessarily an adequate price?

Accepted Answer

The answer of  Comment of the following statement. A...

Question 14

In late 2008, Deutsche Bank announced that would buy the commercial banking assets (including a number of branches) of Netherland's ABN Amro for $1.13 billion. What liabilities, if any, would Deutsche Bank have to (or want to) assume? Explain your answer.

Accepted Answer

The answer of In late 2008, Deutsche Bank announced that...

Question 15

From of payment refers only to the acquirer's common stock used to make up the purchase price paid to target shareholders.

Accepted Answer

The term "currency of payment" refers to the type of consideration used to make up the purchase price paid to target shareholders, which can include cash, stock, debt, or a combination of these. The acquirer's common stock is just one possible form of consideration.

Question 16

What are the key assumptions implicit in the Deutsche-Telekom restructuring strategy for T-Mobile?

Accepted Answer

The answer of What are the key assumptions implicit in...

Question 17

Such legal structures as holding company, joint venture, and limited liability corporations are suitable only for acquisition vehicles but not post closing organizations.

Accepted Answer

This statement is false. Legal structures such as holding company, joint venture, and limited liability corporations can be used as post-closing organizations as well as acquisition vehicles, depending on the specific needs and goals of the organization.

Question 18

What are the reasons some acquirers choose to undertake a staged or multi-step takeover?

Accepted Answer

The answer of What are the reasons some acquirers choose...

Question 19

What are the advantages and disadvantages of a statutory merger?

Accepted Answer