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Part I: Illustrative Syllabus and Reading List

Syllabus: Takeovers, Restructuring, and Corporate Governance

The Course

This course is a seminar on corporate restructuring. It applies theory from industrial organization and corporate finance to the analysis of merger & acquisitions, corporate divestitures and related transactions.

Our experience has been that much of the learning comes from exposure to a wide range of literature and cases on mergers and acquisitions and other forms of corporate restructuring. The combination of lectures, reading and presenting articles, and developing and discussing cases will enhance knowledge and maturity of judgment with respect to M&A decisions. Students will also develop expertise on the restructuring in a particular industry of their choosing.

Primary Text: Takeovers, Restructuring and Corporate Governance (4 th edition) by J. Fred Weston, Mark L. Mitchell and J. Harold Mulherin (Prentice Hall, 2004).

Supporting Text: Big Deal: Mergers and Acquisitions in the Digital Age by Bruce Wasserstein (Warner Books, 2000).

Academic Publications: In addition to the texts, several academic papers will provide theory and empirical evidence on corporate restructuring. See the course outline and reading list for specific papers.

Research Material: Students will make use of LexisNexis, Yahoo Finance, the Value Line Investment Survey, and company web sites. Students will become especially familiar with the merger background provided on the SEC EDGAR database at www.sec.gov.

Grading

The basis for evaluation is sketched below. A more detailed discussion of each requirement is attached.

Requirement Weight

Quizzes/Homework 25%Class Participation and Presentations of Published Research 25%Case Write-ups and Presentations 25%Analysis of a Specific Industry (Presentations and Paper) 25%

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http://www.sec.gov/

Full file at http://testbanksinstant.eu/ Solution-Manual-for-Takeovers-Restructuring-and-Corporate-Governance-4E---Weston--Discussion of Course Requirements

Quizzes/Homework

Homework assignments will be made on chapter readings and published academic research. Quizzes will also be given on assigned readings and/or to set the stage for class discussion.

Class Participation and Presentation of Published Research

Because the course is structured as a seminar, attendance is mandatory and regular participation is expected. The participation grade gauges the cogency of the student’s comments. Students will also make presentations of the published academic research during various class sessions.

Case Write-ups and Presentations

Students will develop and present many of the cases from the Weston et al text. These cases include the extended material in many of the appendices in the text.

Analysis of a Specific Industry

Throughout the term, students will research the causes and effects of the recent restructuring in a particular industry. Such research will develop a database on mergers and divestitures in the industry. This analysis will allow the students to become familiar with research sources such as the SEC EDGAR filings. The students will present their research findings at periodic stages during the course and will also make a presentation of the final draft of their research paper at the end of the semester.

The paper on the analysis of a specific industry will provide tests of the theories discussed during the semester and will also enable the student to use the tools of modern corporate finance such as event study methodology. Students will compare their results with that found in prior empirical analysis. This industry research provides a useful capstone to the learning experience during the course.

Students should select their industry, in consultation with the professor, in the first week of class. Students are urged to consider an industry with global restructuring aspects such as energy, financial services, pharmaceuticals, or telecommunications. Ideas for selecting an industry can be taken from the many cases in the Weston, et al, and Wasserstein texts as well as by surveying the financial media such as on LexisNexis.



Course Outline: Takeovers, Restructuring and Corporate Governance

Week Topic Chapter(s) Case / Appendix Reading

1 Takeover Process 1,2 Ch. 1, Appendix A, MCI/Worldcom Wasserstein, Part 1

2 Deal Structure 3,4,5 Case 5.1, Merck/Medco Wasserstein, Part 2 & 3

3 Merger Theory 6 Ch. 6, Appendix A, Chemical Industry Coase (1937)

4 Merger Timing 7 Ch. 7, Appendix A, Telecom Industry Mitchell & Mulherin (1996)

5 Merger Evidence 8 Ch. 8, Appendix A, Event Study Analysis Andrade, Mitchell & Stafford (2001)

6 Valuation 9,10 Exxon/Mobil Weston (2002)

7 Restructuring Theory 11 Ch. 11, Appendix A, Natural Gas Industry Klein, Crawford & Alchian (1978)

8 Restructuring Evidence 12,13 Ch. 12, Appendix A, Divestiture Analysis Mulherin & Boone (2000)

9 Alliances 14,15 Case 14.1, GM-Toyota Robinson (2002)

10 LBOs 16 Case 16.2, RJR Nabisco Lehn, Netter & Poulsen (1990)

11 International M&A 17 Case 17.3, Takeover of Mannesman Mulherin, Netter & Stegemoller (2001)

12 Repurchases & Defenses 18,19 Case 19.3, Hershey Foods Comment & Schwert (1995)

13 Corporate Governance 20 Case 20.1, Chrysler Corporation Mulherin & Poulsen (1998)

14 Merger Arbitrage 21 Ch. 21, Appendix A, Conoco-Philips Mitchell & Pulvino (2001)

15 Management Guides 22 Student Analysis of Specific Industries


Full file at http://testbanksinstant.eu/ Solution-Manual-for-Takeovers-Restructuring-and-Corporate-Governance-4E---Weston--Brief Reading List

Andrade, Gregor, Mark Mitchell and Erik Stafford, “New Evidence and Perspectives on Mergers,” Journal of Economic Perspectives 15 (Spring 2001) 103-120.

Coase, R.H., “The Nature of the Firm,” Economica 4 (November 1937) 386-405.

Comment, Robert and G. William Schwert, “Poison or Pacebo? Evidence on the Deterrence and Wealth Effects of Modern Antitakeover Measures,” Journal of Financial Economics 39 (1995) 3-43.

Klein, Benjamin, Robert G. Crawford, and Armen A. Alchian, “Vertical Integration, Appropriable Rents, and the Competitive Contracting Process,” Journal of Law and Economics 21 (October 1978) 297-326.

Lehn, Kenneth, Jeffry Netter and Annette Poulsen, “Consolidating Corporate Control: Dual-class Recapitalizations versus Leveraged Buyouts,” Journal of Financial Economics 27 (1990) 557-580.

Mitchell, Mark L. and J. Harold Mulherin, “The Impact of Industry Shocks on Takeover and Restructuring Activity,” Journal of Financial Economics 41 (1996) 193-229.

Mitchell, Mark and Todd Pulvino, “Characteristics of Risk and Return in Risk Arbitrage,” Journal of Finance 56 (December 2001) 2135-2175.

Mulherin, J. Harold and Audra L. Boone, “Comparing Acquisitions and Divestitures,” Journal of Corporate Finance 6 (2000) 117-139.

Mulherin, J. Harold, Jeffry M. Netter and Michael Stegemoller, “Privatization and the Market for Corporate Control,” working paper, Claremont McKenna College, October 2001.

Mulherin, J. Harold and Annette B. Poulsen, “Proxy Contests and Corporate Change: Implications for Shareholder Wealth,” Journal of Financial Economics 47 (March 1998) 297-313.

Robinson, David T., “Strategic Alliances and the Boundaries of the Firm,” working paper, Columbia University, May 2002.

Weston, J. Fred, “The Exxon-Mobil Merger: An Archetype,” Journal of Applied Finance 12 (Spring/Summer 2002) 69-88.



Extended Reading List: Takeovers, Restructuring and Corporate Governance

Chapter 1 The Takeover Process

Holderness, Clifford G., and Dennis P. Sheehan, "Raiders or Saviors? The Evidence on Six Controversial Investors," Journal of Financial Economics, 14, 1985, pp. 555-579.

Wasserstein, Bruce, Big Deal: Mergers and Acquisitions in the Digital Age Warner Books, 2000.

Welling, Kathryn M., "Arb-Firm — and Its Mutual Fund," Barron's, February 5, 1996, pp. 24-28.

Zingales, Luigi, "In Search of New Foundations," Journal of Finance 55, August 2000, pp. 1623-1653.

Chapter 2 The Legal and Regulatory Framework

Bittlingmayer, George, and Thomas W. Hazlett, “DOS Kapital: Has Antitrust Action Against Microsoft Created Value in the Computer Industry?” Journal of Financial Economics 55, 2000, pp. 329-359.

DeAngelo, Harry, and Linda DeAngelo, "Ancient Redwoods and the Politics of Finance: The Hostile Takeover of the Pacific Lumber Company," Journal of Financial Economics 47 (1998) pp. 3-53.

Meulbroek, Lisa K., “An Empirical Analysis of Illegal Insider Trading,” Journal of Finance, 47, December 1992, pp. 1661-1699.

Mitchell, Mark L., and Jeffry Netter, “The Role of Financial Economics in Securities Fraud Cases: Applications at the Securities and Exchange Commission,” Business Lawyer 49, February 1994, pp. 545-590.

Chapter 3 Accounting for M&As

Aboody, David, Ron Kasznik, and Michael Williams, “Purchase versus Pooling in Stock-for-Stock Acquisitions: Why Do Firms Care?” Journal of Accounting and Economics 29, June 2000, pp. 261-286.

Davis, Michael L., "The Purchase vs. Pooling Controversy: How the Stock Market Responds to Goodwill," Journal of Applied Corporate Finance, 9, Spring 1996, pp. 50-59.

Hong, Hai, Robert S. Kaplan, and Gershon Mandelker, "Pooling vs. Purchase: The Effects of Accounting for Mergers on Stock Prices," The Accounting Review, 53, January 1978, pp. 31-47.

Lys, Thomas, and Linda Vincent, "An Analysis of Value Destruction in AT&T's Acquisition of NCR," Journal of Financial Economics, 39, 1995, pp. 353-378.


Full file at http://testbanksinstant.eu/ Solution-Manual-for-Takeovers-Restructuring-and-Corporate-Governance-4E---Weston--McDonald, Elizabeth, "Merger-Accounting Method Under Fire," The Wall Street

Journal, April 15, 1997, pp. A2, A9.

Chapter 4 Deal Structuring

Ang, James, and Ninon Kohers, “Earnouts in Mergers: Agreeing to Disagree and Agreeing to Stay,” Journal of Business 73, July 2000, pp. 445-476.

Ginsburg, M. D., "Taxing Corporate Acquisitions," Tax Law Review, 38, 1983, pp. 177-319.

Hayn, C., " Tax Attributes as Determinants of Shareholder Gains in Corporate Acquisitions," Journal of Financial Economics, 23, 1989, pp. 121-153.

Jensen, M., S. Kaplan, and L. Stiglin, "The Effects of LBO's on Tax Revenues," Tax Notes, February 6, 1989, pp. 727-733.

Kaplan, S., "Management Buyouts: Evidence on Taxes as a Source of Value," Journal of Finance, 44, July 1989, pp. 611-632.

Chapter 5 Strategic ProcessesBerger, Philip G., and Eli Ofek, "Diversification's Effect on Firm Value," Journal of

Financial Economics, 37, January 1995, pp. 39-65.

Comment, Robert, and Gregg A. Jarrell, " Corporate Focus and Stock Returns," Journal of Financial Economics, 37, January 1995, pp. 67-87.

Grove, Andrew S., Only the Paranoid Survive: How to Exploit the Crisis Points That Challenge Every Company and Career, New York: Currency Doubleday, 1996.

Porter, Michael E., "From Competitive Advantage to Corporate Strategy," Harvard Business Review, 65, May-June 1987, pp. 43-59.

Weston, J. Fred, "Strategy and Business Economics," Business Economics, 24, April 1989, pp. 5-12.

Chapter 6 Theories of Mergers and Tender Offers

Alchian, Armen A., and Harold Demsetz, “Production, Information Costs, and Economic Organization,” American Economic Review 62, December 1972, pp. 777-795.

Coase, R.H., “The Nature of the Firm,” Economica 4, November 1937, pp. 386-405.

Hansen, Robert G., “Auctions of Companies,” Economic Inquiry 39, January 2001, pp. 30-43.

Jensen, Michael C., "Agency Costs of Free Cash Flow, Corporate Finance and Takeovers," American Economic Review, 76, May 1986, pp. 323-329.

Roll, Richard, "The Hubris Hypothesis of Corporate Takeover," Journal of Business, 59, April 1986, pp. 197-216.


Full file at http://testbanksinstant.eu/ Solution-Manual-for-Takeovers-Restructuring-and-Corporate-Governance-4E---Weston--Chapter 7 The Timing of Merger Activity

Jensen, Michael C., "The Modern Industrial Revolution, Exit, and the Failure of Internal Control Systems," Journal of Finance, 48, July 1993, pp. 831-880.

Mitchell, Mark L., and J. Harold Mulherin, "The Impact of Industry Shocks on Takeover and Restructuring Activity," Journal of Financial Economics, 41, June 1996, pp. 193-229.

Weston, J. F., The Role of Mergers in the Growth of Large Firms, Berkeley and Los Angeles: University of California Press, 1953, Chapter 5.

_____, "Domestic Concentration and International Markets," Chapter 7 in J. Fred Weston and Michael E. Granfield, eds., Corporate Enterprise in a New Environment, New York: KCG Productions, Inc., 1982, pp. 173-188.

_____, and Surenda K. Mansinghka, "Tests of the Efficiency Performance of Conglomerate Firms," Journal of Finance, 26, September 1971, pp. 919-936.

Chapter 8 Empirical Tests of M&A Performance

Andrade, Gregor, Mark Mitchell and Erik Stafford, “New Evidence and Perspectives on Mergers,” Journal of Economic Perspectives 15, Spring 2001, pp. 103-120.

Becher, David A., “The Valuation Effects of Bank Mergers,” Journal of Corporate Finance 6, July 2000, pp. 189-214.

Berkovitch, Elazar, and M. P. Narayanan, "Motives for Takeovers: An Empirical Investigation," Journal of Financial and Quantitative Analysis, 28, September 1993, pp. 347-362.

Betton, Sandra, and B. Espen Eckbo, “Toeholds, Bid Jumps and Expected Payoffs in Takeovers,” Review of Financial Studies 13, Winter 2000, pp. 841-882.

Bradley, M., A. Desai, and E. H. Kim, "Synergistic Gains from Corporate Acquisitions and Their Division Between the Stockholders of Target and Acquiring Firms," Journal of Financial Economics, 21, 1988, pp. 3-40.

Healy, Paul M., Khrishna G. Palepu, and Richard S. Ruback, "Does Corporate Performance Improve After Mergers?" Journal of Financial Economics, 31, 1992, pp. 135-175.

Huang, Yen-Sheng, and Ralph A. Walkling, "Target Abnormal Returns Associated with Acquisition Announcements," Journal of Financial Economics, 19, 1987, pp. 329-349.

Mitchell, Mark L., and Kenneth Lehn, "Do Bad Bidders Become Good Targets?" Journal of Political Economy, 98, 1990, pp. 372-398.

Mitchell, Mark L., and Erik Stafford, “Managerial Decisions and Long-Term Stock Price Performance,” Journal of Business 73, July 2000, pp. 287-329.


Full file at http://testbanksinstant.eu/ Solution-Manual-for-Takeovers-Restructuring-and-Corporate-Governance-4E---Weston--Schwert, G. William, "Markup Pricing in Mergers and Acquisitions," Journal of

Financial Economics, 41, 1996, pp. 153-192.

Schwert, G. William, “Hostility in Takeovers: In the Eyes of the Beholder?” Journal of Finance 55, December 2000, pp. 2599-2640.

Weston, J. Fred, and Yehning Chen, "A Tale of Two Eras," Business Economics, 24, January 1994, pp. 27-33.

Chapter 9 Alternative Approaches to Valuation

DeAngelo, Linda Elizabeth, “Equity Valuation and Corporate Control,” Accounting Review 65, January 1990, pp. 93-112.

Kaplan, Steven N., and Richard S. Ruback, "The Valuation of Cash Flow Forecasts: An Empirical Analysis," Journal of Finance, 50, September 1995, pp. 1059-1093.

Miller, Merton H., and Franco Modigliani, "Dividend Policy, Growth, and the Valuation of Shares," Journal of Business, 34, October 1961, pp. 411-433.

Rappaport, Alfred, Creating Shareholder Value, New York: The Free Press, 1986.

Weston, J. Fred, “The Exxon-Mobil Merger: An Archetype,” Journal of Applied Finance 12, Spring/Summer 2002, pp. 69-98.

Chapter 10 Increasing the Value of the Organization

Copeland, Tom, Tim Koller, and Jack Murrin, Valuation: Measuring and Managing the Value of Companies, 3rd ed., New York: John Wiley & Sons, 2000.

Cornell, Bradford, Corporate Valuation, Homewood, IL: Business One Irwin, 1993.

Siu, Juan A., and J. Fred Weston, "Restructuring in the U.S. Oil Industry," Journal of Energy Finance & Development, 1, 1996, pp. 113-131.

Stern, Joel M., "Earnings Per Share Don't Count," Financial Analysts Journal, 30, July-August 1974, pp. 39-40, 42-43, 67-75.

Stewart, G. Bennett, The Quest for Value, New York: Harper Business, 1991.

Weston, J. Fred, and Susan Chiu, "Growth Strategies in the Food Industry," Business Economics, 31, January 1996, pp. 21-27.

Chapter 11 Corporate Restructuring and Divestitures

Fan, Joseph P.H., “Price Uncertainty and Vertical Integration: An Examination of Petrochemical Firms,” Journal of Corporate Finance 6, December 2000, pp. 345-376.

Jensen, Michael C., and William H. Meckling, “Theory of the Firm: Managerial Behavior, Agency Costs, and Ownership Structure,” Journal of Financial Economics 3, 1976, pp. 305-360.


Full file at http://testbanksinstant.eu/ Solution-Manual-for-Takeovers-Restructuring-and-Corporate-Governance-4E---Weston--Klein, Benjamin, Robert G. Crawford, and Armen A. Alchian, “Vertical Integration,

Appropriable Rents, and the Competitive Contracting Process,” Journal of Law and Economics 21, October 1978, pp. 297-326.

Mulherin, J. Harold, “Specialized Assets, Governmental Regulation, and Organizational Structure in the Natural Gas Industry,” Journal of Institutional and Theoretical Economics 142, September 1986, pp. 528-541.

Myers, Stewart C., and Nicholas S. Majluf, “Corporate Financing and Investment Decisions when Firms Have Information that Investors Do not Have,” Journal of Financial Economics 13, 1984, pp. 187-221.

Chapter 12 Empirical Tests of Corporate Restructuring and Divestitures

Copeland, Thomas E., E. F. Lemgruber, and D. Mayers, "Corporate Spinoffs: Multiple Announcement and Ex-Date Abnormal Performance," Chapter 7 in T. E. Copeland, ed., Modern Finance and Industrial Economics, New York: Basil Blackwell, 1987.

Graham, John R., Michael L. Lemmon, and Jack G. Wolf, “Does Corporate Diversification Destroy Wealth?” Journal of Finance 57, April 2002, pp. 695-720.

Maksimovic, Vojislav, and Gordon Phillips, “The Market for Corporate Assets: Who Engages in Mergers and Asset Sales and Are There Efficiency Gains?” Journal of Finance 56, December 2001, pp. 2019-2065.

Mulherin, J. Harold, and Audra L. Boone, “Comparing Acquisitions and Divestitures,” Journal of Corporate Finance 6, July 2000, pp. 117-139.

Vijh, Anand M., “The Positive Announcement-Period Returns of Equity Carve-Outs: Asymmetric Information or Divestiture Gains?” Journal of Business 75, 2002, pp. 153-190.

Chapter 13 Financial RestructuringAltman, E. I., Corporate Financial Distress and Bankruptcy, 2nd ed., New York: John

Wiley & Sons, 1993.

Chen, Yehning, J. Fred Weston, and Edward I. Altman, "Financial Distress and Restructuring Models," Financial Management, 24, Summer 1995, pp. 57-75.

Copeland,, Thomas E., and Won Heum Lee, " Exchange Offers and Stock Swaps — New Evidence," Financial Management, 20, Autumn 1991, pp. 34-48.

Denis, David J., and Diane K. Denis, "Causes of Financial Distress Following Leveraged Recapitalizations," Journal of Financial Economics, 37, February 1995, pp. 129-157.

Wruck, Karen Hopper, "Financial Distress, Reorganization, and Organizational Efficiency," Journal of Financial Economics, 27, October 1990, pp. 419-444.


Full file at http://testbanksinstant.eu/ Solution-Manual-for-Takeovers-Restructuring-and-Corporate-Governance-4E---Weston--Chapter 14 Alliances and Joint VenturesJohnson, Shane, and Mark B. Houston, “A Reexamination of the Motives and Gains in

Joint Ventures,” Journal of Financial and Quantitative Analysis 35, March 2000, pp. 67-85.

McConnell, John J., and Timothy J. Nantell, "Corporate Combinations and Common Stock Returns: The Case of Joint Ventures," Journal of Finance, 40, June 1985, pp. 519-536.

Nanda, Ashish, and Peter J. Williamson, "Use Joint Ventures to Ease the Pain of Restructuring," Harvard Business Review, 73, November-December 1995, pp. 119-128.

Robinson, David T., “Strategic Alliances and the Boundaries of the Firm,” working paper, Columbia University, May 2002.

Weston, J. Fred, "The GM-Toyota Vows: A Reply to the Critics," Across the Board, The Conference Board Magazine, 21, March 1984, pp. 3-6.

Chapter 15 ESOPs and MLPs

Beatty, Anne, "An Empirical Analysis of the Corporate Control, Tax and Incentive Motivations for Adopting Leveraged Employee Stock Ownership Plans," Managerial and Decision Economics, 15, 1994, pp. 299-315.

_____, "The Cash Flow and Informational Effects of Employee Stock Ownership Plans," Journal of Financial Economics, 38, June 1995, pp. 211-240.

Bernstein, Aaron, "Why ESOP Deals Have Slowed to a Crawl," Business Week, March 18, 1996, pp. 101-102.

Chaplinsky, Susan, and Greg Niehaus, "The Role of ESOPs in Takeover Contests," Journal of Finance, 49, September 1994, pp. 1451-1470.

Conte, Michael A., Joseph Blasi, Douglas Kruse, and Rama Jampani, "Financial Returns of Public ESOP Companies: Investor Effects vs. Manager Effects," Financial Analysts Journal, 52, July/August 1996, pp. 51-61.

Scholes, Myron S., and Mark A. Wolfson, Taxes and Business Strategy: A Planning Approach, Englewood Cliffs, NJ: Prentice Hall, 1992.

Chapter 16 Going Private and Leveraged Buyouts

Altman, Edward I., "Measuring Corporate Bond Mortality and Performance," Journal of Finance, 44, September 1989, pp. 909-922.

Kaplan, Steven, "The Effects of Management Buyouts on Operating Performance and Value," Journal of Financial Economics, 24, 1989, pp. 217-254.

Lehn, Kenneth, Jeffry Netter, and Annette Poulsen, “Consolidating Corporate Control: Dual-class Recapitalizations versus Leveraged Buyouts,” Journal of Financial Economics 27, 1990, 557-580.


Full file at http://testbanksinstant.eu/ Solution-Manual-for-Takeovers-Restructuring-and-Corporate-Governance-4E---Weston--Muscarella, C. J., and M. R. Vetsuypens, "Efficiency and Organizational Structure: A

Study of Reverse LBO's," Journal of Finance, 45, December 1990, pp. 1389-1413.

Ruback, Richard S., “Capital Cash Flows: A Simple Approach to Valuing Risky Cash Flows,” Financial Management 31, Summer 2002, pp. 85-103.

Chapter 17 International Takeovers and Restructuring

Aktas, Nihat, Eric de Bodt, and Richard Roll, “Market Response to European Regulation of Business Combinations,” working paper, UCLA, January 2002.

Doukas, John, and Nickolaos G. Travlos, "The Effect of Corporate Multinationalism on Shareholders' Wealth: Evidence from International Acquisitions," Journal of Finance, 43, December 1988, pp. 1161-1175.

Franks, Julian R., Robert S. Harris, and Colin Mayer, “Means of Payment in Takeovers: Results for the United Kingdom and the United States,” Chapter 8 in Alan J. Auerbach, ed., Corporate Takeovers: Causes and Consequences Chicago: University of Chicago Press, 1988.

Mulherin, J. Harold, Jeffry M. Netter, and Michael Stegemoller, “Privatization and the Market for Corporate Control,” working paper, Claremont McKenna College, October 2001.

Shaughnessy, Haydn, "International Joint Ventures: Managing Successful Collaborations," Long Range Planning, 28(3), June 1995, pp. 10-17.

Chapter 18 Share Repurchases

Bagwell, Laurie Simon, "Dutch Auction Repurchases: An Analysis of Shareholder Heterogeneity," Journal of Finance, 47, March 1992, pp. 71-105.

Comment, Robert, and Gregg A. Jarrell, "The Relative Signalling Power of Dutch-Auction and Fixed-Price Self-Tender Offers and Open-Market Share Repurchases," Journal of Finance, 46, September 1991, pp. 1243-1271.

Dann, Larry Y., “Common Stock Repurchases: An Analysis of Returns to Bondholders and Stockholders,” Journal of Financial Economics 9, 1981, pp. 113-138.

Dittmar, Amy K., “Why Do Firms Repurchase Stock?” Journal of Business 73, July 2000, pp. 321-356.

Ikenberry, David, Josef Lakonishok, and Theo Vermaelen, "Market Underreaction to Open Market Share Repurchases," Journal of Financial Economics, 39, October-November 1995, pp. 181-208.

Kahle, Kathleen M., “When a Buyback Isn’t a Buyback: Open Market Repurchases and Employee Options,” Journal of Financial Economics 63, February 2002, pp. 235-261.


Full file at http://testbanksinstant.eu/ Solution-Manual-for-Takeovers-Restructuring-and-Corporate-Governance-4E---Weston--Chapter 19 Takeover Defenses

Comment, Robert, and G. William Schwert, "Poison or Placebo? Evidence on the Deterrence and Wealth Effects of Modern Antitakeover Measures," Journal of Financial Economics, 39, 1995, pp. 3-43.

Field, Laura Casares, and Jonathan M. Karpoff, “Takeover Defenses of IPO Firms,” Journal of Finance 57, October 2002, pp. 1857-1889.

Meulbroek, Lisa K, Mark L. Mitchell, J. Harold Mulherin, Jeffry M. Netter, and Annette B. Poulsen, “Shark Repellents and managerial Myopia: An Empirical Test,” Journal of Political Economy 98, October 1990, pp. 1108-1117.

Mogavero, Damian J., and Michael F. Toyne, "The Impact of Golden Parachutes on Fortune 500 Stock Returns: A Reexamination of the Evidence," Quarterly Journal of Business and Economics, 34, 1995, pp. 30-38.

Ryngaert, Michael, "The Effect of Poison Pill Securities on Shareholder Wealth," Journal of Financial Economics, 20, 1988, pp. 377-417.

Chapter 20 Corporate Governance and Performance

Agrawal, Anup, Jeffrey F. Jaffe, and Jonathan M. Karpoff, “Management Turnover and Governance Changes Following the Revelation of Fraud,” Journal of Law and Economics 42, April 1999, pp. 309-342.

Garvey, Gerald T., and Peter L. Swan, “The Economics of Corporate Governance: Beyond the Marshallian Firm,” Journal of Corporate Finance 1, 1994, pp. 139-174.

Jensen, Michael C., and Kevin J. Murphy, "Performance Pay and Top-Management Incentives," Journal of Political Economy, 98, April 1990, pp. 225-264.

Kaplan, Steven N., "Top Executive Rewards and Firm Performance: A Comparison of Japan and the United States," Journal of Political Economy, 102, June 1994, pp. 510-546.

Mulherin, J. Harold, and Annette B. Poulsen, “Proxy Contests and Corporate Change: Implications for Shareholder Wealth,” Journal of Financial Economics 47, March 1998, pp. 279-313.

Chapter 21 Merger Arbitrage

Mitchell, Mark L., and Jeffry M. Netter, “Triggering the 1987 Stock Market Crash: Antitakeover Provisions in the House Ways and Means Tax Bill?” Journal of Financial Economics 24, September 1989, pp. 37-68.

Mitchell, Mark, and Todd Pulvino, “Characteristics of Risk and Return in Risk Arbitrage,” Journal of Finance 56, December 2001, pp. 2135-2175.

Mitchell, Mark, Todd Pulvino, and Erik Stafford, “Limited Arbitrage in Equity Markets,” Journal of Finance 57, April 2002, pp. 551-584.



Mitchell, Mark, Todd Pulvino, and Erik Stafford, “Price Pressure Around Mergers,” Journal of Finance (forthcoming).

Chapter 22 Implementation and Management Guides for M&A

Baker, George P., "Beatrice: A Study in the Creation and Destruction of Value," Journal of Finance, 47, July 1992, pp. 1081-1119.

Donaldson, Gordon, "Voluntary Restructuring: The Case of General Mills," Journal of Financial Economics, 27, 1990, pp. 117-141.

Fuller, Kathleen, Jeffry Netter, and Mike Stegemoller, “What Do Returns to Acquiring Firms Tell Us? Evidence from Firms that Make Many Acquisitions,” Journal of Finance 57, August 2002, pp. 1763-1793.

Moeller, Sara B., Frederik P. Schlingemann, and Rene M. Stulz, “Do Shareholders of Acquiring Firms Gain from Acquisitions?” working paper, National Bureau of Economic Research, February 2003.



Illustrative Projects

Case Study

Gathering Data and Other Information

1. Hopefully, the date of the event will be given to you along with the companies involved. From this point, look in the Wall Street Journal Index to get the details of the event. Read over these and if any entries look to be particularly important read the original article. You could also refer to electronic news databases such as Factiva and LexisNexis, or to merger databases such as Mergerstat and SDC.

Often these articles will be very informative in giving you the reasons for the transaction, analysts and market reaction, etc. YOU WANT TO LOOK FOR THE BUSINESS ECONOMICS REASONS FOR THE TRANSACTION IN PARTICULAR.

Xerox the article if it is of particular interest.

2. Library information and the World Wide Web provide a wealth of resources useful for evaluating M&A's. As the Web is always changing, the following is only a barest outline of the extent of information available on-line.

SEC — the EDGAR database provides corporate financial filings that include information on firm M&A activity. (www.sec.gov)

Company web sites — provide information of varying quality. You can search for them using any search service such as Yahoo or Google.

For general finance related links try search services such as Yahoo or Google. Also useful is Ohio State University's Fisher College of Business finance web site:www.cob.ohio-state.edu/dept/fin

3. Periodical and journal articles are other sources of information. Use a time frame that surrounds and includes the event date, which you should have found in the Wall Street Journal Index. We use the Fortune, Forbes, and Business Week issues. Forbes has a helpful Index of Companies at the end of every issue; it gives the page numbers for every firm mentioned in that particular issue.

Xerox an article if it contains a wealth of insightful information. IMPORTANT: XEROX AN ARTICLE IF IT CONTAINS MANAGEMENT'S EXPLANATION OF THE MOTIVES BEHIND THE TRANSACTION. Magazine articles tend to provide a broader overview of the particular event. Unfortunately, small companies get little space or coverage. This is true of the Wall Street Journal as well.

4. After you have gathered your data, read over all the information. Your next step is to write an outline reflecting all the important issues involved.



5. Include motivations, analysts and market reactions, expectations of all companies involved, the way the deal was financed and the effect it had on the financial statements (do spreadsheet analysis), industry trends if applicable, state of the U.S. economy, initial changes after the event (such as layoffs, divestitures, changes in top management) and the final outcome of the event. Debt levels often play an important role, so be sure to study the debt to equity ratios, especially in LBOs. Try to get current information on how the company is doing and whether time has shown the event to be good or harmful to the company.

6. You can obtain financial information for spreadsheet analysis from the following sources: Compustat, Disclosure, Mergent, Company Annual Reports and SEC filings.

7. In takeover battles, include the defensive actions of the target and the responses of the potential acquirer. Was the offer friendly? Was it a tender offer or a share exchange? How big were the companies in relation to each other? Had they recently been performing well or poorly? Why? Was the target management determined to stay independent at any cost? Was the target management team highly regarded? Were there takeover rumors prior to the initial announcement? How high a premium did the acquirer offer?

8. In LBOs and leveraged recapitalizations, show why the firm made a good or bad candidate for a leveraged buyout. Did the firm stay private? How did the firm pay down the debt? How did the debt level affect operations and competitive position?

9. In bankruptcies, try to identify the factors that led to the bankruptcy. Also, explain how bankruptcy affected the firm and if the firm ever emerged from bankruptcy.

10. In proxy fights, answer these questions: What was the fight about? How did the small shareholders feel versus the large institutional shareholders? Was management confident of a victory? How close was the vote? What was the percentage of institutional ownership? If management won the proxy fight, did their behavior change? If the challengers won, were they able to make the changes they desired?

11. In cases of greenmail, was the greenmailer known for greenmailing or did he genuinely wish to take over the company? Had the company paid greenmail before? Was a standstill agreement signed? Did the payment of greenmail attract other greenmailers and potential acquirers? Did the company change after being greenmailed?

12. With ESOPs, describe the terms and origins of the ESOP. Was it defensive? Did it improve productivity? Was it leveraged or unleveraged? How many shares were involved, what percentage of the company? What voting rights do the allocated and unallocated ESOP shares have? Who is the trustee?



13. It is often important to cover the impact of laws and court decisions. Antitakeover laws can play a big role. Mention why the court ruled the way it did and how it affected the battle.

14. There is no set formula for dealing with such a broad array of cases. You may discover that in complex cases, many of the issues will arise. A company may be taken over in a hostile takeover although management is considering an LBO or leveraged recapitalization, debt may be too high, the company files for bankruptcy and reorganizes. It is up to you to read and decide what is important in your case study.

15. It is ideal to xerox AT LEAST two key sources of information. I find it most helpful to have one source during the event, one after, and an evaluation.

Suggestions for Class Presentation of Case

1. Make a 1-3 page outline of the main ideas that you are covering. Try to select material to relate to the principles or generalizations that were presented in the lecture materials. Our office will help you duplicate copies for distribution.

2. Prepare overheads for use on the projector. Be sure the print is large enough to be read from the back of the room.

3. In your presentation, try to make the material interesting. Remember that everyone in the class is very bright and you can move along pretty fast. For some of the material, just say it is in your handout that you can read and we will skip to the next segment of substantive material.

4. If we run short of time, please don't be offended if you have to stop part way through your presentation. Keep that in mind in preparing your outline materials. If there is not time to cover it in class, it should still be useful as a part of the notes for the rest of the class.

5. For any of the materials we supply you, be sure to return them on the day that you make your presentation.

Case Write-ups and Solution Write-Ups

The write-up should be at least one or two pages long but not longer than four to six pages, unless it is an exceeding complex case. Two to three pages is about the average length, but of course, this varies with the complexity of the event and the amount of information available.

Different formats can be used. Some can be like the relatively short end-of-chapter case studies; include questions, and supply your answers (solutions) on a separate page.



Some case analyses will be long and extended — a model is Chapter 10 in the Text which is a write-up of the acquisition of Mobil by Exxon.

Use multiple valuation methods when relevant. If spreadsheets are used — show what growth rates are reflected in the historical data and projections or forecasts.


Full file at http://testbanksinstant.eu/ Solution-Manual-for-Takeovers-Restructuring-and-Corporate-Governance-4E---Weston--Industry Takeover Study

Many unresolved issues of takeover theory might effectively be addressed by studies of individual industries. Some research questions: Is the role of takeovers or external sources versus growth from internal sources similar for each of the major firms in the industry? Can you separate internal and external growth or are the strategies involved such that they're really complementary or interdependent? What percentage of the current size measured by the market value of equity is explained by the market value of acquisitions less divestitures? Is this similar or different among companies? For example, for the food industry one could compare the strategies of a company like Kellogg which has specialized in ready-to-eat cereals with General Mills with diversified food products. Why did a company like Quaker Oats get heavily into toys? Some food companies are making strenuous efforts to go international. What synergies, if any, do they achieve?

There are good opportunities for event studies. A longstanding issue is whether mergers are for efficiency or collusion. What happens to the price of the stock of rivals when a major merger takes place? What are the multiple possibilities when the prices of rivals go up or when they go down? Another hypothesis is that if the merger or takeover is between two firms in the same industry, what information effects does this have? Does a conglomerate merger imply that growth opportunities for the industry as a whole are not favorable or just for the individual firms acquiring outside the industry?

Do the event returns to bidders or targets vary across individual takeovers? What variables appear to explain (through multiple regression analysis) the size of premiums to bidders and targets? Are some firms better bidders than others? Can data be assembled that distinguishes between good bidders and bad bidders? Do bad bidders subsequently get taken over themselves as Mitchell and Lehn, JPE, 1990, pp. 372-98? Could objective criteria be developed for identifying good bidders?

Event studies can also be used to test the issue from the strategy literature on whether related versus unrelated diversification is better. Previous studies have analyzed the event returns associated with core versus noncore acquisitions and divestitures. As an example, see Donaldson's study of General Mills and the Weston, et al., study of the food industry.

When we compare the event returns for some 40-50 acquisitions in this one industry, is there large or small variation among returns to bidders and targets? Could differences across takeovers be explained in rigorous statistical tests?

The above is a sample of issues and aspects that could be studied. The start should be a fundamental economic analysis of the industry. This should be followed by a consideration of the broad ranges of strategy choices available to a company in the industry. To what extent has the takeover rate in the industry paralleled the takeover rate for the economy?



Your study should seek to review and apply all topics covered in the course. In this sense, your term project becomes a final exam which reviews all of the subject matter of the course. These would include: strategic choices, forms of acquisitions, valuation, postmerger performance, financing strategies, spinoffs and divestitures, disappearances of some companies, joint ventures, ESOPs, share repurchases, and restructuring.

Deserving special mention is the international dimensions. How has the company responded to global competition? What has been its strategies for the use of international markets? To what extent have international acquisitions and divestitures taken place?

Choose 4-5 companies for in-depth study analysis and write-ups. You can use these companies to apply all of your valuation studies including different methods of valuation. Draw some conclusions. Which companies seem to have followed the best strategy and execution? Rank the companies in terms of performance and prospects. Does one company appear to be consistently better than the others? What is the source of its superiority?

This term project should develop some general skills that can be applied in a number of other parts of your study program as well.



SIGN-UP SHEET

Illustrative Industries For Use in Term Projects

Industry Student Names

Aircraft and Defense ________________________________________

Airlines ________________________________________

Automobiles ________________________________________

Beer ________________________________________

Bio-Technology ________________________________________

Broadcasting ________________________________________

Chemicals ________________________________________

Commercial Banks ________________________________________

Computers ________________________________________

Distilled Liquors ________________________________________

Electronic Components ________________________________________

Gaming ________________________________________

Grocery Chains ________________________________________

Home Building ________________________________________

Machine Tools ________________________________________

Measuring and Control Instruments ________________________________________

Newspapers ________________________________________

Office Equipment ________________________________________

Paper ________________________________________

Pharmaceuticals ________________________________________

Railroads ________________________________________

Steel ________________________________________

Telecommunications ________________________________________

Tires ________________________________________

Toys ________________________________________


Full file at http://testbanksinstant.eu/ Solution-Manual-for-Takeovers-Restructuring-and-Corporate-Governance-4E---Weston--Case Study: Oil and Gas Industry

The term report this quarter will be centered on companies in the oil and gas industry. There are several reasons for studying this industry.

1. Energy costs and availability have a major impact on cost structures and productivity performance.

2. It is a global industry.

3. Issues of the interaction between the energy economy and the planet's ecological and environmental systems.

4. In the development of some central new propositions in finance theory, the oil and gas industry has been used as the primary case study source of evidence.

a. Because of substantial free cash flows, oil companies have wasted shareholders' money by continuing to invest in unproductive exploration.

b. Cash flows have been wasted in unsound attempts at diversification. c. Only some oil companies have restructured and returned cash to shareholders.

5. Some broader issues are involved. Should companies in exhausting natural resource or more generally exhausting opportunities industries plan an orderly downsizing and liquidation over future years? Have the oil companies lagged in utilizing the new learning on business reengineering, corporate restructuring, and organization renewal?

The study of individual companies in the oil and gas industry will, therefore, enable us to improve our knowledge about some fundamental issues of finance and business economics — strategy.

The first part of your paper should be your formulation of the economic setting of the oil and gas industry in which your company operates. This is the same methodology that would be used for any industry study. It is expected that this experience will generalize the study of other industries and the companies in them. After a discussion of the important characteristics of the industry as a background, perform an in-depth study of one company that you select. Try to use your study of the individual company as a case study for testing the main propositions developed and topics covered in this course. This would include but not be limited to the following:

A. Analyze the role of external acquisitions versus voluntary internal restructuring over your company's post-WWII history.



B. Financial Aspects of Acquisitions — Analyze at least two major acquisitions for your company.

C. Event Returns from Major Takeovers — For at least two major takeovers include an event study. Calculate the impact of the acquisition or divestiture or unsuccessful takeover attempt in both percentage and absolute dollar amounts. For your event windows, use daily data for(1) -30 to +10 days,(2) -2 to +2 days,(3) -6 months to +1 month, and(4) -1 month to +1 month.

Instructions for calculating the event returns will be provided during the course.

D. Role of Acquisitions in Long-Term Performance1. Did the company appear to have a program of acquisitions?2. Did acquisitions play an important role in the strategy, growth and

development of the company?3. Did the company move away from its initial basic core activities into new

ones?4. Were the new activities related? If so, in what ways?5. Did movement into the new areas take place by internal programs or by

external acquisitions?

E. Use of Other Forms of Restructuring Strategies1. Joint ventures, strategic alliances2. ESOPs3. Share repurchases4. Security exchanges5. Takeover defenses

F. Include as a part of your term report the comparative valuation analysis you performed in connection with Topics 6 and 7 of the course.

G. Performance MeasurementMeasure the impact of long-term strategies on the performance of the company. For performance measures:1. Accounting returns as described in HPR2. Market measures such as the returns to shareholders3. Others?4. Benchmarks?

H. Performance Appraisal, Evaluation and Recommendations

1. Has the firm performed well for its shareholders from a long-term perspective?



2. Have the M&A activities of the firm had a positive or negative effect on the firm's long-term position in its product market areas?

3. With the benefit of hindsight, did the firm make mistakes with its major strategies and investment thrusts (both internal and external)?

I. Looking Ahead

1. Has the firm positioned itself wisely in relation to its industry for sound future strategic planning?

2. What are some major changes in strategic decisions and directions that the firm could make to improve its current performance and prospects?

J. Tests of Theories

1. Has the company used its cash flows wisely?2. Did the company engage in unsound diversification efforts?3. Did the company engage in the types of financial restructuring that enhance

value for its stakeholders?4. Should the company have made more aggressive use of debt?

K. Data Sources

Many data and other information sources are available. You should cite your sources in the text and provide a bibliography of sources of information. Some illustrative sources are:

Books written on the industry or companiesTrade association publications on the industryBrokerage house reports on the industry or companyStandard & Poor's Industry SurveysVarious guides to business and other periodicals which contain stories on the

industry and companiesPamphletsWall Street Journal Index — stories on the merger or tender offerCompustatAnnual reportsMergent Investment Manuals10-K reportsValue LineGovernment reports such as Department of Commerce annual Industry OutlookDirect correspondence or telephone callsProspectuses issued in connection with mergers or tender offersLexisNexis and Factiva information sourcesInternet



Illustrative Company Sign-Up Sheet – Oil and Gas Industry

Company Student Names

ChevronTexaco ________________________________________

ConocoPhillips ________________________________________

Occidental ________________________________________

Marathon ________________________________________

Amerada Hess ________________________________________

Murphy ________________________________________

BP PLC ________________________________________

Royal Dutch ________________________________________

Total Fina Elf ________________________________________

Ashland ________________________________________

Repsol YPF ________________________________________

Apache ________________________________________

Devon Energy ________________________________________

Burlington Resources ________________________________________

Halliburton ________________________________________

Unocal ________________________________________

Anadarko ________________________________________

Marathon ________________________________________

Sunoco ________________________________________

El Paso Corporation ________________________________________

Kerr-McGee ________________________________________

Newfield Exploration ________________________________________


Full file at http://testbanksinstant.eu/ Solution-Manual-for-Takeovers-Restructuring-and-Corporate-Governance-4E---Weston--Case Study: Evaluation of Recent Merger

This term project is an analysis of an actual merger. Your report should include the following aspects:

A. The business-economic setting1. What were trends in the economy?2. What were trends in each industry?3. What motivated each firm from a business-financial standpoint?

B. The terms of the transaction1. How large was the premium paid to the target?2. What was the initial market reaction for the bidder and for the target?3. What had been the historical trends in the key financial ratios for each of the firms?4. What was the magnitude of the value drivers?5. How does the price paid compare with your valuation (with the benefit of hindsight)?

C. Setting for the analysis1. How did this particular acquisition fit into the broad strategy of the acquiring

firm?2. Did the firm engage in other significant M&A activity?3. Did the firm make any substantial thrusts in investment activity by methods other

than M&A activity?4. Compare the returns to shareholders in the firm before and after major strategic

events in relation to returns to the S&P 500 over the same time segments.

D. Postmerger performance1. How did the economy and industry perform subsequent to the merger?2. How did the firm perform at the merger measured by return to shareholders in

subsequent years (capital gains plus dividend returns)a. unadjusted?b. adjusted for a broad market index?c. adjusted for a market index for the industry?

3. How did the firm perform using accounting measures?

E. Evaluation and prognosis1. Has the firm performed well for its shareholders from a long-term perspective?2. Have the M&A activities of the firm had a positive or negative effect on the firm's

long-term position in its product market areas?3. With the benefit of hindsight, did the firm make some mistakes with its major

investment thrusts (both internal and external)?4. What are some major changes in strategic decisions and directions that the firm

could have made to improve its current performance and prospects?



Illustrative Sign-Up Sheet for Merger Evaluation Case Study

Acquiring Company/Acquired Company Student Names

AIG/American General Corp ________________________

America Online Inc/Time Warner ________________________

Amgen Inc/Immunex Corp ________________________

Bell Atlantic Corp/GTE Corp ________________________

Chase Manhattan Corp/JP Morgan & Co Inc ________________________

Chevron Corp/Texaco Inc ________________________

Comcast Corp/AT&T Broadband ________________________

Credit Suisse First Boston/Donaldson Lufkin & Jenrette ________________________

El Paso Energy Corp/Coastal Corp ________________________

First Union Corp /Wachovia Corp ________________________

Firstar Corp/US Bancorp ________________________

Glaxo Wellcome PLC/SmithKline Beecham PLC ________________________

Hewlett-Packard Co/Compaq Computer Corp ________________________

JDS Uniphase Corp/SDL Inc ________________________

NationsBank Corp/BankAmerica Corp ________________________

Norwest Corp/Wells Fargo & Co ________________________

PepsiCo Inc/Quaker Oats Co ________________________

Pfizer Inc/Pharmacia Corp ________________________

Pfizer Inc/Warner-Lambert Co. ________________________

Phillips Petroleum Co Inc/Conoco Inc ________________________

UBS AG/PaineWebber Group Inc ________________________

Veritas Software Corp/Seagate Technology Inc ________________________

Viacom Inc/CBS Corp ________________________

Viacom Inc/Infinity Broadcasting Corp ________________________

Vivendi SA/Seagram Co Ltd ________________________

Vodafone Group PLC/AirTouch Communications Inc ________________________


Full file at http://testbanksinstant.eu/ Solution-Manual-for-Takeovers-Restructuring-and-Corporate-Governance-4E---Weston--Investment Banker Presentation

Here is another idea that is interesting. Sometimes on a deal that has just been completed, one of the top executives of one of the firms or investment banker or lawyer involved will be willing to make a presentation to the class describing the transaction.


Documents

Takeovers, Restructuring and Corporate Governancetestbanksinstant.eu/samples/Solution Manual for Takeovers... · Web viewSyllabus: Takeovers, Restructuring, and Corporate Governance