International Business School - Fall 2015

Fall 2015 M&A Analysis Toth

Brandeis University,

International Business School - Fall 2015

K. Tibor Toth, CAIA Mergers & Acquisitions Analysis
e-mail: Finance 232a

(508) 808-1937 (cell) Lee Hall

Classes: Thursday 6:30-9:20 p.m.

Office hours: after or before class, or by appointment

Teaching Assistant:

Course description: Merger and acquisition (M&A) activity moves with global markets, financial liquidity and the outlook for individual countries / industries / companies. Mergers have been a very important part of company growth over the past three decades; domestically, overseas, and across markets. The study of M&A involves a complex set of accounting, legal, operational, governance, competitive / economic issues. The implementation of the new company strategy drives the assumptions behind the value and deal negotiation. We will therefore start with the big picture and dig into the details.

The BIG Questions are: Why do companies engage in M&A activities? Does M&A add value? How do companies improve the success of their M&A activities?

Many transactions do NOT work well, or Add Value! WHY?

This course reviews some of the core concepts involved in mergers and acquisitions: valuation, negotiation, deal structuring, corporate strategy, financing, to name but a few of the topics. The class will be built around lectures, readings, and cases. As a thirteen-week course we will touch on most of the salient issues in M&A, but we will not go into depth on any one topic. This class is an introduction to Mergers and Acquisitions. Thus readings and cases are assigned for their own pedagogical value and as a resource for additional reference.

Merger analysis and paper:

The class will conclude with an M&A project analysis / paper where teams of four to five
(4-5) students will analyze a current merger / acquisition transaction. The time frame and pressure for most M&A analysis is very tight, as is the time to prepare your M&A paper. Investors and the market have to decide very quickly whether an M&A transaction makes sense and if the terms are reasonable – a couple days, a week, maybe a month. In this class, therefore, M&A teams will have a couple weeks to prepare their presentations and paper.

Students will present their analysis during the final two classes at the end of the semester (after Thanksgiving). We will analyze no more than 9 current M&A transactions in four/five industries, so students must choose their groups and plan their time carefully. After mid-terms (end of October / November) students will review the industry strategy of the M&A companies and the profit model with me outside of class in a short 15 slide discussion. At the end of the semester, students will make a short presentation (20 minutes, 20 slides) and discuss their preliminary evaluation of the merger with the class.

Pre-requisites:

This is an advanced level finance course (second year). Students should have completed all of the first year requirements: accounting (fin 212) and finance, particularly Fin 202a International Corporate Finance with its basic valuation concepts. Ideally students have been exposed to some corporate strategy and marketing courses. Students are also expected to be familiar with Excel (or other spreadsheets) and the basic tools of valuation.

This course assumes a sophisticated level of knowledge. Please talk to me if you feel uneasy. Enrollment is limited to forty-five (45) students since this is a discussion class.

Course material:

Recommended background text

Weston, Mitchell, and Mulherin, Takeovers, Restructuring and Corporate Governance, Prentice Hall, 4th Edition. (You can purchase or rent used copies through Amazon). We will review selected material in class as background.

Required Course Packet at HBS with online instructions.
Mergers and Acquisitions Analysis, HBS

You need to register on the site to create a user name if you do not already have one. Once you have registered, you can log in to see the course materials. You will have access to these materials for 6 months.

After you register, you can get to the course again by doing the following:

1. Visit hbsp.harvard.edu and log in.
2. Click My Courses, and then click this course name: Mergers and Acquisitions Analysis

For technical assistance, please contact Harvard Business Publishing Customer Service at 1-800-810-8858 or 617-783-7700 from 8am-8pm EST. .

Course structure / requirements:
Class sessions will be devoted to a discussion of the readings, lecture (short), case discussion, and review of the M&A concepts. It is expected that each student will come prepared to class ready to discuss the readings and the case.

THINKING critically is very important. Ask the dumb questions, Again and Again!

The focus / Learning Objectives of the class are:

1.  strategy, how you make money (profit models), business segments trends, customer markets, key competitors, and assumptions behind the financial cash flow forecasts,

2.  negotiations and the details of the deal structure,

3.  financial forecasts, and value creation or destruction….and scenarios.

Finally, since we know that many M&A transactions do not add value or fail, “What could go wrong?”

General guidelines and structure of class:

Lecture and readings: The purpose of the lectures and readings in the course is to provide students with theories, tools, and concepts that are used in the practice of finance. The readings for each class are assigned for their relevance to the case under discussion. While the readings are relevant to the class, they are background materials. I will try to summarize the main points of the readings, particularly the HBS notes/articles.

Textbook / readings: The chapter assignments are for recommended background and a basic review of M &A theory and applications that I will review quickly in class. The required readings (HBS articles) will be discussed in class and are part of your reference material.

Cases: I will usually start each case discussion by asking a student or group to Open the discussion. M&A students will be expected to clarify the big issues and arguments made in the case. We will discuss some of the cases in DEPTH (numbers, assumptions, forecasts, profit model) and other cases we will talk about the big STRATEGIC issues / value assumptions. What is happening and what do you believe?

The goal for each class is to (1) understand the issues raised in the case and the associated readings – generally this will involve digging into the numbers, but sometimes we may just discuss company strategy / industry trends and (2) achieve active involvement / participation by most of the students in the case discussion. The class will probably have small break out groups in class and/or role plays. There will be a lot of interaction in our case discussions.

Case discussion questions are on the syllabus. These questions are designed to stimulate your thinking rather than structure or limit your analysis of each case. The case discussion is structured to stimulate your thinking and familiarize you with the basic tools of finance, and not necessarily to give you the right answer.

Quizzes: During the semester there will be two (2) short take home quizzes to make sure that we are keeping up with the material. I will use google docs to continue our online discussion that are part of the class discussion / participation.

Merger and Acquisition papers and presentations: The major project for the class is a merger and acquisition analysis and paper in one of four / five selected industries – we will look at least two mergers in each selected industry. Students will first form groups
(4-5 students) to analyze a current transaction (M&A) from public information.

At the end of the semester, students are expected to prepare a fifteen to twenty page
(15-20 pages) analysis of a public merger and acquisition (with financial exhibits and forecasts). Students will also present their findings to the class (short 20 minute presentation). Essentially, students will analyze the logic of the transaction: the economics, the profit model, the strategy, and the value of the combined firm of the company.
Prior to the final M&A paper student groups will prepare an industry strategy discussion (10 power point slides) that they will review with me and out TA after the midterms (end of October) and then student groups will make short presentations to class before Thanksgiving (10 minutes each M&A group). This will give everyone a chance to review the details of competitive strategy, the outlook for the industry and key assumptions behind the merger before the final paper.

To evaluate the merger and potential value (price) students will have to forecast the combined company’s performance over the next five years, assess its relative performance in comparison to others, and evaluate the present market valuation of each company separately and combined. Finally, groups will recommend whether an investment in the combined company makes sense (buy, sell, hold).

Class participation: Regular preparation of assigned readings, class attendance, and active participation in class discussions are required. I will also use some interactive google docs case assignment to keep students actively engaged in the case discussion/questions. Students who are unable to attend class for any reason are expected to call or notify me of their absence prior to the class.

Guest speakers: I will be inviting various M&A professionals (corporate development professionals, investment bankers, private equity investors, etc.) to give short presentations on relevant topics or experiences throughout the semester. The schedule will evolve over the course of the semester and additional background readings or research will be assigned to prepare for these presentations.

Group work policy: The case write-ups (and google docs participation) and papers are to be done individually and in groups of 4 or 5 students. Groups should be formed at the beginning of the semester and stay constant throughout, except in special circumstances. If someone is not participating in the group discuss it with them, and me (if necessary). Try to have a group that has a good mix of talents, experiences, perspectives, etc., and those who can meet / communicate regularly and conveniently. Convenience and capacity are important to team makeup.
At the end of semester, I will ask each group member to evaluate the group and each member of the group. This means that those who do extra work in the group or are free riders are likely to be noted by other members of the group. Grades will be adjusted.

Schedule of Assignments:

Class 2 Sept 3 Case Write-Up 1 (individual): Pabst

Class 3 Sept 17 Case Write-Up 2 (group): Mercury & InBev

Class 4/5 Sept 24/Oct 1 Quiz 1, take home (individual)

Class 7 Oct 15 Case Write-Up 3 (group): Kinder Morgan

Class 8/9 Oct 22/29 Quiz 2, take home (individual)

Class 8/9 Oct 22/29 in-class negotiation role-play / feedback

Class 10 Nov 5 M&A project synopsis

Class 11/12 Nov 12/19 industry strategy discussions

Class 13/14 Dec 3/10 M&A class presentations in class

Final papers Dec 17 Final papers due, hard copy

Grading:
Course grades will be determined according to the following schedule:

Case write-ups 20%

Quizzes 20%

Class Participation 20%

Company M&A analysis:
- strategy presentation (ppt) 10%
- final presentation / paper 30%

Final note:

Finally, this course is a lot of work, but it can be a good deal of fun if you put in the time, and discuss the fascinating issues / cases that we cover during the semester. There are NO EASY answers which is why M&A is worth the effort.

And remember to read the press because the world is our classroom! Ask questions!!

Academic Integrity:
Academic honesty: You are expected to be honest in all of your academic work. Please consult Brandeis University Rights and Responsibilities for all policies and procedures related to academic integrity. Students may be required to submit work to TurnItIn.com software to verify originality. Allegations of alleged academic dishonesty will be forwarded to the Director of Academic Integrity. Sanctions for academic dishonesty can include failing grades and/or suspension from the university. Citation and research assistance can be found at LTS - Library guides.

Disabilities:

If you are a student with a documented disability on record at Brandeis University and wish to have a reasonable accommodation made for you in this class, please see me immediately.

Fall 2015 M&A Analysis Toth

Class / Date

Thursdays evening

Pabst Brewing Company

Class / Date

Thursdays evening

H.J. Heinz

Class / Date

Thursdays evening

Value, deal terms and value

Class / Date

Thursdays evening

QUIZ 2, take home