M&A Class Memorandum #4 – 2/13/03
I received several comments about Jon Ledecky’s presentation in class on Monday night. This was the first time that I had asked him to participate in class and apparently it was quite successful. Be sure to save your notes and impressions regarding USOP as I plan to open our next class on February 24th with a brief discussion of lessons learned from the case – as amplified by Jon.
The second part of class will be a presentation by John Malvisi of Deloitte & Touche LLP and one of his tax partners to update you on current fundamentals and issues of tax and accounting relative to structuring transactions. You will find a brief, basic overview of tax issues in Chapter 15 of the Gaughan textbook. Note that the syllabus also cites Chapter 3 (Legal Framework) of Gaughan for the same class. However, some of that material is summarized in the Notes for Session Two and will be discussed at Session Five on March 3rd and not on February 24th.
The final part of our next class will be a class discussion of the “PepsiCo’s Bid for Quaker Oats” case. Our course is anchored by readings, lectures, guest appearances by M&A leaders and specialists and case analysis and discussion. The three cases were selected as “real world” insights into problems and problem-solving decisions. I think that you will really benefit from developing your points of view on these cases and sharing them with the class and your study group.
I have reconciled the Gaughan textbook references in the syllabus (which refers to his 2001 book for NYU Stern) with the 2002 book available at the bookstore. The books are virtually identical; however the page numbers do not quite match. Only the assignments for Session Three are affected and the correct references for the 2002 edition are: Chapters 4(pp. 142-144;12(pp. 468-474);13(pp. 534-542);14.
On Monday, I talked briefly about the exchange ratio and dilution. These topics appear in Gaughan on pp. 534-542 (2002 edition) and on pp. 533-539 (2001 edition). Since the syllabus does not reference this material, I suggest that you add it as understanding how dilution is calculated will be useful.
The final version of “Notes for Session Three” is attached to the transmittal letter for this Memorandum and is being posted to the class website. Note that on “Common Valuation Methods” I have expanded the multiple alternative to capitalizing residual cash flows by suggesting that the multiple is not limited to the P/E multiple.
Finally, if you have any specific question(s) for Mike Bonsignore, CEO of Honeywell who oversaw the 1999 merger with AlliedSignal and the aborted merger with General Electric, please let me know and I will forward them to Mike who will be our guest on March 10th.
Enjoy the long weekend; I look forward to seeing you on the 24th.
CHM