The document discusses various aspects of mergers and acquisitions including: 1) Why an M&A advisor must master corporate finance to properly advise clients, deal with legal cases involving valuation, and comply with the duty of care. 2) The different types of acquisition agreements and how they impact ownership status. 3) The key steps in a bidding war for a target company including establishing a motive, choosing a target through due diligence, valuing the target, deciding on a payment method, and determining bidding parameters.

1. Merger and Acquisition-SHAREHOLDER VALUE ADDED
MAXIMIZATION AND ITS LEGAL ASPECTS
Focus on Due diligence and Bidding wars
By
Arthur Mboue
1

2. WHY A M&A ADVISOR MUST MASTER
CORPORATE FINANCE?
• Advising client
– Drafting corporate agreements (projects, contracts, M & A)
– Litigating legal cases where valuation, corporate dissolution, liquidation,
reorganization, projects feasibility and distribution are in court
• Dealing with Delaware judges
– Almost all 5 Delaware corporate judges are versed with both corporate law and
financial expertise
– Mastering of interaction between corporate finance and principles and its legal
principles
• Duty of care compliance
– The burden of proof requires CEO and top Executives as a team including you to
show to the Court that you did seek the best available care (due care) against
fake and overvalued consulting advises
• Dealing with top Executives and consultants
– Must have commonality of Financial interpretations, evaluative processes and
financial transactions
– Reviewing valuation works
– Reviewing bidding prices
– Advising executives on bidding strategies
2

3. When Corporate Finance is on Trial?
• DISAGREEMENTS ABOUT PROJECTS FINANCIAL
FEASIBILITY ANALYSIS (PRIORITY)
• DISAGREEMENTS ABOUT CORPORATE
VALUATION CALCULATION (bidding prices,
appraisal methodology,..)
• ALLEGATIONS OF AGGRESSIVE ACCOUNTING
• DISAGREEMENTS ABOUT REPORTING
METHODOLOGIES
• DISAGREEMENTS ABOUT FORECASTING
3

4. Mergers and the Industry Life Cycle
Industry Life
Cycle Stage Industry Description Motives for Merger Types of Mergers
Pioneering
development
(early).
Surviving their
1st year is their
main concern
 Industry exhibits
substantial
development costs and
has low, but slowly
increasing, sales
growth.
 Younger, smaller companies may sell
themselves to larger companies to mature or
declining industries or look for ways to merge
with big company
 Only opportunity for these manager founders to
either lead a big company or pocket big cash
 Conglomerate
 Horizontal
Rapid
accelerating
growth
 Industry exhibits high
profit margins helped
by low competition
 Explosive growth in sales may require large
capital requirements to expand existing
capacity, deal with backlog and customer
satisfaction.
 Conglomerate
 Horizontal
Mature growth  Industry experiences a
drop caused by the entry
of new competitors, but
growth potential exists
 Mergers may be undertaken to achieve
economies of scale, savings, operational
efficiencies
 More vertical
than horizontal
Stabilization
and market
maturity
 Very competitive
industry and
environment
 Merger focuses on acquisition of smaller co
and competitors for the acquisition of special
research and technical abilities to improve
quality and cut costs. Cross border acquisition
may help, what it needed a high quality product
at low price to compete
 Horizontal
acquisition is
the focus
Deceleration
and flat growth
industry
 Industry faces stable
and declining growth
 Some vertical mergers with foreign ‘accent’ can
improve profit
 Merger with small competitors can keep them
alive or on life support for a longtime
 Horizontal
 Vertical
 Conglomerate
any thing to
survive 4

5. What is Take-over?
• Corporate combination (with subset merger, acquisition, takeover, tender over,…) is a
transaction between two or more corporations with a least one corporation ceasing to
exist as soon as the new corporate entity is registered
• Takeover; A takeover occurs when a bidder acquires a target company with or w/o the
consent of the shareholders of the target company. Takeover processes with the
purchase of shares from shareholders of the target at a specified price including
financial and/or control premium. At the end the bidder/purchaser can get control of
the company agenda including right to appoint its own board of directors as a new
majority owner of the company. This phase is called a tender offer
• There are 2 methods for structuring in which an acquirer seeks to purchase a US public
– A single step merger
– 2 steps merger (tender over and back end)
• Factors influencing the acquirer option of methods include:
– Lead time,
– complexity,
– approval process,
– state of incorporation of the target,
– availability of financing,
– methods of financing,
– motive of acquisition,
– synergies target,
– valuation of the target
5

6. Transaction Characteristics
Form of the
Transaction
• Stock purchase
• Asset purchase
Method of
Payment
• Cash
• Securities
• Combination of cash and securities
Attitude of
Management
• Hostile
• Friendly
• Compliant
6

7. Different Method of Takeovers
• Conglomerate: take over of one company operating in
totally different industries. The main purpose of this
kind of takeover is diversification
• Reverse: reverse takeover is a type of takeover where
private company acquires a public company
• Backflip: backflip is any sort of takeover in which the
acquiring company turns itself into subsidiary of the
purchased company
• Horizontal: a takeover of one company by another
company in the same industry
• Vertical: takeover by one company to supplier,
distributor, of the same industry
7

8. Types of Takeover
• Enactment: Enactment takeovers are governed by specific
laws. It is when the company is legally forced to take-over
another company by law
• Friendly: it is the result of a contractual agreement between a
competent and informed bidder CEO and his group and a
competent and informed target CEO and his group under no
threat and compulsion. The BoD can join directly the
negotiation and accepts the offer
• Hostile: is one in which the CEO and board of the target
attempts to prevent the merger offer from being successful
• Bailout: When a Gov’t or profitable company acquires control
of a financially challenged company with a goal of returning it
to a strong financial position. For instance after 2008 crisis,
company did use governmental tarp funds to finance,
purchase shares and/or exchange shares while following a
governmental dictated rehabilitation plan 8

9. Who Wants what?
• Buyers wants
– No competition
– No competing bid
– Quick transaction
– Access to real data (non
public data)
– Its board wants a low price
and control over the process
– The bidder shareholders
want to minimize the
amount paid to target
shareholders, not paying
more than the pre-merger
value of the target plus the
value of the synergies
• Target wants
– Board chooses buyer
– Board chooses terms of
transactions
– Protection against
shareholders lawsuits
– Its board wants a highest
price offer and control over
the process
– Prefer share payment
– The target shareholders
want to maximize the gain
and accept nothing below
the per-merger market
value
9

10. Interdisciplinary Legal & Business Skills,
Legal Focus
• Corporations
• Contracts
• Tax
• Real Estate
• Labor and Employment
• Employee Benefits
• Intellectual Property
• Antitrust
• Securities
• Environmental
• Uniform Commercial
Code
• Insurance
10

11. Extra Interdisciplinary Legal and Business Skills,
Business Focus
• Managerial and Cost Accounting
• Finance
• Marketing
• Valuation
• Negotiations
• PR
11

12. Clients Expect the Merger and Acquisition
Attorney
• To be a constructive counselor regarding bid,
price and structure of a transaction
• Possess multiple legal and business skills based
upon interdisciplinary education and experience
of many ‘deals’
• Be a facilitator who finds solutions for both the
buyer and seller
• Be a constructive negotiator who creatively
avoids impasse and delay
• Fix all missteps and anger of the pre-merger talks
12

13. 13
Different Types of Acquisition Agreements
Types of agreements Status of Ownership
Investment Agreement
PrivateAsset Purchase Agreement
Stock Purchase Agreement Private/Public
Merger Agreement (one step) Mostly Public
Merger Agreement (with tender offer), two steps Public

14. Method of Payment
• Cash offering
– Cash offering may be cash from existing acquirer balances or from a debt issue.
• Securities offering
– Target shareholders receive shares of common stock, preferred stock, or debt
of the acquirer.
– The exchange ratio determines the number of securities received in exchange
for a share of target stock.
• It is dictated by the market price. Timing is very important
• Factors influencing method of payment:
– Sharing of risk among the acquirer and target shareholders. (mostly shifting risk
from the target to the acquirer)
– Signaling by the acquiring firm to the market analysis.
• Stock exchange is a signal that the bidder is overvalued
– Capital structure of the acquiring firm
– Shareholder value added
14

15. 15
Short Form
Merger
Long Form
Merger
Short Form
Merger
Long Form
Merger
Acquisition
Completed
Acquisition
Completed
Acquisition
Completed
Acquisition
Completed
Acquisition
Completed
Acquisition
Completed
4-8 weeks
< 40 business days
3-5 months
8-10 weeks
5-12 weeks
3-6 months
2-3 months (all cash)
3-4 months (part/all
stock)
1-2 months
Timing
Tender Offer/
Share Exchange
Offer
100% Cash
Part Cash/
Part Stock
 90%
< 90%
(but more than 50%)
 90%
< 90%
(but more than 50%)
Filing of Articles of Merger & squeezing out
Minority
> 50% vote
of all shareholders & squeeze out minority
Filing of Articles of Merger & squeeze out minority
> 50% vote
of all shareholders & squeeze out minority
Merger
(any form of
consideration)
Post Proxy
SEC
Review
No
SEC Review
Post Proxy
> 50% shareholder vote
> 50% shareholder vote
Strategy Leading to the Acquisition of a Public Company
251(H)
Merger
251 (h)
Merger
Tender Offer Back end Merger
Single step Merger

16. Tender Offer vs Merger Timing (100% Cash Transaction of
Delaware Public Companies)
2006 2007 2008 2009 2010 2011 2012 2013 2014
Tener Offer 53 53 48 44 46 50 48 39 53
Merger 92 102 84 86 87 91 79 70 134
0
20
40
60
80
100
120
140
160
Mediannumberofdaystoclose
16

17. 17
Comparative Methods
Issues Tender offer Exchange Offer Long Form Merger
Timing Shorter time to achieve control Maybe shorter time to achieve 100%
ownership
Complexity Less complex than merger if 100%
cash offer
May be less complex than share
exchange offer and ‘back end’ merger if
offer is all or part shares
Documentation Simpler documentation if 100%
cash. SEC certification is not
required
Detailed documentation proxy
statement requiring SEC certification of
S-4
Success Does not guarantee immediate
acquisition of 100% of target stick in
the tender offer
Achieve 100% ownership or acquisition
merger fails
Market Practice Generally achieve control of target
after 20 -40 business days
Achieve control after 2-4 months (4
months for SEC review of stock deal)
Regulatory
Clearance
Mostly not too long waiting because
early commencement is allowed
and expedited review is the new
SEC internal policy
It depends on the time needed for anti-
trust, financing and funding reviews
and potential 2nd request. It is
demanding both SEC and state
regulations

18. 18
What is a Tender Offer?
• The Williams Act of 1968 does not define the term “tender offer.” But, it can be defined as
an offer made directly to target shareholders
• The courts have used two tests to determine whether a series of purchases or offers
constitutes a “tender offer” within the meaning of the Williams Act of 1968:
– Eight Factor Test also called Wellman test because of Wellman v. Dickinson, 475 F. supp.
783, 823-24 (S.D. NY. 1979), the court did approve the use of eight factor test by the
SEC to determine whether a series of purchases constitutes a ‘tender offer’ — No
single factor is dispositive and you need not have all eight factors.
1. active and widespread solicitation of public shareholders;
2. solicitation for a substantial percentage of target’s stock;
3. offer made at a premium over the prevailing market price;
4. terms are firm rather than negotiable;
5. offer contingent on the tender of a minimum number of shares;
6. offer open for a limited period of time;
7. offeree subjected to pressure to sell stock; and
8. public announcements precede or accompany rapid accumulation of large
amounts of target’s stock.
– Totality of Circumstances Test: Courts have also applied this test to determine whether
a transaction involves a tender offer that should be subject to the statutory
requirements and SEC’s rules (investor decision of the offerees). Since Rand v.
Anaconda-Ericsson, Inc, 794 F.2d 84,3848-49 (2d Cir. 1986) cert. denied, 479 U.S. 987
(1986) (citing Hanson Trust PLC v. SCM Corp, 774 F.2d 47 (2d Cir. 1985)) , Some circuit
courts have examined whether there is a likelihood that, unless Section 14(d) is
complied with, there will be a substantial risk that shareholders will lack information
needed to make a carefully considered appraisal of the bidder’s proposal/offer.

19. The Impact of the Tender Offer Rules
19

20. Steps Leading to a Bidding War of the Target
• STEP 1: Establish a motive for any panned merger and
acquisition
• STEP 2: Choosing a target (after due diligence,…)
• STEP 3, Valuing the target company with the planned
merger and acquisition in mind
• STEP 4, Deciding on the method of payment, cash, stock or
a combination of both, and then arrangement of required
cash financing
• STEP 5, Choosing the accounting method for the
merger/acquisition purchase pooling
• STEP 6, Determine a caps, collars, floors and ceiling for a
bidding war negotiation 20

21. Step 1- Motives for Merger
21
Shareholder value added
• Tax consideration
• Cross selling
• Synergy
• Economies of scale (reduced duplicate department, operations, or positions)
• Increased market power/increased revenue
• Acquiring unique technical capabilities or resources
• Unlocking hidden value
• Resource transfer (overcoming information asymmetry or combining scarce resources)
• Financial restructuring/business mix restructuring
• Geographical diversification
Cross-Border Mergers
• Exploiting market imperfections
• Overcoming adverse government policy
• Technology transfer
• Product differentiation
• Following clients
• Tax incentive and treaty
• Following natural resource roots (closer)
Non shareholder value added
Motives
• Diversification
• Bootstrapping earning
• Shareholder value added
• Managers’ personal compensation package
• Overextension
• Empire building
• Vertical integration

22. STEP 2, Choosing a Target Company for
Acquisition (Due Diligence)
22
If reason is Target Company
Undervaluation • The focus of the acquirer is to get the target at the lowest price
Financial Synergy • Tax savings provides a tax benefit to acquirer
• Debt capacity will provide credit rating for more credit money at
lower rate
• Cash, will bring more funding to the company
Operating Synergy • It will be a cost saving with huge economies of scale
• It will have a good growth
Control • Underperformed share will catch up this market confidence and
value maximization later
Diversification • The target company must be different from the acquirer to reduce
risk in case
Manager’s Interest • Bounce manager ego, managerialism size and executive
compensation

23. Documentation of the Transaction
• Provide congruency among the expectation of
the company top managment, the negotiated
transaction and the documentation of the
transaction
• Coordinate the documentation with the
results of Due Diligence
• Use procedures of documentation to reflects
the transaction with normal formats
• Successfully negotiate for a non public data of
the target
23

24. Merger Due Diligence
• Due diligence staff must utilize analytical method
based analysis and conclusions. This team must
use scientific method to predict, explain, value
and/or give substance to theory. This team must
also utilizes archival methods based analysis and
conclusions on objective data collection from 3rd
parties and the company (friendly)
• Main difficulties
– Drawing boundaries around the subject matter of the
company
– Ethic of the team, dealing properly with own personal
impulse and/or relationship with this subject company
– Dealing with missing (doubtful) data (use replacement
cost analysis or mostly a comparable methods)
24

25. Main Steps toward a careful Due Diligence
A- Preparation:
staff must build
up knowledge
about the due
diligence. The
process is to
research,
understand, value
and help the
company avoid or
minimize risks
related to this
planned
acquisition
B- Plan: the plan
will focus on (1)-
contingent
liabilities (pending
litigation,
environmental
unresolved cases
or other problems
(2)-material
contract of the
target (contingent
contracts) (3)-
employee issues
(executive
compensation
contracts,…) (4)-
restriction on the
conduct of target
business (Div’d…)
-
C-Data
Collection:
-gathering
data,
-search more
data,
-trace sources
of this data,
-interpret
these data
-interviews
-surveys your
peers at the
end
D-Assessing
Data (1)-Check
all relevant
regulatory
filings
documents,
(2)-Check press
reports, (3)-
Check company
and affiliates
websites, (4)-
talk or
interview
former
employee,
directors,… (5)
watch
everything
about the
company
E-Data Analysis
techniques:
coding, identify
pattern for
comparisons
purpose, codes
can be based
on: themes,
ideas,
concepts,
terms, phrases
or keywords
F-Data
Dissemination:
very well
written,
organized and
detailed
documents for
CEO and his
team use: -
memo style,
working paper
style, books
style, news
articles style or
teaching
materials style.
You can make a
presentation to
them or talk to
them while
answering their
concerns
25

26. Due Diligence- Documents to be analyze
• Documents
– Websites (sec.gov, finra.gov, fdic.gov,… subject
company and its affiliates)
– Video and images of executives and events
– Webcasts
– Microfilms
– Other documents with coded words
• Varieties of documents to be analyzed
– Conversation analysis
– Narrative analysis
– Discourse analysis
26

27. Due Diligence- Participant Observation
• Observe first hand the activities of the executives
– Overt- gathering from posted videos, webcasts,..
– Covert- spy or espionage style because w/o their
knowledge- it will increase reliability of the data because
they are acting here without any intent of selling anything
• Former staff, executives and directors can talk but
sometimes it might be anger and lies in their
statements about the company they once serve
– Structured interviews
– Semi-structured interviews
– Unstructured interviews (little talk)
27

28. Due Diligence
• Survey-
– At the end organize and conduct a survey without
intervention or interference of your own staff,
especially if the media and personal interest of
your staff was involved
– Do it because writing any report about your due
diligence
– After writing the report, make sure they did have
opportunities to read this report and make some
correction
28

29. ‘Not every thing that counts can be
counted, and not every thing that
can be counted counts”
Dr. Albert Einstein
Ich Liebe der forsher

30. Performing Research on the SEC website
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31. Step 6-Determining Possible Bids
31

32. Evaluating Bids: Formulas
32
Formulas with
Target shareholders’ gain = Premium = 𝑃𝑡 - 𝑉𝑡 • 𝑃𝑡= price paid for the target company
• 𝑉𝑡= pre-merger value of the target company
Acquirer’s gain = synergies – Premium = S – (𝑃𝑡- 𝑉𝑡) • S= Synergies created by the business
combination
𝑉𝑐= 𝑉𝑎+ 𝑉𝑡+ S - C • 𝑉𝑐= post merger value of the combined
companies
• 𝑉𝑎 = pre-merger value of the acquirer
• C = cash paid to target shareholders

33. Evaluating Bidding Wars Strategies
You must know that every number used in the valuation is measured
with error, either because of flawed method to describe the past or
because of uncertainty about the future (only God can)
After each valuation methodology, you must document these results
• SVA for the bidder
• SVA for the target
• SVA post merger
Come up with boundaries
• Target must have floor bidding price (it will not accept something
lower than this price)
• Bidder must have a ceiling bidding price (it will not offer more than
that) and all alternatives (3 or 4)
• PS: conduct sensitivity analysis of these prices
• Negotiators must have all these
33

34. Evaluating Bidding Wars Strategies
• Negotiators ( target and bidder)must have all
these prices for the negotiating tables
– Start with the lower price (the other party does not
know what you have in mind or on paper, feel free to
disclose your boundaries)
– PS: Achtung to a bidder negotiators, low balling is only
directed to desperate seller party (they want to sell at
any price, but other sellers’ boundaries very seriously)
or it can trigger unnecessary defense strategies with
their exorbitant cost related implementation
34

35. Winners and Losers of the Mergers
• Winners
– Target shareholders- merger often create value for the target
company)
– Consulting Lawyers (when it reach the court circuit, it will be a lot
of checks coming from both sides)
– Consulting accountants each project for liquid)
– Management (incentives and promotion)
– Bankers (a lot of money and fees to trade hands)
• Losers
– Bidder shareholders (mostly with a hostile bidder, costs rea too
high including high premium, payback uncertain). In addition
share for share exchange can really affect the market share of
the bidder.
– Competition (sometimes customers, consolidation can reduce
competition and quality while increasing prices, it why anti-trust
examination reduces this exposure)
35

36. Mergers that Create Value
• Buyer is strong.
• There is not target hostility.
• Transaction premiums are relatively low.
• Number of bidders is low.
• Initial market reaction to the news is
favorable.
36

37. A Strong Defense Requires a Multi-
Talented Team
• Management-leads the defense and keeps the board
informed of the events
• Investment bank-analyzes the bidder’s offer, assists with the
target’s response to the offer and the development of the
defense campaign platform, strategy and tactics
• Law firm-briefs the BoD on fiduciary duties, ensures
compliance with the federal securities laws and state
corporate law, reviews all communication, drafts any
proxy/tender offer materials, and handles any litigation
• Proxy solicitor: analyzes the prospectus for success, identifies
the shareholders, sets up investor meetings, organizes
meetings and calls with proxy advisory firms, and tracks the
flow of tenders or votes
• Financial PR firm- drafts press releases, ‘fight’ letters and
other communications, and works with the media
37

38. Post Merger Integration
• Neglected but very important phase to maximize shareholder’s
value (avoid early divesture)
• Newly acquired company’s manager are concerned with
– Loss of autonomy
– Personal recognition
– Career advancement in the large company
– Job security in the large company
– Lack of expertise in running the new mega MNC, lack of technical
expertise in the new production, manufacturing facilities or lack of
uniform culture
• Solution:
– Reassurance with contractual agreement it needed
– Impose a discipline
– Fire toxic managers (do not want to surrender to the new leadership
and work environ)
– Training and education of top manager and others
– Implementation of an uniform culture strategy and moral for all (it will
take time) 38