Mergers & Acquisition projectis designed to get you familiar with real company business combination transactions.
- Use the M&A list provided to select the company. We will draw lot to choose the company
- For each company selected in step #1, go to the SEC’s EDGAR database to find the Form S-4 for each business combination. Save the website for each Form S-4. If you cannot find the form in SEC’s EDGAR database, you may go to company’s website and click on historical performance or news.
- Answers must be typed, double-spaced, immediately below the question. Leave three (3) spaces between the end of an answer and the beginning of the next question. Use as much space as needed to answer each question completely. Use two spaces between paragraphs. Indent when beginning a new paragraph.
- All questions must be answered. If a question does not apply to your business combination, you must state that the question does not apply and explain why.
- Some of the questions relate to the performance of the business combination since the date of the merger or acquisition.
expected to use the acquiring company’s quarterly and annual reports (including 8-K and 10-K filings with the SEC), press releases, and other sources to answer questions pertaining post-merger periods.
- Use spell check and grammar check before turning in your reports .
- Name and briefly describe the companies. –
- What size are the companies in terms sales & assets before the acquisition?
- Where are they located, state of incorporation?
What are their primary industry (SIC codes), primary products, and lines of business or segments?
- What reasons are given for the merger/acquisition?
- What is the name for the new company after the acquisition?
- Benefits and Risks:
- What benefits did the combined entity expect to achieve, and when?
- What are the risks and uncertainties associated with the business combination? List each risk and describe how they companies intended to handle these risks.
- Was severance payments (Golden Parachutes) paid to top executives of the target or acquiring companies?
- Describe the types and amounts of payments to executives.
Note: A golden parachute is a clause in an executive’s employment contract specifying that they will receive certain significant benefits if their employment is terminated. Sometimes, but not always, these clauses apply only in the event that the company is acquired and the executive’s employment is terminated as a result of that acquisition. These benefits may include severance pay, cash bonuses, stock options, or combination of the items. For example, when P&G acquired Gillette, Gillette’s CEO and other executive officers received approximately $460 million in severance payments and change in control benefits.
- Describe the acquisition process.
- How the combination was structured (statutory merger, acquisition, or statutory consolidation?).
- Did tax consideration influence how the combination was structured?
- How would you classify the business combination: horizontal combination, vertical combination, or conglomerate combination?
- Did the federal government have to approve the proposed combination on anti-trust grounds?
- Was there a tender offer?
- Was it a friendly combination or a hostile takeover?
- What was the purchase price per share?
- What was the size of the purchase price premium, in dollars per share and percentage increase over market price of the target’s stock price?
- How long did it take to complete the business combination, from the date of the S-4 and the completion date?
- What was the reaction to the announcement of the business combination? Briefly describe the reaction (financial market participants, financial analysts, etc) to the proposed M&A based on press releases and articles appearing in business publications at the time the merger was announced.
- From the information available, what are the financial reporting implications of the merger/acquisition?
- Are pro forma financial statements presented?
- What amount of goodwill is recorded?
- What types of synergies were described in the proposed merger?
- Proposed purchased price and fees.
(A) What is the amount of direct acquisition cost? List the components of the direct acquisition costs.
- What is the amount stock issuance costs?
- What is the amount of exchange ratio?
- What valuation methods were used to determine the purchase price?
- What valuation method was used to value the target company? If the discounted cash flow (DCF) method was used to value the business combination, what amount was assigned to terminal value?
- If DCF analysis was used, what was the length of forecast period? What were the years?
- Valuation of synergies.
- What was the estimated stand-alone value of the target company?
- What was the estimated stand-alone value plus expected synergies resulting from cost savings and revenue increases.
- What discount rate was used to calculate the present value of future cash flows?
- Who prepared the valuation and fairness opinion letter(s)?
- What did the fairness opinion letter(s) say about the proposed combination, exchange ratio, and the asking price?
- What accounting adjustments were made to the target company’s assets and liabilities presented in the pro forma financial information?
- Why is pro forma information presented in merger proxy statements (DEF 14A) and registration statements (S-4)?
- Given the purchase price and accounting adjustments to the target company’s net assets, prepare the journal entry the acquiring company would have made to record the business combination.
- Actual Financial Results To Date:
- What type of financial results has the combined company achieved since the completion of the business combination? Have the financial results greater than expected, less than expected? (Hint: Calculate profitability ratio before and after the acquisition date for the consolidated financial statements)
- Has there been any impairment of goodwill since the completion of the business combination? If so, what were the amount and the reasons for impairment loss?