Euro Takeover 2005 A six‐party simulation of takeover contests
Case Structure • Six teams Role
Finance Mondiale S.A.
Lanza E Compagnia
Omni Bank PLC
Euroland Bank A.G.
Case Structure Euroland Bank
Omni Bank Financing Of E2.5b
Financing Of E2.5b
Raider Tender offer E70/shr Owns 8.3%
has E6b capital ???
Target Food Div. Chemical Div. Operates company Owns 10%
Own 60%+ shrs
Potential Synergy Friends, CEOs sit on each others’ boards
Case Schedule • Week 7 – Team Meeting – Valuation
• Week 8 – Valuation report due before negotiation Valuation report due before negotiation – Negotiation between teams
• Week 9 – Case report due – Teams presentation – Discussion
Valuation • Target – What is your reservation price, i.e. lowest price willing to accept?
• Bidders (Raider, LBO, W.K.) ( , , ) – What is your walkway price, i.e. highest price willing to pay?
• Banks – Credit rating, interest rate – Lending limit & Structure
Credit Analysis • Evaluate post‐merger credit worthiness – Statutory vs. subsidiary merger – Post merger cash flow • How much synergy to include? How much synergy to include?
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– Post merger debt level
Capital Structure • Senior Debt – – – –
Term loans & Revolving credit Collateralized with assets On Bank’s book No more than certain % of total amount (typically 60%) No more than certain % of total amount (typically 60%)
• Mezzanine or subordinate debt – Uncollateralized – Higher interest – Often sold to bond investors, Banks off the hook
• Equity – Investment from bidder
Statutory vs. subsidiary merger • In a statutory merger • EBIT(DA) Cov. = Tgt .EBIT ( DA ) Bidder .EBIT ( DA ) Int . fromTgt .ExistingDe bt Int . fromBidder .ExistingDe bt Int . fromNewDeb tFinancing
• In a subsidiary merger • EBIT(DA) Cov. = Tgt _ EBIT ( DA ) Int . from _ Tgt _ Existing _ Debt Int . from _ New _ Debt _ Financing
What if you buy only one division?
Negotiation • During a preset block of time period – Ending represents the expiration of Raider’s offer – Other teams have to submit public offers to SH – Arbitrageurs decide who gets the target Arbitrageurs decide who gets the target
• Written agreements • Confidentiality
Dutch Auction • Teams often wait until last minute to submit their offer and then outbid rivals by a small increment. • If this happens we will use a Dutch Auction to If this happens, we will use a Dutch Auction to avoid time‐consuming biddings. – Every team submit a confidential offer to instructor – Highest bidder buys the target at the second highest bid
Final Presentation Original objectives and valuation Strategies Eventual outcome Decisions you have to make in the negotiation and how you make the decision • Lessons and experiences • Questions and critique of other teams • • • •
Corrections • Several numbers in the PDF print out of the exhibits are incorrectly linked. Use the Excel file I provide, which has the corrected numbers. numbers • LBO firm’s commitment letter is from Euroland Bank rather than Omni Bank