EMGT 385

Prof. Gary R. Evans

Mergers and Acquisitions

Fall 2001

 

 

 

Course Outline

 

Welcome to Executive Management 385, Corporate Mergers and Acquisitions - an Analytic and Strategic Approach. This generally is a course where we explore mergers and acquisitions, corporate takeovers, strategy, valuation, integration, post-acquisition strategy, and other related matters.

 

This course blends lectures, some hands-on homework, some team activity, a text, and case studies to accomplish our goal. The course provides a nice blend of academic theory with directly practical information - there is, for example, considerable emphasis on how things are done by corporations involved in M&A activity along with empirical, scholarly evaluations of the impact of M&A events, what seems to work and what doesn=t, who benefits and who doesn=t, and so forth.

 

The primary textbook used for this course is entitled Mergers, Acquisitions, and other Restructuring Activities, by Donald DePamphilis, Academic Press, 2001, ISBN 0122107357. A secondary textbook, where reading is optional but highly recommended, is entitled Winning at Mergers and Acquisitions by Mark N. Clemente and David S. Greenspan, Wiley, 1998, ISBN 147119056X. All students are also required to pay attention to current discussions of merger activity through a contemporary source like The Wall Street Journal or Business Week..

 

This course outline comes with a Course Calendar and it might be a good idea at this point to take a quick glance at that. The reading schedule is rather dense because we want to try to move through a lot of material, but we talk about the readings in class to insure that the core content is being understood. The course calendar is designed to keep you reading a little ahead of the lectures.

 

In-class projects and case study

 

Students enrolled in this class will be required to complete a case study project based upon a merger or other business combination. To complete this topic, I allow students to either organize into teams of two to four or to work alone. This choice is entirely up to the student (although there is a little more work for the student who works alone). The selection of all teams will be completed by the end of the second class meeting.

 

Once you have decided whether you prefer to work along or with others, you will then choose a project from one of the two following categories. These descriptions will be refined in additional documents that will be given out in class. These additional documents will include very specific formatting guidelines for evaluating the accounting and financial status of the firms we investigate, for example. You will also assess strategy and, in the case of historical M&As, evaluate the success of the merger or acquisition. Here are descriptions of the two project categories from which you must choose:


Historical Merger and Acquisition - The student or team (I will say team hereafter) choosing this will be required to evaluate a major merger or acquisition that has taken place in the last 10 years. (A good example would be the acquisition of Lotus by IBM, or more recently, of McDonnell Douglas by Boeing). Students will be required to do background research on the two companies involved prior to the event, including their financial profiles, classify the event (hostile takeover, friendly takeover, tender offer, cash offer, terms, intervention of other firms or bidders, etc.), make an effort to Avalue@ the target firm from data available and do some analysis of bid, assess the synergies to the extent that they can be understood, and generally tell the story of the event. Finally the team will judge the quality of the merger. More specific details will be provided in a lecture.

 

Current Merger and Acquisition - The student or team choosing this will be required to evaluate a major merger or acquisition that is taking place as the class is underway! Believe it or not, there are always plenty of candidates. A team choosing to do this will have to make some quick choices early in the semester, but it is fun to try to judge a merger as it unfolds. Roughly the same standards of evaluation will be applied as were are required for the historical M&A described above. Very strong emphasis will be placed on valuation on the current M&A project, so if you are strongly interested in valuation, you should probably choose this option. If possible, an effort will be made to blend accounts using the pooling or purchase accounting method described in the book, using information from SEC 10Ks or similar data. More specific details, including some formatting conventions for the report, will be provided when this project is assigned. Of the two categories of reports, the teacher regards this as a little more time-consuming and difficult, but also more instructive for the student.

 

At the end of the class the student or team will both (a) give an oral presentation on the research results and (b) turn in a written paper on the same subject. The oral presentations will be given all participates during our final (7th) meeting - the entire meeting will be dedicated to the presentations. The written paper will be due after the class has ended, about a week later. See the course calendar for the exact due date. The written topics reports will be kept by the instructor and added to an archive of topics cases to be used in future classes.

 

It should be understood at the outset that the projects described above require some research effort outside of the classroom. For example, the financial profiles of the companies selected for the projects must be provided for analysis. This might require a review of relevant SEC 10K reports (and 10Qs in some cases) for the companies involved, and some of the data found there will have to be transcribed to spreadsheets to be used for analysis and presentation. Certain types of ratio analysis will be undertaken and data from these spreads will be read into, in some cases, spreadsheets formatted for valuation. If you are not familiar with Excel then you should probably team up with someone who is.

 

Corporate annual reports, press releases, articles discussing reasons and strategy found in the financial press (Wall Street Journal, Fortune, Business Week, etc.), academic articles such as those found in The Harvard Business Review or the numerous articles discussed in the text can be used to explain strategic reasons for the event in question, the details of the event itself, anomalies, and other elements of the event.

 

All students in this class will be required to use the internet as a primary research source very frequently. A lot of the class material for this class is posted on the internet (if you are reading the HTML version of the course outline you already know this ... if not, go to http://www2.hmc.edu/~evans , find the class material, and take a look at it). Material will be added to the site throughout the semester. All students will be required to register on the SEC=s Edgar database site (it=s free). There is also an email mailing list for this class and students must subscribe to that list after the first session. Typically when new material is downloaded to the site you will be informed by email, so it is important that you subscribe to the class list and that you check your email frequently.

The list name and instructions for subscribing will be provided in the first lecture.

 

A more detailed list of research sources will be provided in class.

 


Section on Valuation

 

Refer to the course calendar and find the assignments for the third week. You will see there that we slow down considerably, taking two weeks to discuss only two chapters. That is the section of the course on valuation, which is the most difficult part of the course. Don=t be terribly concerned about the difficulty of the subject matter in chapters 7 and 8. We are going to try to overcome some of the difficulty by converting some of the valuation formulas to spreadsheets, then apply them to problems. You will start getting those spreadsheets in the third week (this will be some of the material that can be downloaded from the Internet). Valuation is very important (basically, you are asking, Awhat is this company worth?@) so we have to do our best to master that material.

 

Some of the models and source material for my lectures on valuation come from the excellent book Valuation - Measuring and Managing the Value of Companies, 2nd ed., by Tom Copeland, Tim Koller, and Jack Murrin (from McKinsey and Company), published by Wiley. If you ever become professionally involved in valuation, this book should be purchased and read, all 550 pages of it.

 

Homework Assignments

 

This class relies heavily upon simulations, accounting problems, and computerized projects for learning some of the course content. In a few words, you will learn a lot by doing, rather than listening to my lectures. Some of the homework assignments are detailed and difficult. Although we typically discuss the results of homework assignments in class, I do not grade nor collect the homework. You are simply expected to do it. Because some of the assignments are difficult, you are encouraged to cooperate with other members of the class and to share and discuss the results. Please realize that to complete your written individual or team report successfully, you must complete most of the homework assignments. Some of the assignments are designed to show you how to use automated tools for M&A analysis. Almost all of the homework material will be found at the course assignment web site (I use the same web site for the MBA course on this subject hence the different course designation in the title),

 

http://www2.hmc.edu/~evans/e373ca.html

 

Examinations and Grades

 

In addition to the M&A research project, there is also an examination in this class. It is a take-home exam, given to you in the fourth week and due back in the sixth week. Generally, the final exam asks the student to use all of the tools made available for use in the homework assignments.

 

Due dates are shown on the Course Calendar. The research paper must be returned to me by the deadline shown or I will be unable to submit a grade for you (generally, all classwork must be completed by the final exam deadline date). I allow the final exam to be faxed to my home office.

 

Here is the weighting of assignments:

 

Oral report: 30%

Written report: 40%

Examination: 30%

 



Reaching the Instructor

 

My office is at Harvey Mudd College and I hold office hours by appointment. On some nights I can also arrange to come a little early if you want to speak to me. The easiest way to reach me is by email. Here are the specs:

 


Background material: http://www2.hmc.edu/~evans

email: evans@hmc.edu

FAX/VoiceMail: (909) 899-1010

Office: Parsons 261, Harvey Mudd College

Mailing address:

Department of Humanities and Social Sciences

Harvey Mudd College

301 E. 12th Street

Claremont, CA 91711