9/5/17

COMM 471
Mergers and Acquisitions
Instructor: Professor Kai Li

Why Study M&As?

M&A is a firms biggest investment decision.
Important part of a growth strategy.

Total deal value of $3.6 trillions globally in 2016.

5% of publicly-listed firms are acquired every year.
Involves acquisitions by public and private acquirers (A);
and acquisition of public and private targets (T).
Public company transactions are most complex.
Well focus on transactions motivated by synergies (S)
Need to understand which business combinations create value
and which do not!

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Start-up Exits: Shift from IPO to M&A

600

500

400

300

200

100

0
1989 1994 1999 2004 2009 2014

Number of M&As Number of IPOs

Source: Wang (2015)

What Do You Know/Want to Know About M&As?

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Course Objectives
Obtain a deep understanding of key issues in M&As
Know how to quantify synergies and compute a valuation
range for a target
Understand the implications of different payment method
choices and deal structures
Be able to identify, structure, and pitch an M&A
transaction to a potential acquirer
Recognize key principles of successful negotiations
Be used to work with a team to manage a large work
load in a short period of time
Have gained confidence in presenting and defending
their analysis in front of a large group

Sample Interview Questions

Walk me through one of the deals on your resume... Or
describe a recent M&A deal that you've read about.
Walk me though the primary methods of valuing a company
and the pros and cons of each...
Why firms with identical financial statements might be
valued differently?
You and your client disagree on the price of the asset due to
different projections about its future performance. How
might you still close a deal?
What makes a good LBO candidate? What are exit
strategies for an LBO?
What tactics do companies use to fight a hostile takeover
bid?
Can you name two companies that you think should merge?
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Feedback from Students Last Year

This courses workload is unbelievably heavy. Tooooooooo
much work!!!
The course workload is way heavier than other comm
courses.
Learnt a lot.
The course was really interesting and insightful.
The cases are really interesting and varied.
Professor Lis teaching method of encouraging a lot of class
participation allowed me to learn better, and kept me very
engaged in the material. I could validate my ideas easier,
since I generally contributed a lot during classes. Also, the
guest lectures provided me with a wonderful understanding of
the real-world dynamics of M&As, since we got to hear the
different experiences of professionals working in different
roles, firms, and industries. 7

No Pain No Gain Just Do It!

Heavy component on teamwork.
Prepare case memo in groups.
Final pitch book presentation and write up.
Learn to discuss financial principles and apply
financial theory to real-life situations.
Class participation is key to this class.
Come prepared!
Bring case memo/excel sheets to participate.
Will help you a lot in job interviews and once you start
working.
You have to put in the hoursbut thats how you
learn! 8

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Laptop Policy
I do not allow the use of laptops or reading pads or mobile phones in class. If I see
an open laptop, I assign a class participation score of -3 for that day. Bring notes
and printouts of your calculations to class.

Course Overview
Weeks 2-4: M&A Valuation
Sample Case: Ducati
Sample Case: Shenzhen Development Bank

Weeks 5-7: Legal Framework, Transaction Structuring, and Hostile

Transactions
Case: Canadian Pacifics Bid for Norfolk Southern
Case: Roches Acquisition of Genentech

Weeks 8-11: Transaction Structuring and Shareholder Activism

Case: Dows Bid for Rohm and Hass
Case: Mylan Laboratories Proposed Merger with King Pharmaceutical

Weeks 11-12: Leveraged Buyouts

Case: Bidding for Hertz

Week 13: M&A Pitch Book Presentations 10

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Evaluation in a Nutshell
30% Best Four Out of Five Case Memorandum (done by group)
30% M&A Pitch Book (written part: 8%; in-class presentation: 22%)
(done by group)

20% Ten Weekly Learning Journal (done individually)

20% Class engagement/participation (done individually)

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Brief Introduction Kai Li

W.M. Young Professor of Finance at Sauder.
Senior Associate Dean, Equity & Diversity.
Recipient of Research Excellent Awards at UBC
and Sauder.
Visited and taught at MIT Sloan School of
Management and Copenhagen Business
School.
Taught executive and graduate programs in
Asia and Europe.
Research interests: M&As, corporate governance
including shareholder activism.
Movie buff, travel, jogging, skiing, and reading. 12

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Testosterone and Dominance-Seeking

Would this man back down from a deal?

Deal Making CEOs: Like Hormonal Chimpanzees

- Wall Street Journal

Age and Testosterone

Testosterone peaks around 45-50 years old.

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Hormones and the M&A Game

Levi, Li, and Zhang (2010)

Young male CEOs appear to be combative: they are four percent

more likely to be acquisitive than older CEOs.

A young target male CEO is two percent more likely to force a bidder
to resort to a tender offer.

v There is a strong hormonal effect in mergers and acquisitions.

Boys Will Be Boys

There are many differences between women and men:

Women are less overconfident than men.

Woman are more cautious than men.

v Less overconfident female directors less overestimate merger gains!

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Female Directors and M&As

Levi, Li, and Zhang (2014)

Each additional female director is associated with eight percent

fewer bids

Each additional female director on a bidder board reduces the bid

premium paid by 15 percent.

v Female directors help create shareholder value!

Female Directors and Deal-Making

More Women on Boards, Cheaper Mergers

- Washington Post

The Threat to Dealmakers: Female Board Members

- Wall Street Journal

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Course Materials
Course website: http://connect.ubc.ca

Syllabus, power point slides, case exhibits, and other

course related material will be posted on CONNECT.

Cases can be purchased from the Harvard Business

Publishing online using internet explorer.

Two extremely useful books on M&As are:

P. A. Gaughan, Mergers, Acquisitions, & Corporate
Restructurings, 6th Edition
J. Rosenbaum, J. Pearl, Investment Banking: Valuation,
Leveraged Buyouts and Mergers and Acquisitions, 2nd
Edition
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Homework
For next class, please read:

Rosenbaum & Pearl, Chapters 1, 2, 3

Gaughan, Chapters 8, 9, 15

Read lecture notes on Multiples and DCF valuations posted

on CONNECT.

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Useful Links

Recent deals: http://www.reuters.com/finance/deals/

WSJ deal blog: http://blogs.wsj.com/deals/

HBR on M&As:
https://hbr.org/topic/mergers-and-acquisitions

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About the Evaluation

Group-based assignments (weighting approximate)

Case memorandum (30%)

Each group submits a full memorandum on all five cases your
group grade is based on the best FOUR
Due dates of cases are in your syllabus (unless announced
otherwise)
Due electronically before the class when the case is discussed

M&A pitch book (30%)

Sample pitch books are posted on CONNECT
Evaluation includes written proposal (8%), industry experts/instructor
evaluation (15%), and peer evaluation (7%)
Group presentation during the last week of class (in lieu of final
exam)
Written memorandum due electronically on the day of your group
presentation (either November 27, or November 29, 2017) 22

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About the Evaluation

Individual-based requirements (weighting approximate)

Weekly learning journal (20%)

Sample learning journals are posted on CONNECT
The work-in-progress version is due electronically on October 11,
2017
The final product is due electronically on the last day of class
(November 29, 2017)

Class engagement/participation (20%)

Please bring name cards to each class
Making yourself known to the instructor and the teaching assistant is
essential to receive any mark for this component of the course
evaluation
Class participation is graded on a 0-3 scale:
0 = missed class
1 = present, but quite
2-3 = contribute to class discussion (quality of comment matters) 23

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