Index

Note: Page numbers followed by f indicate figures, t indicate tables, and b indicate boxes.

A

Abbott Laboratories Inc. 378b, 380f
Abnormal financial returns 23, 360
Absolute priority rule 480
Accelerating growth 497
Acceleration clause 354–355
Accountability, business alliance 421
Accountants 19
Accounting 297
acquisition  See Acquisition, accounting
discrepancy red flags 237b
divestitures 450
equity carve-outs 454
form, amount, and timing of payment, effect on 299
for inventory 270
recapitalization 346–347
spin-offs 452
tracking stock 458
Acquired assets, and liabilities guidelines for valuing 345b
Acquirers 50, 287–288, 302
Arbs 22
balance sheet, asset purchases 402–403, 403t
cross-border acquirers 13
domestic cash flows 505–507
frontier economies 518
HPAs 127–128
income statement, asset purchase 402–403, 402t
integration 155–156
investment banks 18
misvaluation 11
returns 25–28, 26t
shareholders 22, 24–25, 27–28, 30, 516
tax 10–11
tender offer 42
type of 
financial buyers 155
strategic buyers 155
Acquirer’s share price (ASP) 309
Acquirer Transaction Summary Worksheet 383, 385, 391–392, 395, 401, 410–411
Acquiring company 5
Acquisition 
accounting 341–346
balance sheet considerations 342–344
income statement and cash flow 344–345
International Accounting Standards 345–346
pending rule changes affecting balance sheet 345
acquiring firm, plan for 120b
business plan objectives, linkage between 119t
currency 452–453
form of  See Form of acquisition
team management guidance 120b
vehicles 135, 500–501
appropriate acquisition vehicle, selection of 299
definition 297
form of payment, effect of 298
Acquisition process 127
completing acquisition/merger agreement 
allocation of price 143
artificial intelligence (AI) to draft M&A contracts 145
assumption of liabilities 143
closing conditions 144
covenants 143–144
deal provisions 142
employment and benefits 144
escrow and holdback clauses 142
final documentation 144–145
financing contingency 145
go shop provisions 142–143
indemnification 144
payment mechanism 143
price 142
representations and warranties 143
phase 1, business plan 127
phase 8, closing 141
assigning customer and vendor contracts 142
gaining approvals 142
phase 10, conducting postclosing evaluation 
asking questions 146–147
learn from mistakes 147
not changing performance benchmarks 146
phase 7, developing integration plan 140
choosing integration manager and critical decisions 141
contract-related issues 140–141
earning trust 141
phase 5, first contact 131–132
confidentiality agreement 133
discussing value 133
letter of intent 133–134
term sheet 133
phase 2, implementation strategy 127
phase 9, implementing postclosing integration 
communication plans 145
cultural issues 146
employee retention 145–146
employing best practices 146
satisfying cash flow requirements 146
phase 6, negotiation 134, 135f
deal structuring 135
due diligence conduction 136–138
financing plan development 139
purchase price 139–140
virtual data room 139
phase 4, screening process 130
age of CEO/controlling shareholder 131
cultural compatibility 131
degree of leverage 131
market segment 130–131
market share 131
product line 131
profitability 131
phase 3, search process 128–130
Actelion Pharmaceuticals Ltd. 349b
Action on Smoking and Health (ASH) 231
Activist investors 83
gaining influence without control 81–83
M&A related demands 83, 83t
Adjusted EPS 398
Advance notice provisions 88
Aetna Inc. 322–323
Affirmative covenant, loan agreement 355
After-tax cash flows 446
After-tax equity value 446
After-tax liquidation value 397, 402
After-tax market value 445–446
After-tax sale value 446
Agency conflicts 462–463, 465
Agency problems 
private firm 372
public firms 369, 371–372
Alcoa Inc. 455
Alibaba 453
Alternative exit, and restructuring strategies 460–461
characteristics of 460t
Alternative minimum tax (AMT) 332t, 333
Alternative takeover defenses 83–84
antigreenmail provisions 88
board’s defenses strengthening 87
dual class recapitalization 88–90
fair-price provisions 88
frequency of 93, 93t
golden parachutes 90
limiting shareholder actions 87–88
postoffer defenses 
advantages and disadvantages 90, 91t
corporate restructuring 92
employee stock ownership plans (ESOPs) 91
greenmail 90–91
leveraged recapitalization 92
litigation 92–93
share repurchase/buyback plans 92
white knights and squires 91
preoffer defenses 
poison pills 84–86
preoffer vs. postoffer 84t
shark repellents 87
reincorporation 90
Alternative takeover tactics 
advantages and disadvantages 81, 82t
bear hug 77
friendly takeovers 76
hostile takeovers 76–77
hostile tender offer 
implementation 79
multitiered offers 79
toehold investments 78
proxy contests 
definition 76
implementation 77
shareholder value, impact on 78
success rates 79–80
Alternative taxable and nontaxable structures 323
Alternative tax-free reorganizations 
type A 
forward triangular stock merger 326–328, 327f
reverse triangular stock merger 326, 328, 328f
statutory stock consolidation 326–327, 327f
statutory stock merger 326–327, 327f
type B stock-for-stock reorganization 326, 328, 329f
type C stock-for-assets reorganization 326, 328–329, 329f
Amazon.com 101–103, 438b
American Depository Receipt (ADR) 503
American International Group (AIG) 485
Americans with Disabilities Act 60
Amortization 5–6, 344–345
AMT  See Alternative minimum tax (AMT)
Angel investors 21
Announcement date financial returns 287–288
1997 Anti-Bribery Convention of the Organization for Economic Cooperation and Development 58
Antigreenmail provisions 88
Antitakeover defenses 74
Antitrust guidelines 
business platform strategy 52–53
for collaborative efforts 51
enforcement efforts 52
on firm value 53
for horizontal mergers 48–50
for intellectual property 51
intervention 52
regulatory approval, political impacts on 53
for vertical mergers 51
Antitrust legislation 37–38t, 44–53
Clayton Act 45
consent decree 48
Federal Trade Commission Act of 1914 45
Hart-Scott-Rodino (HSR) Antitrust Improvements Act of 1976 45–48
procedural rules 48
Sherman Act 45
A.P. Moller-Maersk Group 442
Appraisal rights 79, 178–179
Arbitrageurs (Arbs) 22
Arbitration clause 432
Arms-length deals 178–179
Artificial intelligence (AI) 145
Artificial neural networks 486
ASP  See Acquirer’s share price (ASP)
Asset 
acquisitions 339
composition 487
pricing model 180
purchase 312–314, 387, 501–502
acquirer’s balance sheet 402–403, 403t
acquirer’s income statement 402, 402t
buyer’s perspective 312–314
cash flow statement 403–404, 403t
definition 311
net acquired assets 401–402
seller’s perspective 314
sales 359, 475, 483
Asset-based lending 354–355
Asset-oriented methods 215–217
breakup value 216
liquidation value 216–217, 218b
replacement cost method 217
tangible book value methods 215–216, 216b
Assignee 475
Assignment 475
At-risk plans 60
Attractive returns to firms 487
Auction 447
Automatic stay 475
Axiall Corp 296–297

B

Back-end merger 79, 315–317
Balance sheet 139, 250–251, 251t
adjustments 304, 304t
considerations 342–344
historical 252t
pending rule changes affecting 345
premerger balance sheets 349t
Bankruptcy 472–473
Chapter 7 liquidations 478–479
cross-border 480
default prediction models 486–487
filing, motivations for 480–481
high cost of 481
liquidation 475–481
prepackaged 481
private equity firms 364
proceedings of automakers General Motors (GM) and Chrysler 480
reorganization 475–481
Chapter 11 477–478
procedures 477–478, 477f
resolution of GM 363 sale 480
Section 363 sales 479–480
US bankruptcy laws, evolution of 476–477
voluntary settlements 
continued operation 474–475
liquidation 475
Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) 477
Bankruptcy Reform Act of 1978 477
Bargaining power 240–241
Base Erosion Anti-Abuse Tax (BEAT) 334–335, 338
Bear hug 77
Behavioral remedies 48
Best price rule, 14(D)-10 42
Beta 411, 508
and credit ratios, risk measures 253–254
financial and operating leverage on 185–188
Bidders 16–17, 77
Bidding strategies 81, 500
Bilateral alliances 427
Bitcoin 303
Black-Scholes model, valuing real options 220, 222–224, 224–226b
abandon 223–224, 226b
delay 223, 225b
formula for valuing call option 224b
NPV 223
option to expand 223
Blackstone Group 371
Black swan events 254
Blank check companies.  See Special purpose acquisition corporations (SPACs)
Blank check preferred stock 86, 93t
Block holders 71, 73
Block shareholder preferences 518
Blue ocean strategy 113
Blue sky laws, state 57
Board of directors/management 
incentive payments 71
member removing, for cause provisions 87
two-tier board 68
unitary board 68
Bolt on transactions 155–156
Bond holder 74
Bond issuer 74
Bonuses 163
Borrowing 
asset-based lending 354–355
cash flow lending 355–356
nonrecourse loans 354
recourse loans 354
Bottoms-up approach 187, 243
Breakup fees 80, 145
Breakup value 216, 217b
Bridge bank 474
Bridge financing 355–356
Bring-down provision 144
British American Tobacco (BAT) 231
Brocade Communications Systems (Brocade) beta estimation 187, 187t
Brookfield Asset Management 472–473
Buildup method 274–275
Business alliance 17, 436–437, 442
alternative legal forms of 422–427, 423t
corporate structures 422–424
equity partnership 426–427
franchise alliance 426
limited liability company 424–425
partnership structures 425–426
written contract 427
bilateral vs. multilateral alliances 427
cross-border alliances and minority investments 436
deal-structuring issues 428t
control 431–432
dispute resolution 432
distribution issues 432
duration 428
equity and debt financing 430–431
financing ongoing capital requirements 430
governance 429
interests, transfer of 433
legal form 429, 429t
management and organizational issues 434
owner/partner financing 430
ownership determination 429–430, 431b
performance criteria 432
regulatory restrictions and notifications 435
resource contributions 429–430
revision 432–433
scope 428
taxes 433–434
termination 433
differences among 417–418, 417t
integration mechanisms 
consensus decision making 171
coordination 170
leadership 170
policies and values 170
teamwork and role clarification 170
motivations for 
access, to new markets 419
favorable regulatory treatment 420–421
globalization 420
learning 421
prelude to acquisition/exit 420
risk sharing 418–419
strategic and operational plans 427
for success 
accountability 421
clarity, of purpose/roles/responsibilities 421
compatible time frames 422
cooperation and cultural compatibility 421–422
financial expectations 422
support from top management 422
synergy 421
win-win situation 422
Business combinations 13
acquisition accounting impact of 341–346
balance sheet considerations 342–344
income statement and cash flow 344–345
International Accounting Standards 345–346
pending rule changes affecting balance sheet 345
financial reporting of 
accounting, acquisition method of 339–340
acquired net assets recognition 340–341
acquirer, role of 340
contingent considerations recognition 341
expensing deal costs 341
fair value 340–341
in-process research and development assets 341
step/stage transactions net acquired assets, recognition and measurement 341
provisions 57
Business failure 473–474
Business judgment rule 57
Business plan, building of 
blue ocean strategy 113
business-level strategies 112
business strategy, selection of 106
as communication document 116–117
contingency plans 104
corporate-level strategies 111–112
external analysis 107
customers, bargaining power of 107
degree of competitive rivalry 107
degree of government regulation 108
global exposure 108
labor force, bargaining power of 108
potential new entrants 108
substitute products, potential 108
suppliers, bargaining power of 107
focus/niche strategies 113
functional strategies 115–116
hybrid strategies 113, 113t
implementation strategies 
advantages and disadvantages 114, 114t
analyzing assumptions 115
intangible factors, role of 114–115
internal analysis 108–110
mission/vision statement 106, 110–111
platform business strategies 113–114
price/cost leadership strategy 112
product differentiation 112–113
real options 104
strategic controls 106, 116
strategic/long-term business objectives 111
trigger points 104
Business platform strategy 52–53
Business strategy 103
business-level strategies 103–104
corporate-level strategies 103–104
functional strategies 104
implementation strategy 104
Business valuation 235
Buyer Corp. 456

C

Calculating enterprise, and equity values 246–248, 247t
California Consumer Privacy Act (CCPA) 56
Capital asset pricing model (CAPM) 179–182, 228, 248, 273–274, 507–509, 511–512
Capital budgeting 225, 228, 235
Capital control 496, 512, 519–520
Capital expenditure 17, 189, 203, 426, 431
Capital flows 496
Capital gain 10–11, 19, 361, 368, 450, 452, 458, 503
Capital investment 426–427, 437
Capitalization multiples 273b
Capitalization rate 272
Capital market 54–55t, 67–68, 452, 462–463, 505–506, 509–512
Capital structure 359–360, 376–377, 376f, 385, 395–401, 406, 409–410
CAPM  See Capital asset pricing model (CAPM)
Carried interest 332t, 334, 361
Cash balance 386–387, 387t
Cash flow 128, 130, 133, 505–507
DCF method  See Discounted cash flow (DCF)
enterprise and equity values, calculation of 246–248
FCFE 189
FCFF 188
lending 355–356
statement 236–237
historical 253t
terminal value 248–249
WACC 248
Cash-for-assets acquisition 312
Cash outflows 237
Cash-out provisions 57
Cash payments 478
Cash-rich split-offs 455–456, 456f
Casual pass 81
CBS Inc. 467b
Celler-Kefauver Act of 1950 45
CenturyLink Inc. 4–5
Channel stuffing 236
Chapter 7 liquidations, bankruptcy 478–479, 479b, 483
Chapter 11 reorganization, bankruptcy 472, 477–478, 481, 483, 490b
Chapter 15, of US Bankruptcy Code 480
Chesapeake Energy Group 444
Chief executive officer (CEO) 68
Chief financial officer (CFO) 260
China National Chemical Corp. (ChemChina) 519b
Choice-of-law provisions 432
Circular references 238
Civil law 501
CL  See Current liabilities (CL)
Classic LBOs 375
Clayton Act 45
Clean Water Act (1974) 60
Clearance process 46
Cloud computing 10, 107
Club deals 368
Codified law 501
Coinsurance 7–8
Coinvestment 368
Collar arrangements construction 308–310, 309b
Collateralized bond obligations 357
Collateralized debt obligations (CDOs) 357
Collateralized loan obligation (CLO) 377
Comcast 48, 416–417, 444
Commercial banks 20
Committee on Foreign Investment in the United States (CFIUS) 57–58, 436, 520
Common bidding-strategy 81
Common equity 357–358
Common international market entry strategies 499–500
Common-size financial statement 240
Company management 83
Company-specific-risk (CSR) premium 275
Comparable integrated oil companies, valuing total SA 210t
Comparative salary data 268–269
Compensation 73
governance and executive 54, 54–55t
plans 163
Competitive product 499–500
Compliance and Disclosure Interpretations (C&DIs) 236
Concentration ratios 48
Confidentiality agreement 133, 447–448
Conglomerate discount 8–9
Conglomerates 8
Consensus decision making 171
Consent decree 48
Consent solicitation 88
Conservatorship 474
Consolidating acquisitions 155
Constant-growth valuation model 191–192, 192b
Consultative selling approach 165
Continental law 501
Contingency 341
plans 104
Contingent liabilities, cash impact 199
Contingent value right (CVR) 307
Continuing-growth value 192
Continuity of ownership 424
Contract language 504
Controlled sale 447
Control premium (CP) 
definition 279
Lighting Group Incorporated 282b
liquidity, and minority discounts application 
liquidity discounts 278–280
purchase price premiums and minority discounts 278–279
liquidity, and minority discounts estimation 
control premium 280–281
liquidity discounts 280
minority discount 281–283
Control share provisions 57
Conversion price 401
Convertible bonds 197, 356
Convertible debt 377, 401
Convertible preferred stock 401
Convertible securities 302–303, 377, 391, 396–397, 402, 404, 410
Corporate bylaws 
advance notice provisions 88
supermajority rules 88
Corporate charters 57, 87
Corporate culture 157–158, 166
cultural differences 168
cultural issues 167–168
high performing 166, 166t
Corporate directors election 
cumulative voting 87
straight voting 87
Corporate governance 21, 67–76, 517
activist investors and takeover attempts 72
alternative models 68t
behavioral and demographic characteristics, CEOs and board members 69–70
board composition and CEO duality 70
board diversity and firm performance 72
board performance, selection and compensation 71–72
CEO duality 69
factors affecting 67f
factors external to firm 
corporate takeover market 76
institutional activists 75
legislation and the legal system 74–75
regulators 75
factors internal to firm 
antitakeover defenses 74
board of directors/management 68
bond covenants 74
corporate culture and values 74
incentive systems 73–74
independent directors, role of 69
target board’s advisory role in takeover bids 72–74
Corporate inversions 10–11
Corporate-level strategies 103–104
diversification strategy 112
financial restructuring 112
growth strategy 111–112
operational restructuring strategy 112
turnaround/defensive strategy 112
Corporate management 21
Corporate marginal tax rate 276
Corporate portfolio reviews 445
Corporate restructuring 13–14, 92
acquisitions, divestitures, spin-offs, split-offs, carve-outs, and buyouts 14
forms of 14, 15f
mergers and consolidation 
economic perspective 14
legal perspective 13–14
Corporate socially responsible (CSR) investing 30
Corporate structure 299, 422–424, 423t
C-type corporation 422–424
S-type corporations 422, 424
Corporate takeover market 67, 76
tactical considerations 
contract considerations 80–81
premium, board composition, and investor sentiment, importance of 80
Corporate tax inversions 498
Corporate tax rates 331, 332t
Corporate value chain 14, 14f
Corporation bylaws 87
Cost 
of debt 512–514, 513b
of equity 179–180, 274–275, 507–512, 510–511b
impact, of changing debt levels on 188b
risk-free rate of return, and market risk premium 179–180
size premium estimates 181t
labor 497
of preferred stock 183
of private firm debt 275
reduction 419, 432
saving 4
Cost-allocation approach 339–340
Cost-of-capital method 276
Cost savings-related synergies 391, 404–405
Country risk premium (CRP) 512
Covenants 143–144
Cram down 481
Credit bids 480
Credit default swaps (CDS) 357
Creditors 475
Credit rating 385, 395, 398, 408–410, 409b
Credit-rating agencies 128–130, 356
Credit scoring models 486
Creeping merger 328
Cross-border bankruptcy 
foreign main proceeding 480
foreign nonmain proceeding 480
Cross-border corporate investment strategies 420
Cross-border joint ventures 435–436
Cross-border mergers and acquisitions 496
bidding strategies 500
cash flows 505–507
cultural and political compatibility 515
deal completion rates 515
debt markets 503
equity markets 503
factors contributing 497
Fisher effect 509–512
form of acquisition 501–502
form of payment 501
friendly vs. hostile deals 500
globally integrated vs. segmented capital markets 496
international expansion strategies 497–499
market entry strategies 499–500
ownership stake 502
political and economic risks 504
private firms 515
scenario planning 514
sovereign wealth funds 503
tax strategies 502
WACC calculation 513–514, 513b
Cross-border transactions 19, 60–61, 504–515
adjusting CAPM for risk 
for country/political risk (emerging countries) 512
developed countries 508
emerging countries 511–512, 511b
empirical studies of 515–518
acquirer shareholders 516
block shareholder preferences 518
corporate governance, and significant shareholder value 517
domestic takeovers on average benefit target 516
foreign institutional ownership, promote crossborder M&A activity 517–518
international diversification, contribute to higher financial returns 515–516
M&As in frontier economies 518
estimating cost of equity 507–509
in developed (globally integrated) countries 508–509
in emerging (segmented) capital market countries 509–512
estimating local firm’s cost of debt in emerging markets 512–514, 513b, 514t
estimating risk-free rate of return 
developed countries 508
emerging countries 510
evaluating risk using scenario planning 514
global CAPM formulation 
developed countries 508–509
emerging countries 512
methodologies for valuing 514t
Cross-default provisions 354–355
Cross-marketing 419
Crowdfunding 353–354
Cryptocurrency 303
C-type corporation 299–300, 422–424
Cumulative voting systems 87
Currency values, changes in 498
Current liabilities (CL) 183–184
Customer service drivers 214–215
Customers satisfaction 499
CVR  See Contingent value right (CVR)
CVS Caremark (CVS) 417
CVS Health Corporation (CVS) 322–323
Cybercrime 164–165

D

Data 
analytics application in mergers and acquisitions 147–148
linkages and balancing mechanism 385–387, 386f
mining software 486
requirements 235–237, 237b
sources 249–254
unstructured data 147
DCF  See Discounted cash flow (DCF)
Deadlock clause 432
Deal financing 
leveraged buyouts  See Leveraged buyouts (LBOs)
private equity, hedge, and venture capital funds 
financial intermediaries 361
LBO shareholders, postbuyout returns to 363–364
LBO target firm (prebuyout) shareholders, prebuyout returns to 363
lenders and investors of last resort 362
listed vs. unlisted fund performance 364
private equity-owned firms and financial distress 364
Deal negotiation 127
Deal provisions 142
Deal structuring 135, 297–299, 298f, 299t, 381b, 382
accounting considerations 297, 299
acquisition vehicle 500–501
appropriate acquisition vehicle, selection of 299
definition 297
form of payment, effect of 298
bidding strategies 500
business alliance  See Business alliance, deal-structuring issues
form of acquisition  See Form of acquisition
form of payment  See Form of payment
friendly vs. hostile deals 500
key components 297
ownership stake 502
postclosing organizations 
appropriate postclosing organization, selection of 300
definition 297
form of payment, effect of 298
selling entity, legal form of 297, 300
strategy 347
tax 
considerations 297–298
strategies 502
Deal terms 392t
Debt 238–239
based defenses 87
cost of 512–514, 513b
credit-rating agencies 356
estimation, of common equity value 198b
financing 354, 365, 430–431, 503
indenture 356
long-term debt 356
markets 503
pretax cost of 182, 183t
private firms 275
reduction 373, 374t
repayment schedule 411
restructuring 474, 474b
security and lending source 359t
unsecured 355–356
Debt-for-equity swap 474
Debtor-in-possession (DIP) 477–478
financing 484
Debt-to-equity ratio 186, 276, 352, 365
Debt-to-total capital ratio 397–398, 458
Deductibility of interest expense 332t, 333
Default premium 182
Default risk 179–180, 182
Defensive acquisition 92
Deferred payment 305
Deferred revenue 237
Deferred taxes 
determination, of cash impact of 197, 198b
estimation, of common equity value 198b
Definitive agreement 142, 144
Degree of synergy 461
Delaware corporate law 57, 91
Delaware Supreme Court decision 
Moran v. Household 94
Dell Technologies (Dell) 286–287
Demand Energy 264–265
DEN.OS energy management software 264
Department of Defense (DoD) 59
Department of Justice (DoJ) 42
Depreciation 344–345
Depreciation expense associated with the leased asset (DEPOL) 189
Developed countries 496, 508
Differential voting rights (DVR) shares 87–88
Digital assistant 418
DIP  See Debtor-in-possession (DIP)
Direct cash mergers 324
Direct investment restrictions in United States 57–58
Direct labor 404–405
Direct listing 454
Direct merger 375–376
Disappearing corporation 312
Disclosure 143
Discounted cash flow (DCF) 178, 190–195, 272
appropriate discount rate, determination 195
constant-growth valuation model 191–192, 192b
enterprise discounted cash flow model 190
equity discounted cash flow model 190
estimation, of economic value of company 189, 190b
high-growth period, determination 193–194
impact, of changes in assumptions, on terminal value 193t
stable/sustainable growth rate, determination 194–195
variable-growth valuation model 192–193, 193t, 194b
zero-growth valuation model 191, 191b
Discount factor, calculation, using Mid-Year Convention 249t
Discount rate 272–274, 445–446, 504
appropriate tax rate, determination 276
cost of capital, estimation 276
cost of private-firm debt, estimation 275
private firm’s beta and cost of equity, estimation 274–275
Discriminant analysis 486
Dispute resolution 432
Distribution agreement 459–460
Diversification 
definition 8
discount 8–9
geographic and industrial 497
objectives 111
strategy 112
Divestitures 14
characteristics 460–461, 460t
corporate portfolio reviews 445
definition 445
factors affecting purchase price premiums 451t
motives for 445
multistep process, to sell 445
after-tax equity value (EV) 446
after-tax market value of business, estimation 446
calculation, after-tax cash flows 446
decision to sell 446
discount rate, estimation 446
parent firm operating units, characteristics of 461, 461t
preannouncement abnormal returns 462–464
focus of divesting firm 463
mitigating financial distress 464
resolving management and shareholder differences 463
transferring assets 463
right selling process, selection of 448–450
selling process 447–448
tax and accounting considerations for 450
timing of sale 447
Dividends 358
payments 74
Divisional organization structures 161
DOA Inc. 
balance sheet 479b
liquidation of 478–479, 479b
reorganization plan for 478–479
Doctrine of corporate personhood 422
Documenting potential problems 486
Dodd-Frank legislation 485
Dodd-Frank Wall Street Reform and Consumer Protections Act of 2010 53–54, 54–55t, 73, 362, 484
Dollar/euro exchange rate 505
Dollar/Mexican peso exchange rate 506
Dollar/peso exchange rate 506
Dollar-to-peso spot exchange rates 506
DowDuPont 318b
Drag-along provision 433
Dual class recapitalization 88–90
Dual holders 29
Dual track deal structures 317
Due diligence 127, 163, 336
buyer, seller and lender 137
components of 137
customer data protection 138
information sources 136, 136t
potential sources of value 137, 138t

E

Early stage investment 283
Earnings before interest and taxes (EBIT) 185–186, 239, 268, 333, 345, 374
Earnings before interest, taxes, depreciation, and amortization (EBITDA) 184, 209–212, 213b, 239, 268, 333, 338, 365, 373–375
Earnings per share (EPS) 111, 236
Earnings stripping 338
Earnout agreement 304
Earnouts 304–307, 305b, 358
Ease of entry 50
Ease of transferring ownership 424
EBIT  See Earnings before interest and taxes (EBIT)
Economic growth 12, 496
Economic risks 504
Economies of scale 5–6
Economies of scope 6–7
Embryonic firms 265
Emergency Planning and Community Right to Know Act (EPCRA) 60
Emerging countries 496
Employee availability 162
Employee layoffs 388
Employee options, cash impact 199
Employee Retirement Income and Security Act of 1974 60
Employee stock ownership plans (ESOPs) 16–17, 91, 265, 287, 297
Employment growth, LBOs effects on 368
Ending loan balance 386
Enron-type scandals 76
Entercom Communications Corp 467b
Enterprise 
cash flow 190
discounted cash flow model 190
valuation method 190
Enterprise-value-to-EBITDA method 211–212, 213b
Entire fairness standard 317
Entrepreneurial LBOs 375
Environmental laws 60
EPS  See Earnings per share (EPS)
Equal division of power framework 434
Equity 
cash flow 189, 190b
common equity 357–358
cost 507–512, 510–511b
joint ventures 430–431
market index 509, 511
market risk premium 508
mezzanine financing 355–356
partnership 417, 422, 426–427, 437
preferred equity 357–358
premium 180
private equity  See Private equity funds
Equity-based employee compensation 89
Equity carve-outs 14
characteristics 460–461, 460t
IPO 453–454
motives for 452
parent firm operating units, characteristics of 461, 461t
postannouncement financial returns 465–466
preannouncement abnormal returns 464–465
increasing focus 465
resolving management and shareholder differences 465
source of financing 465
subsidiary equity carve-outs 454
tax and accounting considerations 454
Equity consideration (EQC) 401
Equity discounted cash flow model 190
Equity risk premium (ERP) 180–181, 204, 275
Equity value (EV) 446
enterprise method 
deferred tax, cash impact of 197
employee options, cash impact of 199
long-term debt, market value of 195–197
non-controlling interests, market value of 199
operating leases, market value of 197
provisions and contingent liabilities, cash impact of 199
unfunded pension liabilities, cash impact of 199
estimation 195–199
ERP  See Equity risk premium (ERP)
Escrow accounts 304
ESOPs.  See Employee stock ownership plans (ESOPs)
Eurobonds 503
Euro-denominated FCFF cash flows 506b
Euroequity market 503
Euromoney 504
European options 220
Euro-to-dollar exchange rate 505
Excess cash balances 200b
Excess returns 287–288
Exchange offer 79
Exchange rate 505–506
1031 Exchanges 329–331, 332t, 335–336
Exit strategy 
divestitures  See Divestitures
equity carve-outs  See Equity carve-outs
sales to strategic buyers 367
spin-offs  See Spin-offs
tracking stock  See Tracking stock
Expected value (EXPV) 218
Experience curve 112
Export Import Bank (United States) 504
Exporting 499
External financing 365
Extraordinary achievement 478

F

Facebook 109, 109t, 234
Face-to-face meeting 132
Failing firms 
alternative strategies 482, 482t
merging with another firm 482–483
out-of-court voluntary settlement 483
and systemic risk 484–486
voluntary and involuntary liquidations 483
Fair disclosure (Regulation FD) 43–44
Fair market value (FMV) 272, 283b, 324, 326, 329
Fair-price provisions 57, 79, 88
Family-owned firms 171, 265–266
FASB  See Financial Accounting Standards Board (FASB)
Fast-food industry 113
FCFE  See Free cash flow to equity (FCFE)
FCFF  See Free cash flow to the firm (FCFF)
FCFF DCF model 277, 277t
Federal Communications Commission (FCC) 5, 52
actions at market share concentration levels 50f
alternative to imminent failure 50
antitrust guidelines 
for collaborative efforts 51
for vertical mergers 51
coordinated effects 50
ease of entry 50
efficiencies 50
partial acquisitions 50
unilateral effects 50
Federal Deposit Insurance Corporation (FDIC) 53–54, 54–55t, 474
Federal securities laws 37–38t, 38–44, 79
Federal Trade Commission (FTC) 42, 45, 75
Finance cross-border transactions 502–503
Financial Accounting Standards Board (FASB) 235, 339
Financial advisors 18
Financial buyers 155
Financial credibility 133
Financial data 475–476
Financial distress 473
attractive returns to firms 487
divestitures 464
financially ailing firms, contagious 488–489
IPOs to experience bankruptcy 488
private equity firms 364
returns to financially distressed stocks 487–488
Financial due diligence 19
Financial engineering 362–364
Financial incentive systems 73
Financial Industry Regulatory Authority (FINRA) 182
Financial intermediaries 360–361
Financial leverage 185–188
effects, on financial returns 186t
Financial markets 353–354
Financial model 235
asset purchases 
acquirer’s balance sheet 402–403, 403t
acquirer’s income statement 402, 402t
cash flow statement 403–404, 403t
net acquired assets 401–402
balance sheet 250–251, 252t
building process steps 383, 384t
cash flow statement 251
circularity 238, 238f
common elements of models 383–385
data linkages and balancing mechanism 385–387, 386f
data requirements 235–237, 237b
definition 235
GAAP 235–236
historical and forecast information 254
income statement 250, 251t
instruction worksheet 387, 388t
linkages 237–239, 238f
model balancing mechanism 249
pro forma accounting 236–237
quantifying synergy 
cost savings 391, 404–405
definition 389–391
operating/asset-related synergies 405–406
revenue-related synergy 404
risk measures, betas and credit ratios 253–254
stock purchase  See Stock purchase
US corporate tax laws 239
valuation process 239–249
worksheet flow diagram 385f
Financial options 218–219
Financial ratio analysis 240
Financial restructuring 13, 112
Financial returns 30, 179–184
capital asset pricing model 179–180
cost of capital 183–184
cost of equity 179–180
limited interest deductibility, cost of capital 184
market risk premiums 180, 181t
near zero (negative) interest rate environment, CAPM in 181–182
preferred stock, cost 183
pretax cost of debt 182, 183t
size premium estimates 181t
WACC 183–184
Financial risk 118–119
Financial statements 238
analysis 235
common-size 240
firm’s interrelationships between 238f
Financial structure 430
Financial synergy 6t, 7–8
Financial transparency 517
Financing contingency 145
Financing costs 341
Financing deals.  See Deal financing
Financing strategy, leveraged buyouts.  See Leveraged buyouts (LBOs)
FINRA TRACE database 196
Firms emerging from bankruptcy, attractive returns to 487
Firms, existing businesses 
conflicts with customers 445
corporate focus 443
discarding unwanted businesses 444
funds 444
increasing transparency 445
lack of fit 444
operating assets 444
regulatory concerns 443
risk reduction 444
tax considerations 444
underperforming businesses 443
Firm’s interest payments 186–187
Firm size 487
Firm-size premium (FSP) 275
First-in, first-out (FIFO) method 242–243, 270
First-mover advantage 108
Fisher effect 509–512, 510b
Fitch IBCA 512
Five Forces model 106–107
Fixed share-exchange agreements 308–310, 309b, 310t
Fixed-value agreement 309–310, 309b, 310t
Flexibility objectives 111
Flextronics-International DisplayWorks (IDW) acquisition 309b
Flip-in poison pill 84–86
Flip-over poison pill 84–86
FMV  See Fair market value (FMV)
Focus/niche strategies 113
For-cause provisions 87
Foreign currencies, appreciation of 498
Foreign direct investment 498
Foreign-earned income 506–507
Foreign earnings 332t, 334–335
Foreign institutional ownership 517–518
Foreign investor 430
Foreign main proceeding 480
Foreign nonmain proceeding 480
Foreign target cash flow 505–507
Form of acquisition 297, 501–502
asset purchase 312–314
buyer’s perspective 312–314
definition 311
seller’s perspective 314
definition 311
effect of 298
LBOs 317
mergers 
direct merger 312
disappearing corporation 312
dual track deal structures 317
merger of equals 315
shareholder approvals 316
statutory consolidation 315
statutory merger 312, 315
subsidiary merger 315
successor liability 312
surviving corporation 312
tender offers 315–316
top-up options 317
single-firm recapitalizations 317
staged transactions 317
stock purchase 314
buyer’s perspective 314
definition 311
seller’s perspective 314
Form of payment 297, 301, 501
acquisition vehicle choice, effect on 298
alternative forms, evaluation of 308t
cash 301
cash and stock combination 302
convertible securities 302–303
cryptocurrency 303
legal form of selling entity, effect of 299
noncash 301–302
postclosing organization, effect on 298
seller’s legal form, effect of 300b
Forward 
currency exchange rates 505
triangular cash mergers 324
triangular stock merger 326–328, 327f
Franchise 17
Franchise alliance 417, 417t, 423t, 426
Free cash flow (FCF) 188
equity investors 189, 190b
firm (enterprise cash flow) 188
operating leases, dealing with 189
right tax rate, selection 188–189
Free cash flow to equity (FCFE) 188, 193
net working capital 188
tax rate 188
Free cash flow to the firm (FCFF) 188, 212, 505
Friendly takeover 14–15, 76
Friendly vs. hostile deals 500
Frontier economies 518
FSP  See Firm-size premium (FSP)
FTC  See Federal Trade Commission (FTC)
Functional integration 
benchmarking performance 163–164
finance functions 165
human resources (HR) functions 166
information technology 164–165
manufacturing operations 164
marketing function 165
purchasing 165
research and development (R&D) 165–166
reset synergy expectations 164
revalidating due diligence data 163
sales forces 165
Functional organization 161
Functional strategies 104, 115–116

G

GDP deflator 505
General Data Protection Regulation (GPDR) 56
General Electric (GE) 445
Generally accepted accounting principles (GAAP) 19, 339–341, 343
discontinued operations 250
financial statements 235–236
international standards 235
General partners (GPs) 361
General partnerships 423t, 425
German commercial bank 503
Global exposure 108
Global Intangible Low-Taxed Income Tax (GILTI) 334–335
Globalization 420, 496
Globally integrated capital markets 496
Golden parachutes 90
Goodwill 339–342, 344b
Google 438b
Go shop provisions 142–143
Governance 
business alliances 429
corporate  See Corporate governance
public vs. private company 266
Government bond rate 508, 510, 512–514
Government intervention, in hostile deals 500
Greenmail 90–91
Growing-annuity model 193
Growth rate 487
Growth strategy 111–112

H

Hart-Scott-Rodino (HSR) Antitrust Improvements Act of 1976 45–48
Hedge funds 20, 22, 75, 360, 362
in bankruptcy process 484
financial intermediaries, role of 361
PIPE securities 362
private equity placements 362
public listings of 364
Herfindahl-Hirschman Index (HHI) 49, 50f
Hermes (Germany) 504
Hewlett-Packard 458–459
High-performing acquirers (HPA) 127–128
High performing corporate cultures 166, 166t
High-performing manager 117–118
High-profit vs. low-profit industries, characteristics 241, 242t
Holding company 16, 300
Holdout problem 483
Home and Garden TV (HGTV) 126
Home country 496
Home Shopping Network (HSN) 102
Horizon growth value 192
Horizontal mergers, antitrust laws 48–50
Hostile takeover 15–16, 76–77
Hostile tender offers 15
implementation 79
multitiered offers 79
toehold investments 78
HPA  See High-performing acquirers (HPA)
Hubris 10
Human resource management 459
Hybrid strategies 113, 113t
Hybrid transactions 502
Hypothetical Facebook 2014 SWOT matrix 109, 109t

I

IAS  See International accounting standards (IAS)
IFRS  See International Financial Reporting Standards (IFRS)
IHS Global Energy 476
Impasse clause 432
Imperial Tobacco Group 444
Implementation strategy 104, 117
management guidance 119
objectives 118, 119t
resource/capability evaluation 118–119
timetable 120, 120b
InBev takeover of Anheuser-Busch 167
Incentive systems 73–74, 116
Income statement 250
historical 251t
Indemnification 144, 312–314
rights 143
Indenture 356
Independent (outside) director 68
Indications of interest 448
Industry average debt-to-total capital ratio 409–410
Industry consolidation 497
Industry credit ratios 412
Industry debt-to-total capital ratio 412
Industry interest coverage ratio 412
Industry regulation 
banking 58–59
communications 59
defense 59
insurance 59–60
railroads 59
Industry-risk premium (IND) 275
IndyMac Federal Bank 474
Inflation risk 179–180
Informed adjustments 268–270
accounting for inventory 270
adjustments to financial statements 270–271
auto expenses and personal life insurance 269
commonly 
overlooked areas 270
understated areas 270
depreciation expense 270
family members 269
professional services fees 270
rent/lease payments, in excess of fair market value 269
reserves 270
salaries and benefits 268–269
travel, meals, and entertainment 269
Initial public offerings (IPOs) 214, 226–228, 265, 269t, 284–285, 367
in bankruptcy 488
carve-outs 453–454
Input cells 243
In-sample predictions, bankruptcy 486
Inside mergers and acquisitions 66
Insider trading regulations 39–40
Institutional Investor 504
Institutional investors 20
Insurance 504
Intangible assets 270
Integration.  See also Business alliance
acquisition, role in 
acquisition-related customer attrition 157
employee turnover, impact of 156–157
rapid integration 156–157
realizing projected financial returns 156
building new corporate culture 166, 166t
identifying cultural issues through cultural profiling 167–168
overcoming cultural differences 168
communication plan development for stakeholders 
communities 161
customers 160
employees 159–160
investors 160–161
lenders 161
suppliers 160
creating new organization 
centralized management structure, establishment 161–162
compensation plans 163
employee availability 162
personnel information systems 163
personnel requirements 162
staffing plans and timetable 162
staffing plans development 162, 162f
digital tools and change management 168–169
family-owned firms 171
functional integration 
benchmarking performance 163–164
finance functions 165
human resources (HR) functions 166
information technology 164–165
manufacturing operations 164
marketing function 165
purchasing 165
research and development (R&D) 165–166
reset synergy expectations 164
revalidating due diligence data 163
sales forces 165
postmerger integration organization 159, 159b
premerger integration planning 158
Intellectual property (IP) 335, 499
Intercompany sales 446
Interest 182
deductibility 333
indications of 448
rate 412, 509–510
rate parity theory 505–506, 506b
transfer of 433
Interest rate risk premium 412
Internal financing 365
Internal rate of return (IRR) 228
Internal Revenue Code 323–324
Internal Revenue Service (IRS) 273, 323, 329
Internal Revenue Tax Code 452
International accounting standards (IAS) 235, 345–346
International Accounting Standards Board (IASB) 345–346
International Country Risk Guide 504
International expansion strategies 
accelerating growth 497
access to intellectual property and resources 499
avoiding entry barriers 498
customers 499
exchange rate fluctuation 498
geographic and industrial diversification 497
industry consolidation 497
leveraging intangible asset 497–498
lower raw material and labor costs 497
management-friendly environment 498
minimizing tax liabilities 498
International Financial Reporting Standards (IFRS) 339–340, 343
International joint venture 494, 494b
International market entry strategies 499–500
International partnerships 430
International taxes 337
Internet value chain 14
Interstate Commerce Commission (ICC) 59
Investment 
banks 18–19
in capital 332, 332t
clubs 21
fund 503
Involuntary 
bankruptcy 475
liquidations 483
IPOs.  See Initial public offerings (IPOs)
IRR  See Internal rate of return (IRR)

J

Johnson & Johnson Inc. (J&J) 349b
Joint ventures (JVs) 17, 297, 300, 418, 430, 494–495, 499
characteristics 417t
control 431–432
as corporation 430–431
cost reduction 419
cross-border joint ventures 435–436
C-type corporate structure 423–424
dispute resolution 432
equity and debt financing 430–431
favorable regulatory treatment 420–421
globalization 420
limited liability company 425
ownership distribution 430, 431b
project-based 430
put/call option 420
regulatory restrictions and notifications 435
securing sources of supply 419
strategic alliances 436–437
taxes 433
termination 433
transfer of interests 433
Joyson Safety System 490
Jumpstart Our Business Startups (JOBS) Act of 2012 40–41, 265
Junk bonds 356–357, 377

K

Key customer relationships 267
Key Safety Systems (KSS) 490

L

Labor and benefit laws 60
Labor cost 389, 497
Last-in, first-out (LIFO) method 242–243, 270–271
Lawsuits 92
Lawyers 19
Layoffs 127–128, 132
Legal insolvency 473
Legal institutions 515, 517–518
Legal protection 500
Letter of intent (LOI) 80, 133–134
Letter stocks 457–458
Level 3 Communications Inc. 4–5
Leverage 475–476, 487
Leveraged bank loans 357
Leveraged buyouts (LBOs) 13–14, 179, 317
capital structures 376–377, 376f
classic LBOs 375
deal structures 375–376
entrepreneurial LBOs 375
factors contribute to success of 
improving operating performance 370–371
not overpaying 370
target selection 369–370
as financing strategies 365–368
employment growth, effects of LBOs on 368
innovation, effects of LBOs on 367–368
private equity firm collaboration, changing nature of 368
private equity market 366–367
sales to strategic buyers 367
LBO shareholders, postbuyout returns to 363–364
LBO target firm (prebuyout) shareholders, prebuyout returns to 363
recap accounting 347
value creation 371–375
alleviating public firm agency problems 371–372
creating tax shield 372
debt reduction 373
estimating tax deductible interest expense 374–375
factors contributing to 371, 371f
operating margin, improvement in 373
providing access to capital for private firms 372
by reducing debt, improving margins and increasing exit multiples 374t
sale of firm, timing of 373–374
Leveraged employee stock ownership use to buy private companies 287
Leveraged/levered β 185
Leveraged recapitalization 92
Leveraging intangible assets 497–498
Liabilities 401
Liberty Braves Group 457
Licenses 17, 499–500
Licensing 430
agreements 417
characteristics 417t
franchise 426
Life Technologies, undertaking strategic review case study 255
board’s annual strategic review 256
business overview 257–258
competitor profiling 258, 258–259t
customer and competitor consolidation 256
historical performance 258–259, 259–260t
life sciences industry 256–257, 256–257t
Lighting Group Incorporated (LGI) 282b
Limited liability 424
Limited liability company (LLC) 297, 300, 423t, 424–425
Limited liability partnership (LLP) 425–426
Limited partners 425
Liquidating dividend 92
Liquidation 215–217, 223–224, 228, 358, 473
under Chapter 7 478–479, 479b
value 273
voluntary and involuntary 483
Liquidity discount (LD) 278
and control premium 279–280
factors affecting 280
size estimation 280t
LLC  See Limited liability company (LLC)
LLP  See Limited liability partnership (LLP)
Loan agreement 161, 354–355, 370
Loan repayment 386
“Loan-to-own” strategies 484
Local country 496
Logistics alliance 419
London Interbank Offered Rate (LBOR) 412
Long-term asset 250–251
Long-term debt, market value determination 195–197
financially 
distressed firms 196–197
stable firms 195–196, 196b
hybrid securities 197
Long-term financing 356–357
junk bonds 356–357
leveraged bank loans 357
transfer default risk from lenders to investors 357

M

Machine learning 104
Macrovalue drivers 214–215
Majority-minority framework 434
Majority rules framework 434
Management 254
abuses 73
contracts 73
decision making 235
entrenchment theory 76, 94
friendly environment 498
integration team (MIT) 159b
skills 418
Managerial autonomy 424
Managerialism (agency problems) 10
Marginal tax rate 276, 506–507
Market 
debt markets 503
definition 49
entry 
barriers 498
method of 499
strategy 427
equity markets 503
power 48
price-to-value indicator ratio 212
risk 180
premium 180
segment 130–131
share 107
and concentration 49
structure 48
value per share for target firm 212
Marketability discount 278
Market value (MV) 446
Market value of the target company (MVT) 215
Market values of long-term debt (MVD) 211
Master limited partnerships (MLPs) 299, 338–339, 426
Material adverse change clauses (MAC) 144
M&A transactions, financing of 354–360
asset sales 359
borrowing 354–356
asset-based (secured) lending 354–355
cash flow (unsecured) lenders 355–356
capital structure theory and practice 359–360
common and preferred equity 357–358
long-term financing, types of 356–357
junk bonds 356–357
leveraged bank loans 357
transfer default risk from lenders to investors 357
near-zero/negative interest rates, impact on 360
seller financing 358
Maximum offer price 395–397
Measure of nondiversifiable risk (β), risk assessment 184–185
effects of financial and operating leverage 185–188, 186t
bottoms-up approach 187
Brocade Communications Systems (Brocade) beta estimation 187, 187t
cost of equity, estimation 187
Mergers 13–14, 387
arbitrage 22
direct merger 312
disappearing corporation 312
dual track deal structures 317
integration 158t
merger of equals 315
shareholder approvals 316
statutory consolidation 315
statutory merger 312, 315
subsidiary merger 315
successor liability 312
surviving corporation 312
tender offers 315–316
top-up options 317
Mergers and acquisitions (M&As) 36
acquirer returns 25, 26t
firm-specific characteristics 28
payment impacts 27–28
returns positive for privately owned/subsidiary targets 26
small deals generating higher returns 26–27
smaller acquirers realizing higher returns 25–26
business alliances as alternatives 17
business planning 103–104
Comcast and Charter 416–417
cross-border merger waves 13
CSR investing 30
deal-structuring process  See Deal structuring
Delaware Supreme Court, in appraisal rights 178–179
Dodd-Frank Act and Consumer Protection Act 53–54
domestic merger waves 12–13
embedded/implied real options 219–220
employee stock ownership plans, role in 16–17
European steel operations 207–208
family-owned firms 266
financial model  See Financial model
financing deals  See Deal financing
holding companies, role in 16
implementation plan building 117
management guidance 119
objectives 118, 119t
resource/capability evaluation 118–119
timetable 120, 120b
laws affecting 37–38t
negotiation 381–382
overview 5
participants 
accountants 19
activist investors 21–22
institutional investors and lenders 20
insurance, pension, and mutual funds 20–21
investment banks 18–19
lawyers 19
M&A arbitrageurs 22
proxy solicitors 19
public relations firms 19
regulators 19
payoffs for 
bondholders 29
society 30
postmerger returns to shareholders 25
premerger returns to shareholders 22
returns high for target shareholders 23–24
returns to acquirer shareholders 24–25
process 104–105
flow diagram 105f
phases 104
real options, valuation of 220
Staples Inc. 352–353
state regulations affecting 56–57
Tata Steel Ltd. 207–208
theories 5–11
buying undervalued assets, Q-ratio 10
causing 6t
hubris and “winner’s curse,” 10
managerialism (agency problems) 10
market power 11
misvaluation 11
strategic realignment 9–10
synergy 5–8
tax considerations 10–11
Thyssenkrupp AG 207–208
Verizon Inc. 233–234
waves occurence 12
Yahoo Inc. 233–234
Mexican peso/dollar exchange rate 506
Mezzanine debt 377
Mezzanine financing 355–356
Microsoft 183t
Minority 
discount 
definition 279
factors affecting 281–283
Lighting Group Incorporated 282b
investments 17, 436
shareholder 501–502, 516
Miragen Therapeutics Inc. 290b
Mission/vision statement 106, 110–111
Misvaluation 11
MLPs.  See Master limited partnerships (MLPs)
Mobileye 149b
Model balancing mechanism 249
Monte Carlo simulation 222–223, 254
Moody’s Investors Service 512
Morris Trust 456–457
Multi-Employer Pension Plan Amendments Act of 1980 60
Multifactor models 180
Multilateral alliances 427
Multinational corporations 335, 499, 506–507
Multiperiod comparison 240
Multiple-option bidding strategy 302
Multiple party framework 434
Multivariate discriminant analysis 486
Mutual funds 20, 75

N

Napoleonic Code 501
Near zero/negative interest rates 360
Negative covenant, loan agreement 355
Negotiated share exchange ratio 387
Negotiation phase, in acquisition process 134, 135f
deal structuring 135
due diligence conduction 136–138
financing plan development 139
purchase price 139–140
virtual data room 139
Net acquired assets 339–341, 401–402
Net neutrality rules 59
Net operating losses (NOLs) 324, 365
Net present value (NPV) 223, 228, 280, 401, 514
Net purchase price (PVNPP) 140
Net working capital 188
Neural networks 486
New Baker Hughes 420
Newco 
acquirer, standalone value of 383–385
ending cash balances 386–387, 387t
EPS, determining impact of deal on 398–401
to meet/exceed required returns 401
value estimation 389–395
estimating synergy and investment required to 391
projecting Newco financials 391–394
selecting discount rate and terminal period assumptions to value Newco 395
News Corp. 456
New York Stock Exchange (NYSE) 43, 285
Nodes 220
NOLs.  See Net operating losses (NOLs)
Noncash payment 301–302
Noncontrolling interests 340–341
determination, of market value 199
Non-controlling passive investment 200
Nondisclosure agreement 133
Nonequity claim 195–197, 201, 246–247
Nonoperating assets, valuation 199–201
cash and marketable securities 199–200
estimation, minimum and excess cash balances 200b
investments in firms 200
overfunded pension plans 201
patents/service marks/trademarks 201
unutilized and undervalued assets 200
Nonrecourse lending 354
Normal profits 241
No-shop agreement 80
Note on Debt and Long-term Obligations 251
NPV  See Net present value (NPV)

O

Offer price 395–401
One-step merger process 315–316
One-tier offer 79
Operating/asset-related synergies 405–406
Operating cash flow 437
Operating expenses 267
Operating lease 
expense 189
market value determination 196b, 197
Operating leverage 185–188
effects, on financial returns 186t
firm’s degree of 187
Operating margin 392–393
Operating risk 118–119
Operating synergy 5–7, 6t
Operational restructuring 13
strategy 112
Options 399–400, 400t, 411
exercise prices 73
takeover strategy 310–311
Order for relief 477–478
Orderly Liquidation Authority (OLA) 484–485
Organization for Economic Cooperation and Development (OECD) 337
Organizations 
divisional 161
functional 161
postclosing 
appropriate postclosing organization, selection of 300
definition 297
form of payment, effect of 298
product/service 161
Out-of-court voluntary settlement 474–475, 483
Overpayment risk 118–119
Over-the-counter (OTC) market 38

P

Paid-in-kind (PIK) preferred stock 358
Parent company operating units, characteristics 461, 461t
Partial acquisitions 50
Partnerships 299–300, 423t, 477
equity partnerships 417t, 426–427
general partnership 425
limited liability partnership 425–426
MLPs 426
Pass-through entity 433–434
Pass-through income 331, 332t
Pass-through organization 434
Pay-for-performance incentive plans 73
Payment, form of.  See Form of payment
Payment-in-kind notes 357
Payoffs 
for bondholders 29
for society 30
Pecking order theory 359
PEG ratio 212, 214, 214b
Pension 
funds 75, 484
plan 201
Pension Protection Act of 2006 60
Pentair Plc. 455
Personal assets 477
Personal life insurance 269
Personal property 335–336
Peso-denominated FCFF cash flows 506, 507b
Pill defenses 86
PIPEs.  See Private investment in public equities (PIPEs)
Planning 504
based acquisition process 103
period 239
target firm  See Target firm planning
Platform business strategies 113–114
Poison pills 
flip-in pill 84–86
flip-over pill 84–86
Political risks 504
Porter five forces model summary 240–241, 241t
Postbuyout returns, to LBO shareholders 363–364
Post-carve-out returns 465–466
Postclosing 336
capital structure 398
organizations 
appropriate postclosing organization, selection of 300
definition 297
form of payment, effect of 298
Postmerger accounting return 23, 25
Postmerger integration 
organization 159, 159b
strategy 155
Postmoney 283
Postoffer takeover defenses 
advantages and disadvantages 90, 91t
corporate restructuring 92
employee stock ownership plans (ESOPs) 91
greenmail 90–91
leveraged recapitalization 92
litigation 92–93
share repurchase/buyback plans 92
white knights and white squires 91
Post-spin-off returns 465–466
Posttransaction capital structure 385, 395–401
Preannouncement abnormal returns 
divestiture 462–464
focus of divesting firm 463
mitigating financial distress 464
resolving management and shareholder differences 463
transferring assets 463
equity carve-outs 464–465
increasing focus 465
resolving management and shareholder differences 465
source of financing 465
spin-offs 462t, 464
increasing focus 464
transparency 464
wealth transfers 464
tracking stock 462t, 465
Prebuyout returns, to LBO shareholders 363
Precedent transactions method 210–211, 210t
Preclosing 336
Predictive accuracy 486
Predictors, of incidence of default 487
Preferred equity 357–358
Preferred stock 197, 358, 359t, 377
cost of 183
estimation, of common equity value 197, 198b
Premerger balance sheets 349t
Premerger event return 23
Premerger integration planning 158
Premoney 283
Preoffer takeover defenses 
advantages and disadvantages 85t
poison pills 84–86
vs. postoffer 84t
shark repellents 87
Prepackaged bankruptcies 481
Present value of the operating lease (PVOL) 189
Price allocation 143
Price/cost leadership strategy 112
Price-to-earnings 128
Pricing power continuum 241–242, 242f
Private companies, going public 284–287
Dell Technologies 286–287
financing reverse mergers 285
reverse mergers 284–285
special-purpose acquisition corporations 286
wealth effects 285
Private equity firms 352, 356–357
collaboration 368
financial distress 364
Private equity funds 20, 360
financial intermediaries, role of 361
leveraged buyouts  See Leveraged buyouts (LBOs)
postbuyout returns, to LBO shareholders 363–364
prebuyout returns, to LBO shareholders 363
private equity firms and financial distress 364
private equity placements 362
Private equity investors 75
Private firms.  See Privately owned businesses
Private investment in public equities (PIPEs) 285, 362
Private letter ruling 323
Privately held companies valuing, challenges 
externally generated information, lack of 267
firm-specific problems 267
internal controls and reporting systems, lack of 267
reported income manipulation, forms 267–268
misstating revenue 267
operating expenses manipulation 268
Privately owned businesses 
Dell Technologies 286–287
early stage investment 283
ESOPs 265, 287
vs. public company governance 266
sources of information on 269t
valuing process 268
applying valuation methodologies 272–273
control premiums, liquidity, and minority discounts 278–283
discount rates development 273–276
financial statements adjustment 268–271
Private markets 353–354
Private sale 447–448
Proactive sales 447
Procedural rules 48
Proctor Gamble (PG) 456
Product alliances 421
Product life cycle 112
Product line 131
Product-market matrix 8t
Product/service organization 161
Professional services fees 270
Profitability 240, 487
Pro forma 
accounting 236–237, 237b
cash flows 245–249
financial statements 236, 387–388
project financial statements 243–245
Promissory note 354–355
Proration clause 302
Provisions liabilities, cash impact determination 199
Proxy contests 19
definition 76
implementation 77
shareholder value, impact on 78
Proxy solicitors 19
Public company 
agency problems 371–372
vs. private company governance 266
Public Company Accounting Oversight Board (PCAOB) 43
Public/free float 453–454
Public limited partnerships 425–426
Public markets 353–354
Public sale 447–449
Public stock exchange 15–16
Public-to-private LBOs 363
Purchase/acquisition premium 14–15
Purchase price (PP) 342
hypothetical earnout, role of 305b
net purchase price 140
premiums 278–279
effecting factors 451t
risk management, and reaching consensus 
balance-sheet adjustments 304, 304t
contingent value rights 307
earnouts and other contingent payments 304–307
escrow accounts 304
rights, royalties, and fees 307
total consideration 139
total purchase price/enterprise value 139–140
Purchasing power parity theory 506, 507b
Pure control premium 279
Put option 420
PV of net synergy (PVNS) 396

Q

Q-ratio 10
Qualified business income (QBI) 433
QVC business model 102

R

Racketeering 19
Raw material cost 497
Reactive sales 447
Real cash flow 505
Real discount rates 505
Real estate investment trusts (REITs) 339, 444
Real options 104, 218–219
Black-Scholes model 222–224
decision tree framework 220, 221t, 222f
embedded/implied in M&A decisions 219–220
financial options 218–219
mergers and acquisitions 220
Recapitalization (Recap) accounting 346–347
Receivership 473–474
Recommendation statement 42
Recourse lending 354
Reed Hastings rule 43–44
Regional Bell operating companies (RBOCs) 445
Regulatory arbitrage 61
Regulatory prenotification filing requirements for 2016 47t
Reincorporation 90
Relative price 108
Relative valuation 209–215
adjusting relative valuation methods, for firm growth rates 212–214, 214b
comparable companies method 209–210, 210t
DCF methods 209
enterprise-value-to-EBITDA method 211–212, 213b
firm’s market value 209
market value of target firm 209
price-to-earnings (P/E) ratio 209
recent comparable transactions method 210–211, 210t
same/comparable industries method 211, 211b
value-driver-based valuation 214–215
Reorganization 
in bankruptcy 475–481
Chapter 11 477–478
procedures 477–478, 477f
period 477–478
plan 477–478, 481
Repatriation 332t, 335
Replacement cost method 209, 217, 273
Research and development (R&D) assets 341
Resource Conservation and Recovery Act (1976) 60
Restricted stock 453–454
Restructuring 
implementation issues 
allocation of nonlong-term debt liabilities 459
assets and liabilities associated with business 458
board governance 459
human resource management 459
solvency 459
target capital structure 458–459
risk management 442
separation and distribution agreement 460
strategies 
and alternative exit, characteristics of 460–461, 460t
choosing among divestiture/carve-out/spin-off 461, 461t
determinants of returns to shareholders 462–466
tax matters agreement 460
transition agreement 460
Retention bonuses 42, 116, 163
Retirement Equity Act of 1984 60
Retirement Protection Act of 1994 60
Revenue growth 240–243, 241–242t, 242f
Revenue ratio 128
Revenue-related synergy 404–405
Revenue ruling 273, 323
Reverse breakup fees 81
Reverse LBOs 370–371
Reverse mergers 284–285
financing 285
vs. IPOs and sellouts 285
recap accounting 347
Signal and Miragen 290b
Reverse Morris Trust 456–457, 467b
Reverse stock split 376
Reverse triangular cash mergers 324
Reverse triangular mergers 380f
Reverse triangular stock merger 326, 328, 328f
Reynolds American Inc. 231b
Right of first refusal 433
Risk assessment 184–188
correlation 185
measure of nondiversifiable risk (β) 184–185
volatility 185
Risk-free rate of return 179–180
Risk-free rates 508, 510
Risk management options 504
Risk premium report 275
Risk reduction 444
Risk sharing 416, 416b, 418–419, 437
Rockwell Collins 204b
Royalties 307

S

SACE (Italy) 504
Sale value (SV) 446
Same-store sales 214–215
Sanofi 307
Sarbanes-Oxley Act (SOA) of 2002 39, 43
Say on pay rule 73
Scale, of economies 5–6
Scripps Networks Interactive 126–127
Secondary buyouts 367
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