Index – Global Mergers and Acquisitions, Volume I

Index

Accounting adviser, 35

Accounting considerations, 129

Acquisitions, 12

candidate pool, development of, 3940

vehicle, 129

Administrative organization, 6

Affordable price range, 41

American option, 78

Appreciation, currency, 116

Approximation method, normal distribution using, calculation of, 8991

Arrow, definition of, 30

Asia, postmerger acquisition practices in, 155156

Asymmetric information, problem of, 25

Basic formula, for valuation, 62

Black–Scholes Model, valuation of target company using, 8789

Bolt-on strategy, 149150

Buyers, types of, 19

Call option, 78

example of, 79

Capital asset pricing model (CAPM), 6768

examples of, 6869

Capital budgeting approach, 58, 75

Capital IQ database, 23

CAPM. See Capital asset pricing model (CAPM)

Cash flows

financing activities, 4243

investing activities, 42

operating activities, 42

statement of, 42

Centralization versus decentralization, 140

CFIUS. See Committee on Foreign Investment in the United States (CFIUS)

Chandler, Alfred, 6, 15

Change in net working capital (CNWC), 60

China International Trust and Investment Company (CITIC), 4748

China Railway Construction Corporation, 18

China State Construction Engineering Corporation (CSCEC), 18

CITIC. See China International Trust and Investment Company (CITIC)

CNWC. See Change in net working capital (CNWC)

Committee on Foreign Investment in the United States (CFIUS), 130

Communication

effective mechanism, 138

and transportation, internationalization of, 79

Company valuation, companies approach in, 56

Comparable transactions method, 5758

Competitive advantage, definition of, 30

Complete integration, 137

Comprehensive due diligence, aims of, 44

Conglomerate mergers, 18

Consolidation, 12

strategy, 150

Constant cash flow growth, case of, 63

Contingent liability, 108

Contracting method, 22

Corporate culture, definition of, 30

Corporate development office, 3233

Corporate restructuring, 1112

reasons for, 1416

terminologies of, 1214

Cost of capital

cost of debt, 70

cost of equity, 6769

raising funds via issuing preferred stocks, cost of, 7071

as weighted average of costs of equity, debt, and preferred stocks, 7173

Cost of debt, 70

Cost of equity, 6769

Cross-border mergers and acquisitions (M&As), 3

definition of, 14

risks associated with, 1618

distribution risks, 17

foreign exchange and repatriation risks, 17

legal risks, 1617

management risk, 16

political risks, 18

target valuation in

cash flow calculation in multinational operations in multiple currencies, 122124

cross-border valuation, 121122

exchange rate fluctuations, 116117

foreign exchange risk exposure and mitigation, 124125

forward versus spot rates, 120121

law of one price and purchasing power, 114116

nominal exchange rate and currency transactions, 111112

real exchange rate, 112114

spot, forward, and swap currency transactions, 117120

CSCEC. See China State Construction Engineering Corporation (CSCEC)

Culture

due diligence, 4748

monolithic view in defining, 30

Currency transactions, 111112

DCF. See Discounted cash flow (DCF)

Deal structuring, 24

securing approval for, 128129

Degree of integration, 134

Deloitte Consulting LLP, 136

Departmentalization, 140

Depreciation, currency, 116

Disclosure database, 23

Discounted cash flow (DCF), 75

calculation in multinational operations in multiple currencies, 122123

examples of, 123124

spreadsheet approach, 5861

Distribution risks, 17

Diversification, 15

Divestitures, 13

Domestic versus cross-border M&As, 1920

Dual-class stock, 23

Due diligence, 24, 25, 4344

financial, 45

market, 46

securing approval for, 128

types of, 4548

Dun & Bradstreet database, 23

Economic exposure, 124

Economies of scale, 14

EDGAR Online database, 23

Enron Corporation, 25

Enterprise cash flow, 59

Equity carve-out, 13

Ernst & Young’s survey, 34

European option, 78

Exchange rate

fluctuations, 116117

quotation, 111112

Exercise price, 76

Expiration date, 76

External opportunities method, 22

FASB. See Financial Accounting Standards Board (FASB)

FCF. See Free cash flows (FCF)

FDI. See Foreign direct investment (FDI)

Financial Accounting Standards Board (FASB), 4950

Financial due diligence, 45

Financial integration, plan for, 142143

Financial markets, internationalization of, 5

Financial modeling, 107

Financial options, 8182

Financial restructuring method, 22

Financial synergy, 1415

Financial time series, time variability of volatility of, 9296

Financing plan, securing approval for, 129130

Finder, 3536

FINSA. See Foreign Investment and National Security Act (FINSA)

Food and Drug Administration, 82

Foreign direct investment (FDI), 14

Foreign exchange

rate, 111

and repatriation risks, 17

risk exposure and mitigation, 124125

Foreign Investment and National Security Act (FINSA), 130

Form of acquisition, 129

Form of payment, 129

Forward contracts, 118

examples of, 118

versus spot rates, 120121

Free cash flows (FCF), 5859

calculations, 5961

GAAP. See Generally Accepted Accounting Principles (GAAP)

GCE. See Gross capital expenditures (GCE)

GDP. See Gross domestic product (GDP)

Generally Accepted Accounting Principles (GAAP), 50

Global enterprises, 6

Global Market Information Database, 38

Global Resources International (GRI), 105

Goals, definition of, 29

Greenfield investment project, 14

GRI. See Global Resources International (GRI)

Gross capital expenditures (GCE), 59

Gross domestic product (GDP), 3

Herfindahl–Hirschman index (HHI), 3738

HHI. See Herfindahl–Hirschman index (HHI)

Horizontal mergers, 18

Hostile takeover. See Hostile tender offer

Hostile tender offer, 127

Hubris, 15

Human resource (HR) management. See Staffing plan

integration planning, 143144

Hybrid approach, 137

ICT. See Information and communication technology (ICT)

IFRS. See International Financial Reporting Standards (IFRS)

In-the-money options, 78

Income statement effects, 5354

Industry roll-up, 13

Information and communication technology (ICT)

absorption strategy of, 146

integration of, 144145

strategy for, 145146

Information technology (IT), 78

Intangibility, 8

Intangible assets, valuation of, 108

Integrated industrial enterprises, 6

Intellectual property (IP), 154155

Internal changes method, 22

Internal controls integration, postacquisition processes and, 153154

International Financial Reporting Standards (IFRS), 50

Internationalization of economies

of communication and transportation, 79

of financial markets, 5

of labor market, 67

of national enterprises, 56

of product and service markets, 35

transfers of technology, 5

Internet, 9

Investor buyers, 19

IP. See Intellectual property (IP)

IT. See Information technology (IT)

JIT. See Just-in-time (JIT)

Just-in-time (JIT), 147

Labor market, internationalization of, 67

Law of one price, 114116

Legal adviser, 34

Legal agreement, for investment, 47

Legal due diligence, 4546

Legal risks, 1617

Leveraged buyout, 13

Leveraged recapitalization, 1314

LIBOR. See London Interbank Offer Rate (LIBOR)

Line-and-staff organization, 141

Line organization model authority, 141

Location of operations, 40

London Interbank Offer Rate (LIBOR), 130

Long position, 76

Long-term financing, 130

Management risk, 16

Management style, 154

Managerial and sociocultural integration, 135

Managerial capitalism, 15

Managerialism, 16

Mardaka Company, 99101

Market-based transactions approach, 56

Market capitalization, 40

Market due diligence, 46

Market power hypothesis asserts, 16

Market share, 38

Market Share Reporter, 38

Marketing factors, definition of, 41

Matrix-style organization, 141

Merger, 12

Merger and acquisitions (M&As)

accounting methods for, 4954

buyers, types of, 19

domestic and cross-border versus, 1920

integration, 133

option value used in, 9899

overview of

acquisition or execution, 24

integration, 24

problems arising during and after completion of, 2427

screening, 23

strategic (long-term) planning, 2123

real options valuation in, 99106

securing approval for, 127128

strategy development, 2930

challenges, 3536

choosing of, 31

corporate development office and target acquisitions, 3233

development of, 32

lead advisers in, 3435

types of, 1118

valuing real options for, 8285

Mintel Market Research Reports, 38

Mismanagement or agency problem, 15

Monte Carlo simulation, 99

Multidomestic enterprises, 6

National enterprises, internationalization of, 56

Negotiations, 24, 26

Net present value (NPV) calculation, 58

incremental profit approach to, 6465

New York Stock Exchange, 111

No-growth case, 63

Nominal exchange rate, 111112

Nonstorability, 8

Normal distribution, using approximation method, calculation of, 8991

Objectives, definition of, 30

Operational restructuring, 12

Operator buyers, 19

Optimal supply chain

and corporate performance, 147150

degree of integration, 150

Option

for M&As, valuing real, 8285

premium, 78

terminologies, 7678

types of, 8182

Option price. See Option, premium

Organization

establishment of, 138

issues, 140141

model of, 141

rules and regulations, 139140

Organizational culture, definition of, 30, 47

Organizational task, 134

Out-of-money options, 77

Parmalat group of Italy, 25

Personnel due diligence, 46

Physical integration, 135

Pip, 112

Planning and strategy, 142

Point, 112

Political risks, 18

Pooling-of-interest method, 49

Postacquisition integration of operations, 153154

Postannouncement equity price, 57

Postclosing organization, 129

Postclosing real options, 82

Postmerger integration

acquisition practices in Asia, 155156

approaches to integration, 137155

and reorganization, 133137

risk factor for successful, 137

Preferred stocks, cost of raising funds via issuing, 7071

Premerger integration plan, 137138

Price paid for target company versus acquired firm’s net asset value, 5053

Procedural integration, 135

Product and service markets, internationalization of, 35

Purchase accounting method, 50

Purchase method, 49

Purchasing power parity (PPP) theory, 115116

Put option, 7980

example of, 8081

Ralls Corporation, 46

Real exchange rate, 112116

Real option, 8182

to abandon, 104106

valuation in M&As, 99106

Regulatory considerations, 130131

Relative PPP, 116

Renminbi (RMB), 112, 113

Repatriation risks, 17

Restructuring method, 13, 22

RMB–dollar exchange rate, 115

Sale agreement, 47

SCM. See Supply chain management (SCM)

Screening criteria, definition of, 4041

SEC. See Securities and Exchange Commission (SEC)

Securities and Exchange Commission (SEC), 26, 49, 130

Services

definition of, 8

technology-based taxonomy of, 8

Short position, 76

Smithfield Foods, 131

Societa Metallurgica Italiana (SMI) Company, 75

Span of control, 140

Spin-off transactions, 13

Split-up, 13

Spot transactions, 117

examples of, 118

versus forward rates, 120121

Staffing plan, 141142

Standard & Poor’s Corporate Register database, 23

Status quo integration, 137

Statutory merger, 12

Strategy, definition of, 29

Strike price, 76

Subsidiary merger, 12

Supply chain management (SCM)

actions for rapid, 151152

capital expenditure, 152

integration, 146147

motives for acquisition and, 150

new corporate culture, formation of, 152153

operating expense, 152

revenue, 152

short history of, 147

working capital, 152

Swap currency transactions, 118

examples of, 119120

Takeovers or buyouts, 13

Tall versus flat organization structures, 140

Target acquisitions, 3233

Target company

for acquisition

barriers to entry in the industry, 39

developing acquisition candidate pool, 3940

due diligence, 4348

financial assessment of acquiring company, 4143

identifying and understanding the industry of, 3738

market size and growth potential, 3839

target-screening process, 4041

technological changes and trends in the industry, 39

price paid for, 50

refining valuation of, 128

using Black–Scholes Model, valuation of, 87108

valuation of, 24

Target-screening process, 4041

prioritizing, 41

screening criteria, 4041

target profiles, 40

Target size preference, 41

Task characteristic, 134

Tax considerations, 129

Technical due diligence, 46

Temporary supernormal growth

then constant growth, case of, 63

then no growth, case of, 62

Tender offer, 13, 127

Term sheet, 47

Time variability of volatility, of financial time series, 9296

Transaction exposure, 124

Transaction structure, state preference for, 41

Transfer of technology, international, 5

Transformative integration strategy, 149

Translation exposure, 124125

Two-way trade, 34

Valuation

alternative approaches to, 55

challenges, 106

companies approach in company, 56

of company, real options analysis in, 7576

comparable transactions method, 5758

discount cash flow spreadsheet approach, 5861

formula approach to, 6166

options

for M&As, valuing real, 8285

mechanics of working of call and put, illustration of, 7881

terminology, 7678

type of, 8182

of real call option to delay, 101104

of target company, 24

using Black–Scholes Model, 87108

Value assessor adviser, 35

Value date, 117

Variance of rate of return, 9192

Vertical mergers, 18

Vision, definition of, 29

Volatility estimation, use of trading days and calendar days in, 9698

Weighted average, 71

examples of, 7273