Series 79 flashcards

32 cards. Read the term and the definition here. The deck at the top of this page is optional.

Enterprise Value Formula

Enterprise value equals equity market value plus total debt, preferred stock, and noncontrolling interest, minus cash and cash equivalents; it lets analysts compare companies with different capital structures.

WACC Calculation

WACC = (E/V) × cost of equity + (D/V) × after-tax cost of debt, where cost of equity is the risk-free rate plus beta times the equity risk premium.

Terminal Value Perpetuity

Terminal value equals the final year's free cash flow times (1 + g) divided by WACC minus g; the growth rate should not exceed long-run economic growth.

Exchange Ratio Formula

Exchange ratio equals offer price per target share divided by the acquirer's share price, determining how many acquirer shares each target share receives in a stock deal.

Accretion Versus Dilution

A transaction is accretive when pro forma earnings per share exceeds the acquirer's standalone EPS, and dilutive when combined EPS is lower; synergies and financing costs drive the result.

Goodwill Calculation

Goodwill equals purchase consideration minus the fair value of identifiable net assets acquired; it is not amortized but tested for impairment at least annually.

Precedent Transaction Multiples

Valuation multiples derived from completed mergers and acquisitions; because they reflect prices paid for control, they generally exceed multiples from trading comparables.

Firm Commitment Underwriting

The underwriter purchases the entire issue from the issuer at a discount and resells it to the public, bearing the risk that shares may not sell at the offering price.

Green Shoe Overallotment

A syndicate option to purchase up to 15% more shares than the base offering at the offering price, exercisable within 30 days, used to cover over-allotments.

Gross Spread

The underwriting discount equal to the public offering price minus proceeds to the issuer, typically about 7% in an IPO and split among managers, underwriters, and selling group.

IPO Lock-Up Period

A typically 180-day agreement under which pre-IPO holders and insiders may not sell shares without the lead underwriter's consent, supporting aftermarket price stability.

Rule 105 Restriction

Prohibits an investor from purchasing shares in an offering to cover a short sale of the same security effected within five business days before the offering's pricing.

Syndicate Covering Transaction

Aftermarket purchases by the underwriting syndicate to cover a short position created by overallotment; a permitted stabilization activity that must be disclosed in the prospectus.

Section 11 Due Diligence Defense

An underwriter avoids liability for misstatements in a registration statement by proving it conducted a reasonable investigation and had no reason to believe the statements were false.

Rule 415 Shelf Registration

Permits an issuer to register securities in advance and sell them over up to three years in varying amounts and structures without filing a new registration statement each time.

Rule 506(b) Limits

A Regulation D private placement allowing unlimited accredited investors and up to 35 non-accredited purchasers, prohibiting general solicitation and requiring a Form D filing.

Accredited Investor Thresholds

An individual with income above $200,000 ($300,000 joint) or net worth above $1 million excluding the primary residence; entities qualify with $5 million in investments.

Rule 144 Holding Period

Six months for securities of a reporting issuer and one year for a non-reporting issuer before restricted securities may be resold under the Rule 144 safe harbor.

Rule 144 Volume Limitation

Affiliates may sell in any three-month period no more than the greater of 1% of the class outstanding or the average weekly trading volume over four weeks.

Rule 144A Resale Safe Harbor

Permits resale of restricted securities to qualified institutional buyers that own and invest at least $100 million in securities, without registration under the Securities Act.

WKSI Automatic Shelf

A well-known seasoned issuer with $700 million public float or $1 billion of debt sold in three years may file an automatic shelf registration effective immediately upon filing.

Reverse Triangular Merger

The target merges into a wholly owned subsidiary of the acquirer and the target survives, preserving the target's contracts, licenses, and tax attributes while the acquirer obtains control.

Section 368(a) Reorganization

Categories of tax-free reorganizations - Types A, B, C, D, E, F, and G - that qualify only if continuity of interest and continuity of business enterprise are satisfied.

HSR Waiting Period

Premerger notification requires an initial 30-day waiting period, or 15 days for a cash tender offer, extendable when the agency issues a second request for information.

Break-Up Fee

A negotiated termination fee, generally 2-4% of transaction value, paid to the acquirer if the target board terminates the agreement to accept a superior proposal.

Revlon Duties

When a board approves a change-of-control transaction, it must obtain the best price reasonably available to shareholders rather than simply maintaining a defensive posture.

MAC Clause

A material adverse change or effect provision allowing the acquirer to terminate if the target suffers a significant harm, subject to negotiated carve-outs for market and industry conditions.

Best Price Rule

Rule 14D-10 requires that every holder of the class receives the highest consideration paid to any other holder during the tender offer period.

Tender Offer Minimum Period

A tender offer must remain open at least 20 business days from commencement, and tendering shareholders retain withdrawal rights throughout the offering period.

Schedule 14D-9 Deadline

The target company must file its recommendation to shareholders on Schedule 14D-9 within 10 business days after the tender offer commences.

Automatic Stay

A bankruptcy petition automatically halts collection actions, foreclosures, and litigation against the debtor; creditors must obtain court relief to proceed.

Cramdown Confirmation

A court may confirm a Chapter 11 plan over a dissenting class if the plan is fair and equitable and does not discriminate unfairly against that class.