Mergers and Acquisitions, Tender Offers and Financial Restructuring Transaction
Mergers and Acquisitions
Deal structures and consideration
M&A questions test the choice among statutory mergers, stock purchases, and asset purchases, and among cash, stock, and mixed consideration. Stock deals require an exchange ratio: offer price per target share divided by the acquirer’s share price. Fixed exchange ratios transfer value risk to the target’s shareholders; floating ratios or collars shift risk. Candidates must analyze accretion/dilution, synergies, control premiums, and pro forma ownership.
Process and protections
A public deal typically involves a confidentiality agreement, due diligence, a merger agreement with representations, warranties, covenants, and indemnification, and often an escrow or earnout. Deal protections include no-shop clauses, matching rights, and break-up fees. The board’s fiduciary duties-care and loyalty-govern, and Revlon duties may apply when the company is sold for cash. Hart-Scott-Rodino filing is required above the size-of-transaction and size-of-person thresholds.
Worked example
Acquirer stock trades at $60 and the target agrees to a $30 per-share offer in stock. The exchange ratio is $30 ÷ $60 = 0.50 acquirer shares per target share. If the acquirer’s price falls to $50 before closing under a fixed ratio, target holders receive $25 of value-illustrating the target’s price risk. Rule of thumb: break-up fees are commonly in the low single digits as a percentage of deal value and must not be so high as to be preclusive.
Traps in questions
Do not confuse enterprise value with equity value in purchase price. A stock deal can be accretive or dilutive depending on the acquirer’s P/E and the target’s earnings yield. Tax-free reorganization status under Section 368 depends on continuity of interest and business enterprise. Section 338 elections affect tax basis, not GAAP accounting.
Tender Offers and Financial Restructuring Transaction
Tender offer mechanics
A tender offer is governed by the Williams Act. The bidder files a Schedule TO; the target board responds on Schedule 14D-9 within 10 business days. Key rules include the all-holders rule, the best-price rule, withdrawal rights during the offer, and proration if the offer is oversubscribed. A tender offer must remain open at least 20 business days, and material changes require extension. Schedule 13D must be filed by beneficial owners above 5% who have control intent; passive investors may use the shorter 13G.
Restructuring tools
Distressed companies may pursue exchange offers, consent solicitations, tender offers for debt, or Chapter 11. In bankruptcy, debtor-in-possession financing, Section 363 asset sales, cramdown, and the absolute priority rule are central. A prepackaged bankruptcy combines solicitation with a pre-negotiated plan. Mini-tender offers fall outside many disclosure requirements but still raise investor-protection concerns.
Worked example
A tender offer for 5 million shares receives 10 million shares tendered. The proration factor is 5 ÷ 10 = 50%. An investor who tendered 1,000 shares has 500 accepted and 500 returned. Rule of thumb: if a tender offer is oversubscribed, every tendering holder is treated pro rata-no holder gets preferential allocation.
Traps in questions
Do not confuse the 20-business-day minimum with the 10-business-day board response period. Withdrawal rights must remain available throughout the offer, not only at the start. The best-price rule requires that all holders receive the highest consideration paid to any holder. A going-private transaction involving affiliates triggers Rule 13e-3. Schedule 13D is not the same as a Schedule TO.