MERGERS & ACQUISITIONS

Leonid Sopotnitskiy

Part 1

Restructuring a business

Restructuring activities Acquisitions Mergers Strategic alliances Demergers Divestitures

• Friendly

• Hostile

• Takeover

• Vertical

• Horizontal

• Congeneric

• Conglomerate

• Accretive

• Dilutive

• Joint Ventures

• Minor investments

• Franchising

• Licensing

• Spin-out

• Spin-off

• Disposal

Holding companies in M&A

Cheaper transaction Gain control via

majority stake

Triple taxation Minority resistance Ineffective managerial

decisions

+ VS -

2 to 366% INEFFECTIVE

ESOP (Employee Stock Ownership Plan)

ESOP-Fund

SPONSORCreditor

1. L

oan

2. Guarantee

3. Shares

4. Finance

5. In

tere

st

ESOP as an M&A-tool

ESOP-Fund

Parent Co.Creditor

1. L

oan

2. Guarantee

3. Shares

4. Finance

5. In

tere

st“Shell” company

Subsidiary SHARES

Part 2

Participants

Investment Bankers

Deal clarification Consulting services IPO

Lawyers Corporate law Antimonopoly law M&A code Tax law Pension planning Real-estate law Securities Court experts

Other participants

Accountants Proxy-hunters PR-agents Institutional investors (pension funds, insurance

companies, etc.)

Arbitrage traders (a.k.a. “Arbs”)

Arbitrage trading

Long target

Short “shark”Buy “shark”

Sell target

Takeoverannouncement

Deal successfulShares converted

t

(1Q) (3Q)

SPI

60

40

70

+ 20

+ 10

Part 3

HQ behind the scenes

Synergy

Operational effect Financial effect

1 + 1 = 3

Common stimuli Market leadership Strategy realignment Taxes Cross-selling

Empire building Managers’ hubris Diversification Undervalued assets

(q-ratio)

Why do M&A deals fail? Overestimated synergy Low integration tempo Bad strategy Cultural conflicts Core-business conflicts Oversized targets Careless deal clearance (by investment bankers)

Financing errors

Part 4

Acquisitions & takeovers

Friendly acquisitions

Voluntary General Offering (VGO) Deal through board negotiations Willfulness of both parties Late announcements

Lack of surprise Preliminary SPI-growth risk

+

-

Hostile approach

Premium per share

Board Complement

Equity structure

Corporate regulations

Defense analysis

S U C C E S S

Factor complexity

Black Knight in action

Dodging board negotiations Direct shareholder contact Proxy-fighting (becoming a trustee)

Preliminary press-release Psychological pressure on the board

directors Various takeover strategies & tactics

Takeover strategies

“Bear hug” Proxy battles Pre-tender concealed buying spree Tender offer Toehold strategy

Takeover decision tree

Friendly LOI

Y N

Negotiations Refusal

Aggressive actions

Bear hug

NegotiationsY N

Proxy battle

Open market

Court

Tender offer

Complex

Y

N

Renegotiate

Fulfill offer

Reverse takeovers (APO)

Avoid IPO expenses 12-months’ procedure (i.e. time-saving tool)

Fundamental changes in business Search for an effective floating mechanism

PIPE deals (Private Investment in Public Equity)

PRIVATEINVESTOR PLCM A R K E T

Part 5

Defense mechanism

Possible measures Poison pills Shark repellents Golden & silver

parachutes

Green mail Pac-man defense White knight ESOP Leveraged

recapitalization

“Poison pills”

Preferred stock plan Flip-over rights plan (discount option)

Ownership flip-in plan (1:1 exchange option)

Back-end rights plan Poison put

Preferred stock plan

BLACKKNIGHT TARGET

S S SS S S

P P P25% 25% 25%

25%

MA

RK

ET

33% 33%

DEAL

1:1,06

1 000000 shares 1 000000 shares + 500 000 P943 396 shares1 943396 shares

74 % VS 26 %

8,3%8,3%8,3%33%

18,5%18,5%18,5%

18,5%

To be continued…

Thank you!