Program: Development Studies Course Title: Partnerships for Development Course Code: DEST 511Total Credits: 1.5Total lecture Hours: 7.5Course Lecturer: Uwem Essia

COURSE OVERVIEW AND OUTLINECourse DescriptionThe course focuses on the different partnerships required for development, specifically:•Partnership between civil society groups and development institutions.•Public-Private-Partnerships.•Public-Public Partnerships.•Mergers, Acquisitions and Corporate Restructuring.•Leasing

COURSE OVERVIEW AND OUTLINEPedagogic Goal • The students’ knowledge of different types of partnerships

enhanced. Pedagogic Objectives• Students learn how a Non Governmental Organization (NGO) can

collaborate with development institutions.• Students know how government can partner with private

organizations for development of infrastructures.• Students understand how private-private partnerships can be

facilitated. Learning Objectives• Knowledge of students on how NGOs can meet the requirements

of donor organizations increased.• Understanding of public-private-partnerships (PPPs) increased.• Students’ knowledge of mergers, acquisitions and corporate

restructuring and leasing increased.

COURSE OVERVIEW AND OUTLINELearning Outcomes• Prior to or at graduation students have the relevant

competencies to operate NGOs that partner effectively with development institutions and other stakeholders.

• Students understand issues related to mergers, acquisitions and corporate restructuring.

Course Schedule and Topics Section 1: CSO – Development Institutions’ Partnerships1.1. Infrastructure PPPs1.2. Traditional Project Delivery Approach1.3. The PPP Model1.4. Planning of PPP Projects

COURSE OVERVIEW AND OUTLINESection 2: Mergers, Acquisitions and Corporate Restructuring2.1. Definitions 2.2. Synergy2.3. Varieties of Mergers2.4. Acquisitions2.5. The importance of valuation2.6. Doing a Deal2.7. Start with an Offer2.8. The Target's Response2.9. Closing the Deal2.10. Break Ups2.11. Sell-Offs2.12. Equity Carve-Outs2.13. Spinoffs2.14. Tracking Stock2.15. Why Mergers can fail

COURSE OVERVIEW AND OUTLINESection 3: Leasing3.1. Advantages of leasing 3.2. Types of Lease3.3. Capital and Operating Lease

Section 1: CSO – Development Institutions’ Partnerships1.1. Definition of CSOs•CSOs comprise the full range of formal and informal organizations operating within civil society:

– NGOs, community-based organizations (CBOs);– indigenous peoples’ organizations (IPOs), academia;– Journalist associations, faith-based organizations;– Trade unions and trade associations;

•Civil society constitutes a third sector, existing alongside and interacting with the state and market.•The key terms used in dealing with CSOs include the following:

– Advocacy: CSOs change public opinion with regards to a given issue.– Watchdog: CSOs measure progress made towards achieving a

desired goal.

1: CSO – Development Institutions’ Partnerships ..11.1. Definition of CSOs•Networking: coordinating other CSOs that work in a particular sector.•Umbrella CSO: CSO performing a coordinating and representative function.•Federations: CSOs in one area or sector work together for goals that can best be achieved through greater numbers. UNDP can engage NGOs in three different ways:•As implementing Partner - NGO is an executing agency of a project. – In that case the NGOs take full management

responsibility of the project.

1: CSO – Development Institutions’ Partnerships ..2

1.1. Definition of CSOs•Contractor - the NGO provides a specific input to a project, implementing partners takes responsibility.•NGOs as recipients of grants – a grant agreement or MOU is signed.

Section 2: Infrastructure PPPs2.1. Characteristics of PPP•PPPs represent a form of multi-level governance, involving relationships between different stakeholders. •PPPs support innovative project designs and deliver value for money by better controlling project risks.•PPPs in infrastructures have three dynamics elements:– It involves long-term contractual arrangement between the

public and private sector.– The private sector is involved in facility design, construction,

financing, operations, and maintenance.– Each partner shares in the potential risks and rewards

associated with delivery of the project.

2: Infrastructure PPPs .. 1• PPPs are a formalized, contract based approach to

long-term partnership. • PPP may imply a fixed partnership between a single

public sector entity and private sector firm.• But neither the public nor the private sector is

monolithic: – Both are often comprised of complex partnerships

between a range of organizations and actors.

2.2. Models of PPPi. Design-Build-Operate-Maintain – private sector

takes full responsibility and risk.

2: Infrastructure PPPs …2ii. Design-Build-Operate-Transfer – private operator takes responsibility for creating the infrastructure but transfers management to government.iii. Build-operate-transfer – public institutions design the facility, private partner builds, operates for a while, and later transfers operation to government.iv. Design-Build – private operator designs and builds the facility for public institutions to manage.v. Private Contract Fee Service (Operate and Maintain) – the facility is designed and built directly by a government institution, with the private vendor responsible for managing it.

2: Infrastructure PPPs .. 3vi. design-bid-build (Traditional model) – the government agencies design the facility, a private organization is selected through public tender and bidding to build, and the facility is handed over to government.2.3. Concession Type PPP Model•The facility design, building, financing, operation and maintenance is a single concession.•The concessionaire recovers the investment over time.•Recovery is either by collecting user fees or receiving an annual fee over the life of a long-term contract.•In a concession PPP both the public and private partners may contribute to financing of the infrastructure. •Concessions often involve multi-level government collaboration.

2: Infrastructure PPPs … 42.4. Planning of PPP Projects•The relevant public agency often needs to develop the performance specifications for the private sector bidders.•Most PPP projects provide opportunities for government to intervene at different points of the project cycle. •Conflicts in PPPs are rooted in the differing interests and incentives that the partners have in a project. •Unpredicted government intervention along the project cycle can generate political risks for private partners.

2: Infrastructure PPPs ..52.4. Planning of PPP Projects•But attempts by the private partners to charge appropriate cost recovery fees may generate political risks to the state.•The state also faces the financial risk that may arise if the project fails.•Disputes in PPPs can arise over who should bear an unexpected construction cost escalations.•Other disputes may arise when the expected quality of services are not met.

3: Mergers, Acquisitions and Corporate Restructuring3.1. Definitions - Acquisition•When one company buys up another to become the new owner, the purchase is called an acquisition.•The acquired company is swallowed by the buyer whose stock continues to be traded.Merger•This happens when two or more firms agree to become a single new company. •In effect, the merging firms surrender their stocks and new company stock is issued in its place. •Ideally mergers should occur between firms of comparable sizes, but in reality mergers of equals are not common.•Indeed, the term merger is often used to describe acquisition that both parties are fairly happy with.

3: Mergers, Acquisitions And Corporate Restructuring ..1

3.2. Synergy•Synergy are the bonding and complementarities that accrue to the newly merged business. Some of such possible benefit include the following:– Staff reductions - mergers can reduce the wage bill, thus

creating savings. – Economies of scale - bigger businesses have improved

purchasing power and better negotiating advantage.– Acquiring new technology – larger firms spend more on

R&D and attract valuable collaborations. – Improved market reach and industry visibility - A merger

expands the marketing opportunity of the new firm.

3: Mergers, Acquisitions And Corporate Restructuring ..2

3.2. Synergy•The acquiring firm pays a premium for synergy on the market value of the companies they buy. •This is so because a merger creates synergy or increase in the post-merger share price.•For buyers, the premium represents part of the post-merger synergy they expect can be achieved.•The minimum value of the synergy can be determined by the following equation:

3: Mergers, Acquisitions And Corporate Restructuring ..3

3.3. Varieties of Mergers•Horizontal merger - two companies that are in direct competition and share the same product lines and markets.•Vertical merger - a customer and company or a supplier and company merging. •Market-extension merger - Two companies that sell the same products in different markets.•Product-extension merger - Two companies selling different but related products in the same market.•Conglomeration – two companies that have no common business areas.

3: Mergers, Acquisitions and Corporate Restructuring … 4

3.3.1. Mergers distinguished by how the merger is financed:

•Purchase Mergers - this occurs when the shares are bought with cash or by issue of a debt instrument. •Consolidation Mergers – this occurs when both companies dissolve under the new entity.

4. Acquisitions• Acquisitions involve one firm purchasing another -

there is no exchange of stock or consolidation.• Acquisitions can either be congenial or hostile when a

party is not happy. • Acquisition can be by cash, stock or a combination of

the two. • It can also involve a company acquiring the assets of

another company.• Acquisition can involve a reverse merger when a

private company buys a publicly-listed shell company. • Together the merged public company become an

entirely new public corporation with tradable shares.

4. Acquisitions .. 1

• Mergers and acquisitions create synergy that makes the value of the new business greater.

• The success of a merger or acquisition depends on whether this synergy is achieved.

5. The Importance of Valuation• The merging or acquiring companies must determine

whether the purchase will be beneficial to them. • This requires that they determine how much the

company being acquired is really worth. • There are many legitimate ways to value companies,

including the following: • Comparative Ratios - The two principal ratios are price-

earnings ratio and the enterprise-value-to-sale ratio:– Price-Earnings Ratio (P/E Ratio) - an offer is a multiple of the

earnings of the target company. For example the acquiring company can look at the P/E for all the stocks within the same industry group.

5. The Importance of Valuation .. 1– Enterprise-Value-to-Sales-Ratio (EV/Sales) - an offer is a

multiple of the revenues, based on the price-to-sales ratio of other companies in the industry.

• Replacement Cost - acquisitions are based on the cost of replacing the target company. – The acquiring company can seek to buy the target firm

at the replacement cost.

• Discounted Cash Flow (DCF) – The target firm can be valued at its estimated future cash flows discounted to a present value using the company's weighted average costs of capital (WACC).

6.Doing a Deal6.1. Start with an Offer•The decision to merge or acquire starts with a tender offer. •The acquiring company should buy 5% of the total outstanding shares before it files with the Security and Exchange Commission. •Upon tendering, the buyer declares if it intends to buy or keep the shares as an investment. •The tender offer is advertised in the business press, stating the offer price and the deadline.•The shareholders in the target company must accept (or reject) it.

6.Doing a Deal ..16.2. The Target's Response•Once the tender offer has been made, the target company can do one of several things:– Accept the Terms of the Offer – and go ahead with the

deal.– Attempt to Negotiate - the target's management can try

to negotiate more agreeable terms. – Execute a Poison Pill or Some Other Hostile Takeover

Defense - The target company gets another buyer to buy additional stock at a dramatic discount, and thus dilutes the acquiring company's share and intercepts its control of the company.

6.Doing a Deal ..26.2. The Target's Response–Find a White Knight - the target company gets a friendlier buyer or white knight who offers an equal or higher price for the shares than the hostile bidder.

Note that: without regards to what the buying and target company choose to do: •The regulatory authorities can terminate a deal that is considered harmful to the economy. •The regulatory authorities can compel a buy-up or merger of companies in the national interest.

6.Doing a Deal ..36.3. Break Ups•To break-up or de-merge a large organization into smaller organizations can enhance competitiveness.•It can as well reduce the tendency for harmful monopolization. •Other reasons are as follows:– to form subsidiaries of the parent organization. This can

help the company to raise additional equity funds. – A break-up can boost a company's valuation by

providing incentives to the people who work in the separating units.

– Shareholders get better information about the business unit because it issues separate financial statements.

6.Doing A Deal ..46.4. Sell-Offs•A sell-off, also known as a divestiture, is the outright sale of a company’s subsidiary. 6.5. Equity Carve-Outs•This allows a parent firm to trade the stocks of a subsidiary that is growing faster than the others. •A carve-out generates cash because shares in the subsidiary are sold to the public. •A carve-out also unlocks the value of the subsidiary unit and enhances the parent's shareholder value.

6.Doing a Deal .. 56.6. Spinoffs•A spinoff occurs when a subsidiary becomes an independent entity. •The parent firm distributes shares of the subsidiary to its shareholders through a stock dividend. •Like the carve-out, the subsidiary becomes a separate legal entity with a distinct management and board.6.7. Tracking Stock•A tracking stock is issued by a publicly held company to track the value of one segment of the company. •The stock allows the different segments of the company to be valued differently by investors. •Tracking stocks do not grant shareholders the same voting rights as those of the main stock. •Each share of tracking stock may have only a half or a quarter of a vote. In rare cases, holders of tracking stock have no vote at all.

6.Doing a Deal ..66.8. Why Mergers can fail•The considerations that motivated a merger may be elusive. Practical realities may be more complex than was imagined.•The chances for success may be hampered by the fact that corporate cultures of the companies vary.•The merged company is concerned with cutting cost while revenues, and ultimately, profits, suffer. •Mergers are more successful when the deal makers are realistic and willing to work together.

Section 7. Leasing7.1. Definitions•Leasing is an important source of external financing for corporations. •Lease financing may be cheaper than borrowing and purchasing the asset due to tax considerations.•Leasing may also conserve working capital and reduce the risk of obsolescence.•Leasing reduces capital equipment disposal problems.•The term of a lease is usually less than the life of the asset. •Leasing is more flexible and convenient than buying an asset.

7. Leasing ..17.2. Types of Lease7.2.1. Direct Lease•In a direct lease the lessee gains from the use of an asset without becoming the asset’s lawful owner. •The lessor retains the title and ownership of the asset and receives remunerations from the lessee as agreed.7.2.2. Sale and Leaseback•In a sale and leaseback arrangement the owner sells to a party, and leases the asset back. •The new owner retains title and ownership in terms of tax credits and depreciation allowances.•But the lessee receives the funds from the sale of the asset along with the use of the asset.

7. Leasing ..27.2.3. Leverage Lease•In a leverage lease, a lender supplies the funds the lessor requires to purchase the asset.•The lessor in turn leases the asset, and is a debtor to the lender who makes interest payments.7.2.4. Capital and Operating Lease •Subject to the relevant state laws, a capital lease must satisfy the following conditions:– ownership is transferred to the lessee on or prior to the

expiration of the lease obligation term.– The lease contains a bargain purchase option that allows

the lessee to purchase the leased asset at a reasonable price.

• Selected Resources• Charles Kenny and Sarah Dykstra (2013) The Global Partnership for

Development: A Review of MDG 8 and Proposals for the Post-2015 Development Agenda Background Research Paper Submitted to the High Level Panel on the Post-2015 Development Agenda May

• UNDP (2006) UNDP and Civil Society Organizations A Toolkit for Strengthening Partnerships

• Matti Siemiatycki (undated) The Theory and Practice of Infrastructure Public-Private Partnerships Revisited: The Case of the Transportation Sector

• The Basics Of Mergers And Acquisitions http://www.investopedia.com/university/mergers/

• Lena Petsa-Papanicolaou (2007) Success factors in mergers and acquisitions : complexity theory and content analysis perspectives Being Doctoral Dissertations. Paper 176. of the University of San Francisco

• Chemmanur, T., et al. (2009) A theory of contractual provisions in leasing J. Finan. Intermediation, doi:10.1016/j.jfi.2007.09.002

• UN (2013) A renewed global partnership for development Being a Report of the the UN System Task Team on the Post 2015 UN Development Agenda, New York