POST GRADUATE PROGRAMME IN MANAGEMENT

AY 2021-2022 TERM: IV

TITLE OF THE COURSE: Financial Aspects of Mergers and Acquisitions

CREDITS: 3 Number of Sections: 2

Name of the Faculty Faculty Blok/ Email Telephone Number

Room No.
Radha M. Ladkani J – 205 radhal@iimidr.ac.in 0731-2439698

CONSULTATION TIME FOR STUDENTS

Name of the Faculty Timing
Radha M. Ladkani Tuesday 4-5 pm

COURSE DESCRIPTION

Mergers and acquisitions are important inorganic strategic choices made by firms for attaining
growth. This course provides a comprehensive understanding of key aspects financial aspects of
M&A process. It familiarizes participants with corporate restructuring strategies like mergers,
acquisitions, leveraged buyouts and going private transactions. Topics covered include the global
trends, economic and strategic motives, wealth destruction debate, acquisition valuation, leveraged
buyouts, and deal design with respect to the consideration structure and deal financing. The
course also provides an understanding of: the pitch book preparation, certain aspects of deal
evaluation like earnings accretion and dilution, and M&A deals in financial services sector.

COURSE OBJECTIVES

The objectives of this course are three-fold:

a. To equip participants with certain theories and practitioners’ tools used to analyse financial
aspects of M&A transactions from the perspectives of the acquirer, the seller, the investment
bank and the capital markets (investors).

b. To make the learning hands-on with the help case studies and also by learning to prepare a
pitch book of an M&A deal.

c. To link concepts, theories, and case discussions with applied practical aspects of mergers and
acquisitions.
PEDAGOGY/TEACHING METHOD:

The pedagogy of this course comprises a fair mix of lectures, case study discussions, class
exercises, and student presentations. The students are expected and encouraged to read the
assigned readings - articles and case studies, and contribute to class discussions. Furthermore, the
students are expected to prepare a pitch book for an M&A deal, and make a submission and a
presentation on it towards the end of the course.

TEXT BOOK FOR THE COURSE

EVALUATION

Individual Component Group Component Weightage

End Term Exam 50%
Group Assignment 40%
Class participation 10%
Total 100%

ACADEMIC DISHONESTY

IIM Indore believes in Academic honesty.

Academic dishonesty or misconduct is cheating that relates to an academic activity. It is a
violation of trust between the Institute and its stakeholders. Plagiarism, fabrication, deception,
cheating and sabotage are examples of unacceptable academic conduct. Please consult the
Programme manual for the section on academic dishonesty.

SCHEDULE OF SESSIONS

Module I : Introduction to Mergers and Acquisitions

Module Objective: To evaluate the growth in M&A activity around the world and to address
the value creation debate surrounding M&A transactions

Session 1 Introduction to Mergers and Acquisitions

Objective a. To review and understand how the surge and fall of M&A activity has
evolved over the different merger waves
b. To address the value-creation versus wealth-destruction debate
surrounding mergers and acquisitions

Reading 1. DePamphilis, D.M. (2014). An Introduction to Mergers, Acquisitions,

and Other Restructuring Activities. Mergers, Acquisitions, and Other
Restructuring Activities (pp. 3 to 35). San Diego, USA: Elsevier Inc.

2. Martynova, M., & Renneboog, L. (2008). A century of corporate

takeovers: What have we learned and where do we stand?. Journal of
Banking & Finance,32(10), 2148-2177.
Case
Module II Acquisition Valuation

Module Objective: To understand acquisition valuation using different valuation approaches

like FCFF, CCF, comparable company and precedent transaction analysis.

Session 2 and 3 DCF and Multiples Approach

Objective To understand acquisition valuation through the FCFF and CCF

approach, comparable company analysis and the precedent transaction
analysis. Also, to understand the estimation of company FCF from a
variety of assumptions and judgements about its expected future financial
performance.

Reading 1. Ruback, R.S. (1995). An Introduction to Cash Flow Valuation Methods.

HBS No. 9-295-155. Boston, MA: Harvard Business School Publishing.

2. Leuhrman, T.A. (2009). Corporate Valuation and Market Multiples. HBS

No. 9-206-039. Boston, MA: Harvard Business School Publishing.

3. Rosenbaum, J and Pearl, J. (2013). Discounted Cash Flow Analysis.

Investment Banking: Valuation, Leveraged Buyouts, and Mergers and
Acquisitions (pp. 251-311). New Jersey, USA: John Wiley & Sons, Inc.
Case

Session 4 & 5 Acquisition Valuation and an Introduction to Deal Pitch Book

Components

Objective a. To apply the intrinsic valuation and relative valuation concepts for
valuing the acquisition of Sun Microsystems by Oracle. b. To get an
overview of the form and contents of a Pitch Book using relevant
information provided in the case study on Sun Microsystems.

Reading Bruner, R.F. (2002). The M&A Pitch Book: Proposed Acquisition of
Heller Financial by United Technologies Corporations. Darden ID:
UV2486. Charlottesville, VA: Darden Business Publishing.

Case Loutskina, E., and Varney, E., 2010. Sun Microsystems. Darden Business
Publishing, UV5626. Charlottesville, VA: Darden Business Publishing.

Module III Leverage Buyouts and Going Private transactions

Module Objective: There has been a substantial surge in leveraged buyouts due to the
proliferation of private investment vehicles and structured credit vehicles. This module aims to
give an understanding of fundamentals of a Leverage Buyout, key characteristics of LBO
candidates, LBO modelling and valuation.
Session 6 Fundamentals of a Leveraged Transaction

Objective This session aims to: a. give an overview of fundamentals of value creation
through a Leveraged Buyout and also to introduce the role of private
equity and other financial sponsors in leveraged transactions, b. cover key
characteristics of firms which are ideal LBO candidates

Reading 1. DePamphilis, D.M. (2014). Financing the Deal. Mergers, Acquisitions,

and Other Restructuring Activities (pp. 457 to 492). San Diego, USA:
Elsevier Inc.

2. DePamphilis, D.M. (2014). Highly Leveraged Transactions. Mergers,

Acquisitions, and Other Restructuring Activities (pp. 493 to 525). San
Diego, USA: Elsevier Inc.

Case Ruback, R. (2006). RJR Nabisco. HBS No. 9-289-056. Boston, MA:
Harvard Business School Publishing.

Session 7 and 8 LBO Model, Return Analysis and Exit Multiples in LBO
Transactions

Objective To understand an LBO Model, and the relationship between the value
paid, financing of the deal and the return to buyout investors through a
case study.
Reading
Case Chaplinsky, S., & Marston, F. C., 2016. Bidding for Hertz: Leveraged
Buyout. Darden Business Publishing, UV1056. Charlottesville, VA:
Darden Business Publishing.

Module IV Cross Border Transactions

Module Objective: Cross border transactions involve certain additional considerations for
cost of capital, cash flows, risks specific to country of operation and access to capital markets.
The module discusses motives for cross border transactions, the translation of foreign currency
cash flows and the estimation of the relevant cost of capital that provides allowance for
country risk.

Session 9 and 10 Cross border Mergers and Acquisitions

Objective To briefly discuss the motives for international M&A deals. Also, to
understand the translation of foreign currency cash flows and the
estimation of the relevant cost of capital, and how the allowance for
country risk is incorporated in foreign transactions between developed and
developing country counterparts.

Reading 1. DePamphilis, D.M. (2014). Cross-Border Mergers and Acquisitions.

Mergers, Acquisitions, and Other Restructuring Activities (pp. 641 to 677).
San Diego, USA: Elsevier Inc.

2. Froot, K.A. & Keter, W.C. (1997). Cross-Border Valuation. HBS No. 9-
295-100. Boston, MA: Harvard Business School Publishing.
Case Desai, M., Notarnicola, P. and Veblen, M. (2003). Valuing a Cross Border
LBO: Bidding on the Yell Group. HBS No. 9-204-033. Boston, MA:
Harvard Business School Publishing.

Module V Deal Design and Consideration Structure

Module Objective: To get an overview of deal design with respect to the consideration
structure and deal financing. To evaluate a deal from the perspective of EPS accretion vs.
dilution.

Session 11. Deal Design: Consideration structure and Deal Financing

Objective To understand the select financial aspects of deal design, i.e., deal terms
related to the method of payment and deal financing. To understand the
framework for structuring the terms of exchange, walkaway price and zone
of possible agreement.

Reading 1. Bruner, R.F. (2004). Framework for Structuring the Terms of Exchange:
Finding the “Win-Win” Deal. Applied Mergers and Acquisitions (pp. 589-
608). New Jersey, USA: John Wiley & Sons, Inc.
Case
Session 12. Deal Design Case Discussion

Objective
1. To get an overview of a two-step process deal design involving merger
of Holcim (India) Private Limited (HIPL) with Ambuja Cements Ltd.
(ACL). 2. To evaluate the swap ratio and how the merger affects the
shareholders of the target company.
Reading
Case Mohanty, P., Stephen, T. and Mishra, S. (2016). Ambuja Cements and
Holcim India Merger. HBS Product No. W16572. Ontario, CA: Ivey
Publishing
Session 13. Merger of Equals Between Mellon Financial and the Bank of New
York

Objective To get an overview of a stock-for-stock merger of equals between Mellon

Financial and the Bank of New York, and to evaluate the impact of a
transaction on EPS accretion or dilution.

Reading

Case Baldwin, C. Y. and Taliaferro, R.D. (2010). Mellon Financial and the Bank
of New York. HBS No. 9208129. Boston, MA: Harvard Business School
Publishing

Module VI Risk Management in Mergers and Acquisitions

Module Objective: Hedging through price protection mechanisms like floors, caps and collars
have gained popularity with increasing use of stock payment in M&A deals. The purpose of
 these sessions is to get an overview of hedging and the related payoffs in mergers and
acquisitions, and also to understand how deal participants use options effectively to limit their
exposure to transaction risks.

Session 14. Risk Management: Contingent Payments, Other Price Protection

Mechanisms

Objective To get an overview of hedging through price protection mechanisms like

floors, caps and collars in M&A deals. The purpose of the session is to
understand the use of options in M&A transactions and their impact on
the payoffs.

Reading 1. Baldwin, C.Y. (2009). Evaluating M&A Deals: Floors, Caps, and Collars.
HBS No. 9-209-138. Boston, MA: Harvard Business School Publishing.

2. Bruner, R.F. (2004). Risk Management in M&A. Applied Mergers and

Acquisitions (pp. 636-667). New Jersey, USA: John Wiley & Sons, Inc.
Case
Session 15. Use of Collars in a deal
Objective To evaluate competing bids from Verizon and Qwest for acquiring MCI,
and to understand the use of collars in deal structuring.
Reading
Case Baker, M. P. and Quinn, J. (2012). The MCI Takeover Battle: Verizon
versus Qwest. HBS No. 9206045. Boston, MA: Harvard Business School
Publishing

Please indicate the changes made in the course outline based on the measurement of
assurance of learning (closing the loop)/student feedback:
The previous change in outline is retained, that is: a. a case on Use of collars in an M&A
transaction, b. a case on an Indian deal: Ambuja Cements and Holcim India Merger. These
changes were observed to be effective, and hence the same are retained. A case on transactions in
financial services sector is included to accommodate a comprehensive discussion on the other
topics.

Please give the details of the book if students need to buy the book
Author Title Publisher Edition Remarks, if any

Additional Readings
The following books are recommended for supplementary reading:
DePamphilis, D.M. (2014). Mergers, Acquisitions, and Other Restructuring Activities. San Diego,
USA: Elsevier Inc.
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