Euro takeover free essay sample

Euro Takeover 2005 A six†party simulation of takeover contests Case Structure †¢ Six teams Role Company Name Case Number Target HoogenFood N.V. UVA-F1497 Raider Finance Mondiale S.A. UVA-F1498 LBO Sponsor Lanza E Compagnia UVA-F1499 White Knight Alimentos Globales UVA-F1500 Bank Omni Bank PLC UVA-F1501 Bank Euroland Bank A.G. UVA-F1502 Case Structure Euroland Bank Omni Bank Financing Of E2.5b Financing Of E2.5b LBO Raider Tender offer E70/shr Owns 8.3% has E6b capital Target Food Div. Chemical Div. Operates company Owns 10% Target management Own 60%+ shrs Arbitrageurs Potential Synergy Friends, CEOs sit on each others’ boards White Knight 1 Case Schedule †¢ Week 7 – Team Meeting – Valuation †¢ Week 8 – Valuation report due before negotiation Valuation report due before negotiation – Negotiation between teams †¢ Week 9 – Case report due – Teams presentation – Discussion Valuation †¢ Target – What is your reservation price, i.e. lowest price willing to accept? †¢ Bidders (Raider, LBO, W.K.) ( , , ) – What is your walkway price, i. We will write a custom essay sample on Euro takeover or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page e. highest price willing to pay? †¢ Banks – Credit rating, interest rate – Lending limit Structure Credit Analysis †¢ Evaluate post†merger credit worthiness – Statutory vs. subsidiary merger – Post merger cash flow †¢ How much synergy to include? How much synergy to include? – Post merger debt level 2 Capital Structure †¢ Senior Debt – – – – Term loans Revolving credit Collateralized with assets On Bank’s book No more than certain % of total amount (typically 60%) No more than certain % of total amount (typically 60%) †¢ Mezzanine or subordinate debt – Uncollateralized – Higher interest – Often sold to bond investors, Banks off the hook †¢ Equity – Investment from bidder Statutory vs. subsidiary merger †¢ In a statutory merger †¢ EBIT(DA) Cov. = Tgt .EBIT ( DA ) ï€ « Bidder .EBIT ( DA ) Int . fromTgt .ExistingDe bt ï€ « Int . fromBidder .ExistingDe bt ï€ « Int . fromNewDeb tFinancing †¢ In a subsidiary merger †¢ EBIT(DA) Cov. = Tgt _ EBIT ( DA ) Int . from _ Tgt _ Existing _ Debt ï€ « Int . from _ New _ Debt _ Financing What if you buy only one division? Negotiation †¢ During a preset block of time period – Ending represents the expiration of Raider’s offer – Other teams have to submit public offers to SH – Arbitrageurs decide who gets the target Arbitrageurs decide who gets the target †¢ Written agreements †¢ Confidentiality 3 Dutch Auction †¢ Teams often wait until last minute to submit their offer and then outbid rivals by a small increment. †¢ If this happens we will use a Dutch Auction to If this happens, we will use a Dutch Auction to avoid time†consuming biddings. – Every team submit a confidential offer to instructor – Highest bidder buys the target at the second highest bid Final Presentation Original objectives and valuation Strategies Eventual outcome Decisions you have to make in the negotiation and how you make the decision †¢ Lessons and experiences †¢ Questions and critique of other teams †¢ †¢ †¢ †¢ Corrections †¢ Several numbers in the PDF print out of the exhibits are incorrectly linked. Use the Excel file I provide, which has the corrected numbers. numbers †¢ LBO firm’s commitment letter is from Euroland Bank rather than Omni Bank 4