The Art of Capital Restructuring

The most up-to-date guide on making the right capital restructuring moves

The Art of Capital Restructuring provides a fresh look at the current state of mergers, acquisitions, and corporate restructuring around the world. The dynamic nature of M&As requires an evolving understanding of the field, and this book considers several different forms of physical restructuring such as divestitures as well as financial restructuring, which refers to alterations in the capital structure of the firm.

The Art of Capital Restructuring not only explains the financial aspects of these transactions but also examines legal, regulatory, tax, ethical, social, and behavioral considerations. In addition to this timely information, coverage also includes discussion of basic concepts, motives, strategies, and techniques as well as their application to increasingly complex, real-world situations.

• Emphasizes best practices that lead to M&A success
• Contains important and relevant research studies based on recent developments in the field
• Comprised of contributed chapters from both experienced professionals and academics, offering a variety of perspectives and a rich interplay of ideas

Skillfully blending theory with practice, this book will put you in a better position to make the right decisions with regard to capital restructuring in today's dynamic business world.

Acknowledgments ix

1 Mergers, Acquisitions, and Corporate Restructuring: An Overview 1
H. Kent Baker and Halil Kiymaz

Part I Background

2 Merger Waves 17
Jarrad Harford

3 Takeover Regulation 39
Marina Martynova and Luc Renneboog

4 Corporate Governance and M&As 57
Fei Xie

5 Ethical and Social Issues in M&As 71
Robert W. McGee

6 Theoretical Issues on Mergers, Acquisitions, and Divestitures 87
Abdul H. Rahman

7 The Short-Term and Long-Term Performance of M&As 105
Shantanu Dutta and Samir Saadi

Part II Valuation

8 Standard Valuation Methods for M&As 127
Pablo Fernandez

9 Real Options and Their Impact on M&As 151
Hemantha Herath and John S. Jahera Jr.

10 The Law and Finance of Control Premiums and Minority Discounts 169
Helen Bowers

11 Cross-Border Valuation Effects in Developed and Emerging Markets 185
Wenjie Chen

Part III the M&A Deal Process

12 Sources of Financing and Means of Payment in M&As 205
Marina Martynova and Luc Renneboog

13 Cultural Due Diligence 223
Ronald F. Piccolo and Mary Bardes

14 Negotiation Process, Bargaining Area, and Contingent Payments 243
William A. Grimm

15 Merger Negotiations: Takeover Process, Selling Procedure, and Deal Initiation 261
Nihat Aktas and Eric de Bodt

16 Postacquisition Planning and Integration 281
Olimpia Meglio and Arturo Capasso

17 Organizational and Human Resource Issues in M&As 297
Siddhartha S. Brahma

Part IV Takeovers and Behavioral Effects

18 Takeover Strategies 323
Shailendra (Shail) Pandit

19 Defensive Strategies in Takeovers 339
Christian Rauch and Mark Wahrenburg

20 The Impact of Restructuring on Bondholders 359
Luc Renneboog and Peter G. Szilagyi

21 Behavioral Effects in M&As 385
Jens Hagendorff

Part V Recapitalization and Restructuring

22 Financial Restructuring 401
Otgontsetseg Erhemjamts and Kartik Raman

23 Going Private and Leveraged Buyouts 419
Onur Bayar

24 International Takeovers and Restructuring 437
Rita Biswas

Part VI Special Topics

25 Joint Ventures and Strategic Alliances: Alternatives to M&As 461
Tomas Mantecon and James A. Conover

26 Fairness Opinions in M&As 483
Steven M. Davidoff, Anil K. Makhija, and Rajesh P. Narayanan

27 How Initial Public Offerings Affect M&A Markets: The Dual Tracking Phenomenon 495
Roberto Ragozzino and Jeffrey J. Reuer

28 The Diversification Discount 511
Seoungpil Ahn

29 Partial Acquisitions: Motivation and Consequences on Firm Performance 527
Pengcheng Zhu and Shantanu Dutta

Answers to End-of-Chapter Discussion Questions 545

Index 581

H. Kent Baker, PhD, CFA, CMA, is University Professor of Finance and Kogod Research Professor at the Kogod School of Business at American University, Washington, D.C. He has published extensively in leading academic and professional finance journals including the Journal of Finance, Journal of Financial and Quantitative Analysis, Financial Management, Financial Analysts Journal, and Journal of Portfolio Management. He has also published more than a dozen books including several corporate finance textbooks. Recognized as one of the most prolific authors in finance during the past 50 years, Professor Baker has consulting and training experience with more than 100 organizations.

Halil Kiymaz is Bank of America Chair and Professor of Finance at the Crummer Graduate School of Business at Rollins College. He holds the Chartered Financial Analyst (CFA) designation and has served as a grader for the CFA Institute. Professor Kiymaz maintains an extensive research agenda focusing on everything from international M&As to the financial management of multinationals, and has published more than 50 articles in scholarly and practitioner journals. He is the recipient of several research awards, including the McGraw-Hill Irwin Best Paper Award and Outstanding Research Award at the Global Conference on Business and Finance.

Mergers and acquisitions represent a vital business tool as well as an alternative growth and expansion strategy for many companies. Given the frequency of these transactions, understanding how and why they take place is essential to realizing the expected benefits of such activities and ensuring the critical goal of maximizing shareholder value.

The Art of Capital Restructuring, part of the Robert W. Kolb Series in Finance, provides a fresh look at the current state of mergers, acquisitions, and corporate restructuring in both developed and emerging markets. Filled with in-depth insights and practical advice, this reliable resource contains detailed discussions of several different forms of physical restructuring such as divestitures as well as capital restructuring. Along the way, it also explains the financial aspects of these transactions and clearly addresses the legal, regulatory, tax, ethical, social, and behavioral issues associated with them.

Divided into six comprehensive parts, with contributed chapters from leading academics and practitioners from around the world, The Art of Capital Restructuring includes the latest M&A-related research, with coverage extending from basic concepts, motives, strategies, and valuation techniques to their application to increasingly complex, real-world situations. Chapter by chapter, it explains these methods from both a management and investor perspective while emphasizing the wealth effects they have on shareholders.

Engaging and informative, The Art of Capital Restructuring distinguishes itself in many ways from other books on this topic. Blending recent theoretical developments with the results of relevant research studies and actual M&A examples, it skillfully:

• Examines best practices that lead to M&A success, including valuing the target, negotiating and financing the deal, and engaging in post-acquisition planning and integration

• Reveals research dealing with both foreign and domestic firms, detailing the cross-border effects involving developed and emerging markets

• Details both the technical and human aspects of M&As, from valuation issues to corporate governance and cultural due diligence

• Outlines different M&A takeover and defensive takeover strategies

• And much more

As markets become more integrated, the debate about the long- and short-term performance of M&As continues to intensify. The Art of Capital Restructuring will help you gain a firm understanding of both the art and science of this discipline and put you in a better position to continue to create shareholder value in the process.

THE ART OF CAPITAL RESTRUCTURING

The Robert W. Kolb Series in Finance is an unparalleled source of information dedicated to the most important issues in modern finance. Each book focuses on a specific topic in the field of finance and contains contributed chapters from both respected academics and experienced financial professionals. As part of the Robert W. Kolb Series in Finance, The Art of Capital Restructuring contains comprehensive insights on both the art and science of this dynamic discipline.

Mergers, acquisitions, and corporate restructuring represent a fast-paced and highly complex environment in which transactions provide unique opportunities with considerable risk. It requires an evolving understanding of various issues, and this book considers many of them. Divided into six comprehensive parts—with each chapter containing a set of discussion questions to reinforce key concepts—The Art of Capital Restructuring offers essential insights that both financial veterans and aspiring professionals need to succeed.

Topics covered throughout this timely guide include:

• Merger waves, takeover regulation, and corporate governance

• Standard valuation methods and real options, as well as the adjustment needed for the implicit minority discount

• The M&A deal process, from sources of financing and means of payment to negotiation and integration

• The impact of restructuring on bondholders and behavioral effects in M&As

• Restructuring activities, including financial restructuring, going private, and leveraged buyouts

Skillfully blending theory with practice, this book will put you in a better position to make the most informed decisions with regard to capital restructuring in today's dynamic business world.