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Corporate takeovers have become a prominent feature of global business. Merger and acquisition activity in the United States alone climbed from $32 billion in 1980 to $300…
Corporate takeovers have become a prominent feature of global business. Merger and acquisition activity in the United States alone climbed from $32 billion in 1980 to $300 billion in 1988, an annual rate of increase of 32 percent. The individual size of these transactions has reached an all‐time high. Any company, whatever its size, may be vulnerable as a target.
In July 2004, J.P. Morgan Partners (JPMP), the private equity arm of JPMorgan Chase & Co., was in the midst of formulating the final terms of a public-to-private buyout…
In July 2004, J.P. Morgan Partners (JPMP), the private equity arm of JPMorgan Chase & Co., was in the midst of formulating the final terms of a public-to-private buyout proposal for AMC Entertainment Inc. (AMCE), a publicly traded movie theater company.
This case focuses on valuation using various methods to price a firm. Students attempting this case should know the basics of how to value a company using discounted cash…
This case focuses on valuation using various methods to price a firm. Students attempting this case should know the basics of how to value a company using discounted cash flow, comparable multiples and comparable transactions. Students will need to calculate the weighted average cost of capital using comparable companies and the capital asset pricing model and determine differences in value created by an acquisition vs a leveraged buyout (LBO). The case also discusses qualitative issues in mergers, such as fit between target and acquirer, integration issues, potential high debt from LBO.
This case was library-researched, using Amazon and Whole Foods public filings and business press papers.
Whole Foods Markets received a buyout offer from Amazon. Whole Foods could solicit offers from other firms, including firms more directly in the grocery business. Whole Foods also considered a management buyout or purchase by a private equity firm. Whole Foods had underperformed, with a falling stock price and reduced profitability. Amazon’s bid was attractive, a premium of about 40 per cent over Whole Foods’ pre-merger stock price. Whole Foods also wanted to consider issues such as culture. Whole Foods’ strategy was to sell organic foods at premium prices, while Amazon was a retail discounter with a largely online business.
Complexity academic level
This case is appropriate for graduate students at the end of their introductory course or for graduate or undergraduate students in a corporate finance elective, particularly a merger/restructuring elective. The case has been used in an advanced undergraduate finance elective, with a team presenting the case to the class, with remaining students in the class required to write case summaries and questions for the presenting group.
A two‐component framework for strategic marketing research, focused on the corporate level and the business‐unit level, to structure an interpretation of the strategic…
A two‐component framework for strategic marketing research, focused on the corporate level and the business‐unit level, to structure an interpretation of the strategic dimensions of the acquisition in November 1998 of Star Markets, a Boston, USA‐based food retail chain, by J. Sainsbury plc the UK’s second largest food retailer. Set within a broader context of the wave of acquisition‐driven consolidation rapidly transforming the US food retail industry during the late 1990s, the paper considers the extent to which the acquisition of Star Markets represented a strategic fit with Sainsbury’s existing US business, the alternative strategies available to the company at the time of the acquisition, and the resulting strategic centrality of the US business to Sainsbury’s corporate future. Focuses on the highly contested nature of the retail internationalization process and issues of sustaining international expansion during periods of retrenchment and strategic reassessment. Highlights the tensions which can be created within the portfolio of business units of a large multidivisional firm during the internationalization process, and the stresses in the relationship between management and the capital markets which can develop if the internationalization process is perceived, correctly or incorrectly, to threaten the strategic credibility of the firm.
Seeks to investigate whether the financial characteristics of leveraged buy‐out (LBO) targets differ from those of firms that have not undergone an LBO before the deal…
Seeks to investigate whether the financial characteristics of leveraged buy‐out (LBO) targets differ from those of firms that have not undergone an LBO before the deal. Specifically, to examine the free cash flows (FCFs), income taxes, capital intensity, business risk, profitability, financial structure and asset characteristics of 175 French LBO targets that are mainly privately held and rather small companies, between 1996 and 2002.
Predictions derive from the FCF and the tax savings hypotheses, and from the criteria used by LBO firms in their acquisition rationale. Tests were conducted of differences between LBO targets and control companies and logit regressions run.
Results show that LBO targets are less indebted, have more liquid (financial) assets, and exhibit higher business risk than their industry counterparts. A distinction between LOBs according to the vendor type shows that independent companies are smaller, more profitable, and have higher tax income levels, whereas former subsidiaries or divisions of groups are less profitable, and have more financial assets than their industry counterparts. Logit regressions suggest that LBOs of smaller independent targets that LBOs of smaller independent targets fit fiscal and succession motives, whereas LBOs of former subsidiaries address management issues.
The likelihood of an LBO is related to accounting ratios only. Further research could include other financial or strategic variables in the models.
The unexpected risky profile of targets has implications for LBO firms.
A new result is the risky profile of LBO targets prior to the deal. This could help to explain the underperformance puzzle after the deal already emphasized on the French market.
Within 18 months of exiting bankruptcy, Kmart's position was sufficiently strong to launch an acquisition of Sears, once the nation's largest retailer and also a core…
Within 18 months of exiting bankruptcy, Kmart's position was sufficiently strong to launch an acquisition of Sears, once the nation's largest retailer and also a core holding of ESL. Looks at a number of compelling issues related to Kmart's bankruptcy, restructuring, and rebirth under the control of ESL, a large hedge fund. Presents some of the key metrics that Eddie Lampert, head of ESL, had available to him as he made two decisions: first, in 2002, to amass a controlling stake in Kmart's defaulted debt during the restructuring; and second, in 2004, to launch a takeover of Sears. The first deal illustrates the decision-making process for a financial buyer, including the downside protection of Kmart's real estate holdings, whereas the second deal represents a traditional strategic acquisition. Illustrates the innovative use of real estate as a “hedge” for ESL in the event that the retail combination does not produce the required financial results. Also focuses on the role of investment bankers and the increasingly important position that hedge funds and LBO funds have carved out in the M&A market.
To outline the explosive growth in assets and influence of alternative investment managers, particularly LBO funds and hedge funds, and the transition of some larger hedge funds from shorter term trading strategies to longer term plays on distressed debt, restructurings, and turnarounds.
During the last five years, Safeway and Fairchild Industries sold major divisions to existing management. Carl Icahn acquired a majority interest in TWA. And, entrepreneur…
During the last five years, Safeway and Fairchild Industries sold major divisions to existing management. Carl Icahn acquired a majority interest in TWA. And, entrepreneur Ted Turner attempted unsuccessfully to acquire CBS. The common factor in these transactions? The leveraged buyout (LBO).
Offers an appraisal of the corporate experience and prospects of J. Sainsbury plc in the USA, ten years after its market entry. Part 1 focused on Sainsbury’s New England…
Offers an appraisal of the corporate experience and prospects of J. Sainsbury plc in the USA, ten years after its market entry. Part 1 focused on Sainsbury’s New England subsidiary, Shaw’s. Heavy capital investment, and the determined export of a British model of food retailing, is shown to have produced a chain of 119 stores enjoying rapid growth and impressive improvements in profitability. Part 2 focuses on Sainsbury’s acquisition of 50 per cent of the voting stock (20 per cent of total equity) of Giant Food Inc., the market leader in the Washington DC‐Baltimore area. Shows Sainsbury is poised to purchase full control of Giant (at an estimated cost of approximately $2 billion), is promoting a major expansion of Giant northwards into Philadelphia and is on the verge of becoming one of the top ten firms in a US industry worth $410 billion per annum by 1995.
Explains that three approaches to valuation under leverage are found in the financial economics literature: weighted average cost of capital (WACC); flow‐to‐equity (FTE…
Explains that three approaches to valuation under leverage are found in the financial economics literature: weighted average cost of capital (WACC); flow‐to‐equity (FTE) or residual equity income (REI); and adjusted present value (APV). Although both the WACC and the FTE methods have been extensively used in real estate investment analyses, it appears that the APV has received little attention in the real estate literature. This is surprising because the reasons that render the APV preferable to the other two methods exist in most real investment situations. Provides an introduction to the APV method and illustrates it with a numerical example. Discusses potential applications of this method in different real estate investment problems.
Over recent years an increasing amount of funds has been committed to mergers and acquisitions in the UK. Expenditure rose nearly tenfold from £2.3bn in 1983 to £22.1bn in…
Over recent years an increasing amount of funds has been committed to mergers and acquisitions in the UK. Expenditure rose nearly tenfold from £2.3bn in 1983 to £22.1bn in 1988. This surge in spending has continued despite fears over economic trends, both domestic and international, and shocks in financial markets, notably the global col lapse in share values of October 1987. This monograph is essentially concerned with the events up to, and including, the first three quarters of 1989, ie, a period of two years after the crash of October 1987. Whilst the financing of mer gers and acquisitons activity is a fast moving arena, it does seem to be an opportune time to review developments to date and, tentatively, to suggest future trends in this sphere.