Course Title: FBE 460: MERGERS, ACQUISITIONS AND RESTRUCTURING

Syllabus for Fall 2016

Professor: Lloyd LevitinOffice Phone: 310-740-6524Office Location: HOH 211E-mail: levitin@marshall.usc.eduTA: Muchhala Parth Hitesh

Lecture ClassTuesday and Thursday 4:00 – 5:50 P.M. Room: JFF 236

Office HoursTuesday and Thursday 3:00 – 4:00 P.M.

I. COURSE OBJECTIVE This course covers the broad field of mergers, acquisitions, and divestitures. The primary objective of the course is for each student to gain a well-rounded understanding of the major strategic, economic, financial, and governance issues of mergers and acquisitions. The course will expose students to actual problems likely to be encountered by senior management of major corporations or those who are the advisors to such management.

Takeovers and mergers are a daily fact of life and have evolved into a critical part of every CEO or manager’s strategic toolbox. Every person who enters the corporate world will most likely be affected by a merger or acquisition at some point in their career. Students will apply learned content to real mergers and acquisitions and have the opportunity to present to the class their findings and conclusions.

Specific academic course objectives include:

Examining the role that M&A plays in the contemporary corporate world, and its use as a strategic tool to provide growth, enhance competitive position, transform a company or industry, and create shareholder value.

To provide the student a framework for analyzing transactions including understanding strategic rationale, valuation methodologies, deal structures, bidding strategies, and the need for a value proposition.

Show how M&A can be used successfully, as well as its pitfalls, dangers and risks. To identify ways to increase shareholder value through M&A and corporate restructuring. Master the language of M&A Analyzing a recent M&A transaction rigorously

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II. LEARNING OBJECTIVESThis course will help you to:

understand the role that M&A plays in the contemporary global market, and its use as a strategic tool to provide growth, enhance competitive position, transform a company or industry, and create shareholder value.

develop a framework that can be used for analyzing M&A transactions including understanding strategic rationale, valuation methodologies, deal structures, bidding strategies, and the need for a value proposition.

foster an understanding of the M&A process from target selection to doing the deal (including due diligence, integration planning, negotiating the agreement, announcing the deal), to closing and integration.

recognize the advantages and disadvantages of alternative deal structures. have an understanding of commonly used takeover tactics and defenses. choose a path for restructuring that will meet corporate goals and create shareholder value. understand the practical limitations of the various valuation approaches. minimize the risk that a merger or acquisition will not meet expectations. understand how value is created (or destroyed) as result of corporate mergers,

acquisitions, and restructuring transactions. understand the role played by corporate boards and third parties (consultants,

investment bankers, analysts, and institutional investors) in M&A deals

III. TEACHING METHODSThe course combines lecture material, analysis of cases, quantitative and qualitative analysis, and discussion of relevant news of M&A transactions and a student project. Students are encouraged to follow the M&A activity that is reported in the press during the semester. Homework questions and cases will be solved in class. Written solutions will not be distributed. You need to get the solution in class. If anything remains unclear, I’ll be happy to explain in class or during my office hour.

This subject is complex, competition in M&A is intense, and the consequences of error can be huge. However, if you are willing to tackle this course earnestly, you will learn a lot.

IV. WHO SHOULD TAKE THIS COURSEThose who are seeking to become entrepreneurs, financial analysts, chief financial officers, operating managers, investment bankers, business brokers, portfolio managers, investors, corporate development managers, strategic planning managers, auditors, venture capitalists, business appraisers, consultants, or who simply have an interest in the subject.

V. PREREQUISITE BUAD 215 or BUAD 306

VI. REQUIRED MATERIALSRequired Text: Mergers, Acquisitions, and Other Restructuring Activities: An Integrated Approach to Process, Tools, Cases, and Solutions, 8th edition, Donald M. DePamphilis, Elsevier/Academic Press, San Diego, Ca., 2014 (ISBN: 9780123854872). For the textbook’s companion website, go to: http://booksite.elsevier.com/9780123854872/section6.php

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Course Notes: Copies of lecture slides and other class information are available through your Blackboard account.

VII. TEACHING METHODS This course is taught through a combination of readings, cases, lectures and group projects. We begin each session with a discussion of current events. You are encouraged to read the Wall St. Journal to obtain a grasp of recent news.

VIII.ABOUT THE INSTRUCTOR Lloyd Levitin is a Professor of Clinical Finance and Business Economics at Marshall. He was Executive Vice President and CFO of Pacific Enterprises from 1982-1995 (now Sempra Energy), and was actively involved in the firm’s diversification program which included numerous acquisitions. He testified as an expert on utility diversification to the Senate Finance Committee of the U.S. Congress and has been a consultant for JurEcon, Inc., a nationwide consulting and research firm for management and counsel. He has a MBA from Wharton and a JD from University of San Francisco. He practiced as a CPA after receiving his MBA, and as a tax attorney after receiving his JD.

IX. GRADING SUMMARY:Points

Quiz 1 10Quiz 2 10Quiz 3 10

Final Exam 30

Team Project: Evaluation of Recent Merger 20

Peer Evaluation 10

Class Participation 10

TOTAL 100

Final grades represent how you perform in the class relative to other students. Your grade will not be based on a mandated target, but on your performance. Three items are considered when assigning final grades:

1. Your average weighted score as a percentage of the available points for all assignments (the points you receive divided by the number of points possible).

2. The overall average percentage score within the class. 3. Your ranking among all students in the class.

Quizzes and Final ExamThe quizzes and final exam will be closed book, closed notes. The final exam is cumulative from the beginning of the course. Laptops or any hand-held device with email capabilities cannot be used. You should bring a calculator to perform calculations.

If you are unable to take a quiz, the following rules apply:

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1. If you fail to inform me in writing before the quiz begins, you will receive a zero grade, even if you have a valid excuse. An exception will be made if you have a note from your doctor that you were unable to communicate your excuse.

2. If you inform me in writing before the quiz begins, and you have an acceptable excuse, then the final exam will count for 40% of your grade.

3. If you have an acceptable excuse for missing two of the scheduled quizzes, the final exam will count for 50% of your grade.

4. If you have an acceptable excuse for missing all 3 quizzes, the final exam will count for 60% of your grade.

There will be no make-up quizzes.

Team Project: Evaluation of a Recent Merger and Acquisition Deal

You are to evaluate a merger between two publicly-traded companies that took place between 2010-2015. This study should give you valuable perspectives on how deals are put together. Your group will prepare a paper on the acquisition selected and present your findings to the class.

This project is to be handed in to the instructor by November 22 and is worth 20 points (15 points for written report; 5 points for oral report to class).

An outline of the topics your paper should cover is stated on pages 10 and 11.

Oral reports will be given during the period November 22-29. Your team will be notified of the date of your presentation by my TA by November 8.

The purpose of the oral presentation is to share with the class the highlights of your written report. Include the most important lessons you learned from this project. Use PowerPoint slides and plan to spend 15-20 minutes and then take questions for 5 minutes.

A Research Guide to assist you to find information is attached.

Groups for Team Project and Approval of Selected MergerStudents will divide themselves into “teams” of 4-6 students each by August 30 and select a team leader. Class time will be provided on August 30 for this purpose. Team leader is to email the names of the students in his/her group. Any student who cannot find a team should inform my TA by August 31 and the TA will assign you to a group. The group team leader is to email the TA your first, second and third choice by September 20. The TA will inform you of you assigned acquisition by September 22. This process is necessary to avoid two groups selecting the same companies.

Peer Evaluation on Group Projects (10% of your grade)Study groups provide a valuable learning experience – how to work effectively and efficiently in groups (a common practice in Corporate America), learning from others, and sharpening a student’s ability to communicate with others. However, human nature being what it is, some students are tempted to relax and let others carry their load. In order to provide an incentive for all students to make maximum contributions to the Pitch Book team project, students will be

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asked to grade each team member’s contributions on the Pitch Book project on a 1 to 10-point scale (10 representing the best performance).

This evaluation is to be submitted by email to the Instructor before the last day of classes. Any team member who does not email his (her) evaluation of team members will be deemed to have given a 10-point score to each member of the team.

Class Participation (10% of your grade). You may earn up to 10 points for class participation. Each of you will be awarded these 10 points on the first day of class. Your objective will be to keep these 10 points throughout the semester. This requires attendance at classes and your being well-prepared to answer the assigned questions set forth on pages 8 and 9 of this syllabus. These assignments include chapter readings in the text and end of chapter discussion questions and questions in cases included at the end of the chapter. You are not to hand in your answers to these questions, but the professor will call upon you for your answer. Given the number of questions, you should expect to be called upon several times during the semester.

Attendance will be taken during each class. You may miss 3 classes without penalty. However, for each additional class you miss, a 1 point deduction will be made from your Class Participation Grade.

On every Tuesday at 5:20 p.m., you will have an opportunity to increase your class participation grade (but not in excess of 10 points). First, you can provide a brief review of what happened in the past week in mergers and acquisitions. If you choose to do this, email the professor before class begins. If I receive more than one request, the first student to request time for his/her report will be given the opportunity. Second, you can give up to a 5 minute report on what you consider the key ideas from the prior week’s classes. Again, email me before class if you wish to do this. To help me out, please bring a name card and place it on the desk in front of you. After the enrollment in the course has stabilized, I will pass around a seating chart. At that point, I ask that you remain in that seat for the rest of the semester. This will help assure that class participation is accurately recorded and rewarded.

X. ACADEMIC INTEGRITYUSC seeks to maintain an optimal learning environment. General principles of academic honesty include the concept of respect for the intellectual property of others, the expectation that individual work will be submitted unless otherwise allowed by an instructor, and the obligations both to protect one’s own academic work from misuse by others as well as to avoid using another’s work as one’s own. All students are expected to understand and abide by these principles. SCampus, the Student Guidebook, (www.usc.edu/scampus or http://scampus.usc.edu) contains the University Student Conduct Code (see University Governance, Section 11.00), while the recommended sanctions are located in Appendix A.

Students will be referred to the Office of Student Judicial Affairs and Community Standards for further review, should there be any suspicion of academic dishonesty. The Review process can be found at: http://www.usc.edu/student-affairs/SJACS/ . Failure to adhere to the academic

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conduct standards set forth by these guidelines and our programs will not be tolerated by the USC Marshall community and can lead to dismissal.

XI. STUDENT DISABILITYAny student requesting academic accommodations based on a disability is required to register with Disability Services and Programs (DSP) each semester. A letter of verification for approved accommodations can be obtained from DSP. Please be sure the letter is delivered to be as early in the semester as possible. DSP is located in STU 301 and is open 8:30 AM to 5:00 PM, Monday through Friday. The phone number for DSP is (213) 740-0776. For more information visit www.usc.edu/disability.

XII. TECHNOLOGY POLICYLaptop and Internet usage is not permitted during academic or professional sessions unless otherwise stated by the professor. Use of other personal communication devices, such as cell phones, is considered unprofessional and is not permitted during academic or professional sessions. ANY e-devices (cell phones, PDAs, iPhones, Blackberries, other texting devices, laptops, iPods) must be completely turned off during class time. Videotaping faculty lectures is not permitted, due to copyright infringement regulations. Audiotaping may be permitted if approved by the professor. Use of any recorded material is reserved exclusively for USC students registered in this class.

XIII.RETENTION OF GRADED COURSEWORKFinal exams and all other graded work which affected the course grade will be retained for one year after the end of the course if the graded work has not been returned to the student (i.e., if I returned a graded paper to you, it is your responsibility to file it, not mine).

XIV. CLASS NOTES POLICYNotes or recordings made by students based on a university class or lecture may only be made for purposes of individual or group study, or for other non-commercial purposes that reasonably arise from the student’s membership in the class or attendance at the university. This restriction also applies to any information distributed, disseminated or in any way displayed for use in relationship to the class, whether obtained in class, via email or otherwise on the Internet, or via any other medium. Actions in violation of this policy constitute a violation of the Student Conduct Code, and may subject an individual or entity to university discipline and/or legal proceedings.

XV. EMERGENCY PREPAREDNESS/COURSE CONTINUITYIn case of a declared emergency if travel to campus is not feasible, USC executive leadership will announce an electronic way for instructors to teach students in their residence halls or homes using a combination of Blackboard, teleconferencing, and other technologies.

Please activate your course in Blackboard with access to the course syllabus. Whether or not you use Blackboard regularly, these preparations will be crucial in an emergency. USC's Blackboard learning management system and support information is available at blackboard.usc.edu.

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XVI. MARSHALL GUIDELINES

Learning Goals: In this class, emphasis will be placed on the USC Marshall School of Business learning goals as follows:

Goal DescriptionCourse Emphasis

1 Our graduates will understand types of markets and key business areas and their interaction to effectively manage different types of enterprises

Moderate

2 Our graduates will develop a global business perspective. They will understand how local, regional, and international markets, and economic, social and cultural issues impact business decisions so as to anticipate new opportunities in any marketplace

Moderate

3 Our graduates will demonstrate critical thinking skills so as to become future-oriented decision makers, problem solvers and innovators

High

4 Our graduates will develop people and leadership skills to promote their effectiveness as business managers and leaders.

Moderate

5 Our graduates will demonstrate ethical reasoning skills, understand social, civic, and professional responsibilities and aspire to add value to society

High

6 Our graduates will be effective communicators to facilitate information flow in organizational, social, and intercultural contexts.

Moderate

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XVII. CLASS SCHEDULE AND ASSIGNMENTS: FBE 460SECTION DATE TOPIC ASSIGNMENT IN TEXT*I. M&A Environment 8/23 Introduction Chapter 1 and DQ 1, 2, 4-10

8/25 Regulatory Environment Chapter 2

8/30 Regulatory Environment Chapter 2 DQ 1-10;Am. Air Case Q 1-5;Selection of groups

9/1 Takeover Market Chapter 3

9/6 Takeover Market (continued) Chapter 3 DQ 1-10;Dell Case Q 1-6

II. M&A Process 9/8 Planning Chapter 4

9/13 Search Through ClosingQuiz 1 on Chapter 1-3

Chapter 4 DQ 1-10; Facebook Case Q 1-6

9/15 Search Through Closing (continued)

Chapter 5

9/20 Search Through Closing (continued)

Chapter 5 DQ 1-10;Google Case Q1-5

9/22 Integration Chapter 6

9/27 Integration (continued) Chapter 6 DQ 1-10;P&G Case 1-5

III. Valuation 9/29 Valuation Chapter 7

10/4 Valuation (continued) Chapter 7 DQ 1-10 and Practice Problems 11-14

10/6 Valuation (continued) Chapter 8

10/11 Valuation (continued)Quiz 2 on chapters 4-7

Chapter 8 DQ 1-10

10/13 Valuation (continued) Chapter 8Practice Problems 11-18 andTwitter Case Q 1-4

10/18 Valuation (continued) Chapter 10 and DQ 1-10;Steakhouse Case Q 1-6;Practice Problems 11-15

*DQ = End of chapter Discussion Questions. Case questions also appear at end of the chapter. Answer to these questions are not to be handed in.

CLASS SCHEDULE AND ASSIGNMENTS: FBE 460SECTION DATE TOPIC ASSIGNMENTIV. Deal Structuring 10/20 Acquisition Structure Chapter 11

10/25 Financing Issues Chapter 11 DQ 1-10T-Mobile Case Q 1-6

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10/27 Tax and Accounting Issues Chapter 12 and DQ 1-10

11/1 Tax and Accounting Issues (continued)Quiz 3 on Chps 8, 10, 11

Chapter 12 Practice problems 11-12

11/3 Private Equity, LBOs Chapter 13 and DQ 1-10;Berkshire Hathaway Case Q 1-7

V. M&A Alternatives 11/8 JVs Partnerships and Alliances Chapter 15 and DQ 1-10;Comcast Case DQ 1-5

VI. Restructuring 11/10 Divestitures, Spin-Offs, Carve-Outs, Split-Ups, Split-Offs

Chapter 16 and DQ 1-10;Northrop-Grumman Case Q 1-5

11/15 Company Sales Process; Auctions; Bankruptcy, Reorganization and Liquidation

Chapter 17 and DQ 1-7;Hostess Case Q 1-7

VII. Cross-Border Deals 11/17 Cross-Border Deals Chapter 18 and DQ 1-10;Actavis Case Q 1-6

GROUP PROJECT 11/22 Oral Reports on Group Project Team Project Due

11/29 Oral Reports on Group Project

VIII. Review 12/1 Course Review

Final Exam 12/8 4:30 – 6:30 p.m.

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TOPICS TO BE COVERED IN WRITTEN REPORT ON EVALUATION OF A RECENT MERGER

A. ECONOMIC SETTING OF BUYER’S INDUSTRY

1. Important characteristics of the industry.2. Challenges faced by the industry at the time of the transaction.3. Industry trends, if applicable, prior to the transaction.4. Outlook for the industry over next 5-10 years as of time of transaction.

B. BUSINESS ECONOMIC REASONS FOR THE TRANSACTION

1. Reasons stated in SEC filings, annual report, and the deal announcement.2. Reasons stated in financial press.

C. STRATEGY

1. How did this particular transaction fit into the broad strategy of the acquiring firm? The selling firm?

2. Was the acquisition related or unrelated to buyer’s operations at time of deal?3. If related, explain how they are related.4. If unrelated, did this appear to occur because growth opportunities for the

buyer’s industry as a whole were not favorable or were opportunities lacking just for the individual firm studied?

D. TERMS OF THE TRANSACTION

1. How large was the premium paid to the target?2. How was the deal financed?

E. INITIAL REACTION TO DEAL

1. Stock market reaction for acquirer and target upon announcement of the deal 2. Security analyst reaction.3. Financial press (WSJ, Business Week, Forbes, etc.) reaction.

F. VALUE CREATION

1. How did buyer expect to create value?2. Describes sources of potential value creation.

G. DEAL HISTORY

1. What was the length of discussions between buyer and seller?2. Describe offers and counter-offers, changes in deal terms3. Describe other bidders (if any).

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4. Describe defensive measures employed by seller either before or after the deal announcement.

5. Describe proxy fights, court battles, if any.6. Describe any deals made with regulatory authorities to gain approval of deal.

H. COMPARISON TO OTHER ACQUISITIONS OF BUYER

1. How did this acquisition compare to others, if any, made by buyer in previous 5 years with respect to size and premium paid?

2. Did this acquisition break the strategic pattern of usual transactions by the buyer?

I. IMPACT OF ACQUISITION ON BUYER

1. Initial impact of deal on buyer’s financial statements (e.g., changes in debt/capital ratio; EPS accretion or dilution).

2. Initial changes after the transaction due to acquisition (e.g., layoffs, divestitures, changes in seller’s management).

J. POST-MERGER PERFORMANCE (Up to 3 years after deal)

1. How did the economy and industry perform subsequent to the subject acquisition?

2. How did the firm perform at the merger measured by return to shareholders in subsequent years (capital gains plus dividend returns)

a. unadjusted?b. adjusted for a broad market index?c. adjusted for a market index for the industry?

3. How did the firm perform using accounting measures?

4. How do you think the firm would have performed absent the acquisition?

K. CONCLUSIONS

1. What was the outcome of this bad deal? Discuss in terms of:

a) Impact on market value (quantify)b) Financial stabilityc) Strategic positiond) Organization strengthe) Reputation

2. With the benefit of hindsight, did the acquiring firm make some mistakes in acquiring the target? Explain.

3. What were the most important lessons you learned from this project.

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