M&A Modeling Exam Answers from Wall Street Prep
Why did the merger of Bank of America and Nations Bank occur? - ANSWER this
deal created the first coast to coast banking company
- this deal will bring in more customers because it creates convenience when
traveling from coast to coast (less fees etc.)
when did the bank merger between Bank of America and Nations Bank occur? and
Why? - ANSWER 1998
- in 1994, federal law was passed that you could operate across any state as a bank
- thus, this deregulation made it now legal which increased the likelihood of success
- this was due to political and economic conditions
What makes a deal likely to pass antitrust laws? - ANSWER If the merger is
productive and convenient for the customer, the better.
When will a merger have issues with antitrust laws? - ANSWER If the merger is
designed to increase prices and decrease competition
Why might technology have had an impact on the Bank of America and NationsBank
Deal? - ANSWER ATMs were readily available at this time.
Information in NationsBank - ANSWER -NCNB stands for North Carolina Nations
Banks
- CEO: Hugh McCoe
- Headquartered in Charlotte
How was Bank of America initially formed in 1998? - ANSWER Nations Bank
acquired BankAmerica, and was then named Bank of America to operate across
states
What was Bank of America's founded as? - ANSWER Bank of Italy by Amadeo
Gianini.
Where was BankAmerica headquartered and NationsBank headquartered before
and after their merger? - ANSWER -BankAmerica was headquartered in San
Fransisco before the merger
-NationsBank was headquartered in Charlotte before the merger.
After: they became Bank of America and headquartered themselves in Charlotte.
- the CEO if the combined company was Hugh McColl
Friendly merger - ANSWER Target Board approves and agrees on a price/shares
Hostile Takeover - ANSWER At some point in the process, the target board says no
to the deal
,What are some reasons for an issue in the merger process between the target and
the bidder? - ANSWER -Valuation of the target company could be off
Why might a target board in good faith decline a valuation of their current value in a
merger deal? - ANSWER If they think that they will grow fast than what the street
thinks in the future years
- or if the board or executives feel as though they will lose their jobs in the deal and
want to continue to hold their positions
Which legal structure is more likely to be used in a hostile takeover? A merger or a
tender offer? Why? - ANSWER A tender offer: this has a lot to do with publicity. This
will put pressure on management of the company being offered the merger, by
letting shareholders know of the offer.
What gives the target board a reason to say no to the offer? - ANSWER Ownership -
property rights: if you own the assets, you don't legally have to surrender the
property
- often, agency costs are the reason the target board doesn't want to sell their
company (losing their job)
Common in the 80s, what gives the target board the bargaining power to resist a
hostile takeover? - ANSWER If a company/firm/person acquires 10% of shares, the
target board can issue more shares to dilute the 10% (sharks)
What percent of shares of a corporation do you need to own to establish
supermajority? - ANSWER 70% - and there must be a vote to establish the
possibilities
Poison Pill - ANSWER Similar to dilution of common-stock, but using preferred stock.
In the instance of a hostile takeover (say someone buying up all the shares in
attempt to take control of the company), the target firm can issue preferred stock to
all shareholders for a cheap price, making the common-stock worthless.
Who cam up with the poison pill? - ANSWER Martin Lipton
Is there a shareholder vote to issue a poison pill? - ANSWER No there is not,
however, there is a shareholder vote necessary for the dilution of shares or
establishing a supermajority
What happened in the Oracle takeover of PeopleSoft? - ANSWER Example of a
hostile takeover. At one point it became a proxy-contest: shareholders are given their
right to vote but not everybody can attend to vote, so they send in their votes to the
board in order to represent them.
What is an issue with hostile takeovers? - ANSWER it is incredibly difficult for buyers
to conduct du diligence without the cooperation of the target's management
Engelhard and BASF merger - ANSWER Engelhard was a New Jersey based
chemical company, and BASF was a German company.
- BASF wanted to buy Engelhard in 2005-2006, to which they would say no.
,- But BASF and Engelhard had entered into a confidentiality agreement where
Engelhard would share private information with BASF
- In return to Engelhard books, BASF agreed to not pusue any additional hostile
measures for one month.
- Engelhand was hoping for another offer in the bidding war
Horizontal Integration - ANSWER merging companies that results in a decrease of
competition in the market. Ex: Coke and Pepsi or HP and Compaq
*don't say that it is a merger between two companies in the same industry*
- catches the attention of antitrust lawmakers because this is more likely to increase
concentration in the market and and reduce competition.increase pricing
-considered geographic expansion
Vertical integration - ANSWER Combining companies to up the supply chain or to
increase distribution channels.
ex: Oil producer combines with a pipeline
What was the payment for NationsBank to Acquire BofA? - ANSWER S-4 document
issuing stock to finance the merger.
In a stock deal for a merger, when will a shareholder vote be necessary for the
bidding shareholders? - ANSWER If the bidding company has to issue more than
20% of new stock, then a vote is necessary due to dilution possibilities.
What was the impact of the Riegle Neale Act? - ANSWER Deregulation of banks
across state lines and allowed banks to nationalize.
McFadden Act - ANSWER Gave individual states the right to set their own rules
regarding out-of-state banks coming into the state; enacted in 1927.
- national commercial banks could operate in a single state
What are the major forces that ultimately affect M&A in different time periods? -
ANSWER 1. Political Changes (Regal Neal Act/McFadden Act)
2. Technological change (Communication advancements)
3. Economic change (1980s Texas oil industry crashed, but housing market boomed)
What is the legal structure of the deal between Bank of America and Fleet Boston? -
ANSWER This was a merger because there was a target shareholder vote
When is it highly likely that a bidder shareholder vote would be needed in a deal?
And what was an example of this in 2003? - ANSWER Bank of America was
acquiring Fleet Boston in a Stock deal. Because there was a bidder shareholder vote
on this deal, that meant that there was a big amount of issued stock in the deal to
acquire the company (more than 20%) of new issued stock was used in the deal.
What was the organizational structure of the BofA and Fleet Boston deal? -
ANSWER Horizontal: this deal was made for geographic reasons
, What was the nature and legal structure of the Fleet Boston and BofA deal? Along
with the Organizations and payment structures? - ANSWER Legal: merger
Nature: Friendly
Organizational: Horizontal
Payment: stock
What were the reasons for the BofA and Fleet Boston Deal in 2003? - ANSWER
Synergies
Scale and Scope
Geographic expansion
Primary regulators in M&A - ANSWER Securities and exchange commission (SEC)
Securities Act of 1933 - ANSWER Dealt with primary markets, like IPOs, the
issuance of securities, and registration statements
What was an example of a deal that related to the Securities act of 1933? -
ANSWER BofA and Fleet Boston because of the issuance of more stock in the
merger deal
Securities Exchange Act of 1934 - ANSWER More for secondary markets. Created
the SEC. More involved with trading. Required annual reports from public companies
such as 10-Ks, proxy statements, etc.
Why is the Securities Exchange Act of 1934 relevant to mergers? - ANSWER if
you're a shareholder in a company for a merger, you can access these filings to
decide if you would want to keep or sell your stock
What explains the timing of the Securities exchange act of 1934 and the securities
act of 1933? - ANSWER 1929 was when the great crash was, which had the great
depression afterwards.
- if there is a financial crisis, there is likely to be more regulations afterwards
what is an 8-k filing used for? - ANSWER announces an important event: such as
both boards agreeing to announce a deal.
- public companies must file an 8-k form with the SEC within 4 days of any event that
could materially affect a company's financial positions of its assets
What's another federal agency that is prevalent in deals such as the Telecom
industry? - ANSWER Federal Communications Commission (FCC)
Where are most major corporations chartered, and why? - ANSWER Delaware:
becasue they have this long code that is dealing with takeovers and mergers legally
- a company can be headquartered somewhere else, and they still may be
incorporated in Delaware.
Two Federal Agencies that deal with Antitrust in the US - ANSWER 1. Department of
Justice
2. Federal Trade Commission
Why did the merger of Bank of America and Nations Bank occur? - ANSWER this
deal created the first coast to coast banking company
- this deal will bring in more customers because it creates convenience when
traveling from coast to coast (less fees etc.)
when did the bank merger between Bank of America and Nations Bank occur? and
Why? - ANSWER 1998
- in 1994, federal law was passed that you could operate across any state as a bank
- thus, this deregulation made it now legal which increased the likelihood of success
- this was due to political and economic conditions
What makes a deal likely to pass antitrust laws? - ANSWER If the merger is
productive and convenient for the customer, the better.
When will a merger have issues with antitrust laws? - ANSWER If the merger is
designed to increase prices and decrease competition
Why might technology have had an impact on the Bank of America and NationsBank
Deal? - ANSWER ATMs were readily available at this time.
Information in NationsBank - ANSWER -NCNB stands for North Carolina Nations
Banks
- CEO: Hugh McCoe
- Headquartered in Charlotte
How was Bank of America initially formed in 1998? - ANSWER Nations Bank
acquired BankAmerica, and was then named Bank of America to operate across
states
What was Bank of America's founded as? - ANSWER Bank of Italy by Amadeo
Gianini.
Where was BankAmerica headquartered and NationsBank headquartered before
and after their merger? - ANSWER -BankAmerica was headquartered in San
Fransisco before the merger
-NationsBank was headquartered in Charlotte before the merger.
After: they became Bank of America and headquartered themselves in Charlotte.
- the CEO if the combined company was Hugh McColl
Friendly merger - ANSWER Target Board approves and agrees on a price/shares
Hostile Takeover - ANSWER At some point in the process, the target board says no
to the deal
,What are some reasons for an issue in the merger process between the target and
the bidder? - ANSWER -Valuation of the target company could be off
Why might a target board in good faith decline a valuation of their current value in a
merger deal? - ANSWER If they think that they will grow fast than what the street
thinks in the future years
- or if the board or executives feel as though they will lose their jobs in the deal and
want to continue to hold their positions
Which legal structure is more likely to be used in a hostile takeover? A merger or a
tender offer? Why? - ANSWER A tender offer: this has a lot to do with publicity. This
will put pressure on management of the company being offered the merger, by
letting shareholders know of the offer.
What gives the target board a reason to say no to the offer? - ANSWER Ownership -
property rights: if you own the assets, you don't legally have to surrender the
property
- often, agency costs are the reason the target board doesn't want to sell their
company (losing their job)
Common in the 80s, what gives the target board the bargaining power to resist a
hostile takeover? - ANSWER If a company/firm/person acquires 10% of shares, the
target board can issue more shares to dilute the 10% (sharks)
What percent of shares of a corporation do you need to own to establish
supermajority? - ANSWER 70% - and there must be a vote to establish the
possibilities
Poison Pill - ANSWER Similar to dilution of common-stock, but using preferred stock.
In the instance of a hostile takeover (say someone buying up all the shares in
attempt to take control of the company), the target firm can issue preferred stock to
all shareholders for a cheap price, making the common-stock worthless.
Who cam up with the poison pill? - ANSWER Martin Lipton
Is there a shareholder vote to issue a poison pill? - ANSWER No there is not,
however, there is a shareholder vote necessary for the dilution of shares or
establishing a supermajority
What happened in the Oracle takeover of PeopleSoft? - ANSWER Example of a
hostile takeover. At one point it became a proxy-contest: shareholders are given their
right to vote but not everybody can attend to vote, so they send in their votes to the
board in order to represent them.
What is an issue with hostile takeovers? - ANSWER it is incredibly difficult for buyers
to conduct du diligence without the cooperation of the target's management
Engelhard and BASF merger - ANSWER Engelhard was a New Jersey based
chemical company, and BASF was a German company.
- BASF wanted to buy Engelhard in 2005-2006, to which they would say no.
,- But BASF and Engelhard had entered into a confidentiality agreement where
Engelhard would share private information with BASF
- In return to Engelhard books, BASF agreed to not pusue any additional hostile
measures for one month.
- Engelhand was hoping for another offer in the bidding war
Horizontal Integration - ANSWER merging companies that results in a decrease of
competition in the market. Ex: Coke and Pepsi or HP and Compaq
*don't say that it is a merger between two companies in the same industry*
- catches the attention of antitrust lawmakers because this is more likely to increase
concentration in the market and and reduce competition.increase pricing
-considered geographic expansion
Vertical integration - ANSWER Combining companies to up the supply chain or to
increase distribution channels.
ex: Oil producer combines with a pipeline
What was the payment for NationsBank to Acquire BofA? - ANSWER S-4 document
issuing stock to finance the merger.
In a stock deal for a merger, when will a shareholder vote be necessary for the
bidding shareholders? - ANSWER If the bidding company has to issue more than
20% of new stock, then a vote is necessary due to dilution possibilities.
What was the impact of the Riegle Neale Act? - ANSWER Deregulation of banks
across state lines and allowed banks to nationalize.
McFadden Act - ANSWER Gave individual states the right to set their own rules
regarding out-of-state banks coming into the state; enacted in 1927.
- national commercial banks could operate in a single state
What are the major forces that ultimately affect M&A in different time periods? -
ANSWER 1. Political Changes (Regal Neal Act/McFadden Act)
2. Technological change (Communication advancements)
3. Economic change (1980s Texas oil industry crashed, but housing market boomed)
What is the legal structure of the deal between Bank of America and Fleet Boston? -
ANSWER This was a merger because there was a target shareholder vote
When is it highly likely that a bidder shareholder vote would be needed in a deal?
And what was an example of this in 2003? - ANSWER Bank of America was
acquiring Fleet Boston in a Stock deal. Because there was a bidder shareholder vote
on this deal, that meant that there was a big amount of issued stock in the deal to
acquire the company (more than 20%) of new issued stock was used in the deal.
What was the organizational structure of the BofA and Fleet Boston deal? -
ANSWER Horizontal: this deal was made for geographic reasons
, What was the nature and legal structure of the Fleet Boston and BofA deal? Along
with the Organizations and payment structures? - ANSWER Legal: merger
Nature: Friendly
Organizational: Horizontal
Payment: stock
What were the reasons for the BofA and Fleet Boston Deal in 2003? - ANSWER
Synergies
Scale and Scope
Geographic expansion
Primary regulators in M&A - ANSWER Securities and exchange commission (SEC)
Securities Act of 1933 - ANSWER Dealt with primary markets, like IPOs, the
issuance of securities, and registration statements
What was an example of a deal that related to the Securities act of 1933? -
ANSWER BofA and Fleet Boston because of the issuance of more stock in the
merger deal
Securities Exchange Act of 1934 - ANSWER More for secondary markets. Created
the SEC. More involved with trading. Required annual reports from public companies
such as 10-Ks, proxy statements, etc.
Why is the Securities Exchange Act of 1934 relevant to mergers? - ANSWER if
you're a shareholder in a company for a merger, you can access these filings to
decide if you would want to keep or sell your stock
What explains the timing of the Securities exchange act of 1934 and the securities
act of 1933? - ANSWER 1929 was when the great crash was, which had the great
depression afterwards.
- if there is a financial crisis, there is likely to be more regulations afterwards
what is an 8-k filing used for? - ANSWER announces an important event: such as
both boards agreeing to announce a deal.
- public companies must file an 8-k form with the SEC within 4 days of any event that
could materially affect a company's financial positions of its assets
What's another federal agency that is prevalent in deals such as the Telecom
industry? - ANSWER Federal Communications Commission (FCC)
Where are most major corporations chartered, and why? - ANSWER Delaware:
becasue they have this long code that is dealing with takeovers and mergers legally
- a company can be headquartered somewhere else, and they still may be
incorporated in Delaware.
Two Federal Agencies that deal with Antitrust in the US - ANSWER 1. Department of
Justice
2. Federal Trade Commission
