You are functional managers in a relatively small, but high-growth trucking company. The company was started 10 years ago by a venturesome entrepreneur with a degree in engineering. The owner originally intended to "keep it small and own it all," but found it necessary to make a public stock offering in order to expand into a very competitive, low cost market. Deregulations forced companies to look at cost-cutting by economies of scale, hence the decision to grow much larger. During the last 3 years, the company has been extremely effective in retaining a large amount of cash. Unfortunately, this cash has made it attractive as a takeover target by a "raider." With deregulation well under way, many companies are consolidating into high-volume powerhouses for survival. The SEC has recently informed you that it believes an intricate web of holding companies has managed to acquire 20% of your company's stock. The original company owner, now the company president, does not understand very much about finance, so he has asked you to explain what is going on and what are some of the alternatives available to him. After your first meeting with him, you put together the following topics that need investigation:
1. Critique private equity firms and transactions. Describe the difference among operational, financial, and governance aspects of private equity acquisitions. How do privaty equity transactions differ from mergers and acquisitions. Also, explain leveraged buyouts, junk bonds, and how they affect the financial statements, ultimately, the ability to make acquisitions (including tax advantages).
2. What are the advantages and disadvantages of mergers and acquisitions to the economy? What are some ways the government is involved in them, and should the government be more or less involved?
3. Describe the process by which poison pills, white knights, shark repellants, the Pac-Man defense, dividends, and stockholder persuasion come into the picture. What is greenmail?
4. Describe an example of a hostile takeover that involved raiders, white knights, etc.
5. What is the history of some recent mergers and acquisitions? Have the intended results matched the real results?
6. If the acquiring company needs to pay off a large amount of debt incurred from the acqusition of another company, what are some options for raising cash?
7. How can employee stock ownership and buyouts affect the merger and acquisition process?