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I. Administration
Instructor: Suresh Radhakrishnan (Suresh)
Office: SOM 4.426; Phone: 972-883-4438; E-mail: sradhakr@utdallas.edu
Office hours: Wednesdays 4:00 PM to 5:00 PM
Ø Recommended
§ Mergers & Acquisitions: A Valuation Handbook, by Joseph H. Marren, McGraw-Hill, 1993
[or any Corporate Finance Text]
§ Advanced Accounting, by Hoyle, Schaefer, Doupnik, McGraw-Hill, 1999 [or any other
Advanced Accounting Text]
§ Lecture notes and cases will be made available on WEBCT. The School Policy dictates that
hardcopies not be distributed. It is your responsibility to ensure that you have the lecture
notes and case materials that are to be discussed in class.
The deliverables for the course includes (a) three individual homework assignments and (b) two
group assignments – the deal making game and the fina l project. Details of the homework assignments,
deal-making game and the project are described later in the outline. It is your responsibility to ensure
that the homeworks are turned in on or before the due dates. If for any reason you cannot make it
to class on the due date (because of your work/travel plans), please make sure that the homework is
emailed to me before class on the due date. No credit will be given for late submissions.
For the group assignments, you are expected to work in small groups. Only one copy of the report
needs to be turned in, for each group. At the end of the course you will be asked to evaluate the
contribution of each of the individuals in the group. Each group will make a presentation of Final Project
to the class that will be evaluated by yours friends/colleagues in the class. A copy of the peer evaluation
forms is provided at the end of the outline.
The relative weights for the deliverables are:
Individual homework 20%
Deal-making game report 20%
Final Project write-up 30%
Final Project presentation (peer evaluation) 10%
Group contribution (peer evaluation) 20%
The target grade distribution is
A 50%
B 40%
C or lower 10%
NOTE: Please give me e-mails by the first week of class. I will provide a deadline for you to form groups.
2/14 Ø Inter-corporate investments – • CW: Lecture note 3D • CW: “LN 3D Accounting for Acquisitions-
Acquisitions Consolidation (New).doc"
Ø In – process R&D • HW 2: “HW2 Accounting for Acquisitions.doc”
2/14 Ø Asset write downs • CW: AOL Time Warner • CW: “AOL Asset Writedown Case FootNotes.doc”;
“AOL Asset Writedown Solution.xls”
• HW 3: “Nortel Asset Writedown Case
FootNotes.doc”; “Nortel Case.xls”
2/21 Ø Incentive issues • CW: ATT & NCR case • CW: “ATTNCRcase.doc”,
• CW: CGA case “ATTNCRsolution.doc”,
“ATTNCR_solution.xls”
• CW: “CGAcase.doc” and “CGAsolution.doc”
2/21 Ø Choice of acquisition method, • CW: Lecture note 3E • CW: “LN 3E Accounting for Acquisitions-
premium – research findings • CW: Lecture note 3F • Consolidation (Old).doc"
Ø Special topics • CW: Lecture note 3G • CW: “LN 3F Accounting for Acquisitions-
• DUE: HW 2 Goodwill and IPRD Choice of method.doc"
• CW: “LN 3G Accounting for Acquisitions-
Special topics.doc"
3/28 Ø Synergy and value • CW: Lecture note 6 • CW: “LN 6 Synergy_and_Value"
“E6.1 synergy_operating_RSCorp.xls”
“E6.2 ATT_NCR operating synerge.xls”
“E6.3 Lube&Dalton_financial_synergies.xls”
4/4 Ø Real Options • CW: Appendix B • CW: “LN 7 Real options.doc"
Ø Earnouts and Incentives • CW: “LN 8 Earnouts”
4/4 Ø AOL, Netscape – Valuation, • CW: AOL, Netscape case • CW: “LN 5A AOL & Netscape valuation.doc"
performance • CW: Chapter 22, 23, 24 Appendix A • CW: “LN 5B AOL & Netscape performance.doc"
4/11 Ø Catch-up, Project Preparation • •
time
4/18 Ø Deal making game • Pharmaceutical Industry • Course outline page 5
4/25 Ø Project presentations • DUE: Presentations • Course outline pg. 6
Ø Project report due • DUE: Report
Ø Deal making game report due • DUE: Deal-making game report
Homework 2 [Individual]
Case: Accounting for Acquisitions
Due Date 2/21
[7 points]
Refer to the case and answer the questions. [Reference “HW2 Accounting for acquisitions.doc”]
Homework 3 [Individual]
Case: Nortel Asset Write down
Due Date 2/28
[7 points]
Refer to the cases and answer the questions. [Reference “Nortel Assets Writedown Case Footnotes.doc”
and “Nortel Case.xls”]
On 11/15 provide a write-up for why you agreed upon the price, your justification (assumptions) and
valuation. Your write-up should contain the description of your strategy and models before you went into
the negotiation. It should then include what happened during the negotiations.
The best offer will get 5 additional points. Remember to bid-low and ask-high. The BigCo group that has
the lowest deal value and the SmallCo group that has the highest deal value will each get a bonus of 5
points. To mitigate collusion concerns the SmallCo group that agrees for the lowest price will get minus
4; and the BigCo group that agrees to the highest price will get minus 4. These bonus points will be
awarded only if the deviation from the mean deal value is sufficiently high, and is based on the
instructor’s discretion and judgement.
Advice: Look at the fundamentals and arrive at the valuation that you deem appropriate. Don’t try to find
out the exact real life deal! The bonus points are not geared towards closeness to the real life deal.
The written-report should be about 5 pages. Present the bid-ask rounds in a Table, showing how you had
converged on a price during negotiations. Indicate how you arrived at a starting point for your bids/asks.
Indicate what strategy you had chosen for negotiation and whether and how you changed your strategy.
What surprises, if any, did you encounter in the negotiation?
Suggested Approach:
Ø Choose a merger or acquisition of firms that were traded in the stock market.
Ø Construct a time line of events le ading to the merger/acquisition and understand the merger.
Ø Obtain at least four annual/quarterly reports for each of the firms, before the announcement of the
merger. That is, you are going to behave as if, you had the same information set as was available to
the acquirers and the target. Also, obtain four annual reports after the merger.
Ø Read the financial statements and the MD&A to gain an understanding of the management’s
perception of growth/performance and strategy.
Ø Perform a ratio analysis to provide you with a better feel for the economic environment
Ø Value the firms using the theoretical approaches along with a sensitivity analysis.
Ø Based on the actual deal price, what do you think was the expectation of the acquirer? Is the
expectation reasonable?
Ø What accounting method was chosen? Analyze the financials and performance after the merger. Are
there any concerns and questions?
Source:
Ø Annual reports: You may find the SEC’s database of company filings useful [the internet site is
http://www.freeedgar.com/. Use 10-Ks (the annual reports) for a company. You may order the annual
report from the company directly, or find copies of the annual report on the company’s home page.
Please do not go to databases such as the COMPUSTAT, VALUELINE etc., to get this data, because
adjustments are already made to some items.
Ø For press releases you may go to the company’s homepage or lexis-nexis at UTD library.
Ø Betas can be obtained from various internet sources – such as, yahoo finance.
Write-up: The main report should be about 10-15 pages [typewritten, 1.5 or double -spaced]. Provide an
executive summary, which should contain the main points you learnt from the analysis. The body report
should provide (a) a short background and outlook for the company – as far as it is relevant (please avoid
the temptation to reproduce paragraphs from the MD&A !), (b) the reasons why the firms merged as
stated by the management (c) how and why do your analyses support these reasons, (d) does the
performance after the merger reflect the expectations, and (e) finally, what have you learnt from the
analysis. financials, ratios, proforma financials, detailed assumptions, valuation and sensitivity analysis
can be appendices. Your detailed number crunching exercises, such as ratio analysis, valuation,
assumptions, forecasts, data source, etc., can be put in Appendices. Integrate the main aspects of the
number crunching, in summary tables or charts, in the main body of the report.
GROUP #:
NAME OF EVALUATOR:
Dimensions of evaluation
A. Distribution of work
B. Helpful in explaining difficult topics
C. Helpful with ideas, questions and discussion
D. Quality and timeliness of work performance
E. Leadership and overall collegiality
A B C D E Total
NAME OF GROUP MEMBER (0-4) (0-4) (0-4) (0-4) (0-4) (0-20)
Each dimension is to be evaluated on a scale of 0-4 with 0 the minimum and 4 the maximum. For
example, if you perceive that you did more work, and the rest was distributed evenly across other group
members, you might want to give a 2 to all the group members.
GROUP #:
NAME OF EVALUATOR:
Dimensions of evaluation:
A. Content – Complete, coherent, clear, concise and correct
B. Delivery – Poised, powerful, persuasive, polished, prepared
10
11
The contents is to be evaluated on a scale of 0-7 with 0 the minimum and 7 the maximum; while the
delivery is to be evaluated on a scale of 0-3 with 0 the minimum and 3 the maximum.