Indian School of Business

Corporate Control, Mergers and Acquisitions

2013-14: Term V
Krishnamurthy V. Subramanian

Academic Associates: Naveen Kumar,
Anmol Sharma and Shatabdi Mukherjee
Sections:
A: M,W 10:15-12:15
B: M,W 17:00-19:00
C: T,Th 10:15-12:15
D: T,Th 17:00-19:00
Office Hours: Tue-Thu 3-4 PM



And last years (ET 2
nd
July 2012 ) newspaper?


To be a protagonist in the M&A deals of tomorrow with all the expertise
required for todays deals, CCMA is essential!

1.Course Objective and Description
This course is about understanding and developing economic insights into Mergers and Acquisitions.
We will start the course by examining valuation in the context of mergers and acquisitions. We will
analyze the use of Discounted Cash Flow methods WACC and APV in the M&A context. In the
industry, DCF is always employed together with valuation using Multiples methods. Since other courses
may not have covered valuation using Multiples, we will understand how to employ this method of
valuation in a sensible manner.
The word synergies is often synonymously used with Mergers and Acquisitions. However, often firms
do not distinguish between credible sources of synergies and dubious ones. How do we understand and
distinguish credible synergies from castles built in the air? In analyzing the various sources of
synergies, we will also learn from the existing evidence on the success of Mergers and Acquisitions.
Once two companies have decided to merge/ acquire one another, the acquirer has to decide how to
finance the merger/ acquisition. You must know by now that financing, i.e. transactions that a company
does on the liabilities part of its balance sheet, can add substantial value. Therefore, the next part of the
course will focus on investigating the different methods of financing mergers/ acquisitions.
Most courses in Mergers and Acquisitions end at this point. Decide whether to merge or not and how to
finance it! We are done! It is as if deciding whether to marry, whom to marry, and then how to finance
the wedding is enough. Ask a married man/ woman and they would tell you that once the wedding is
over, thats when the real work starts for the new husband and wife: they have to make the marriage
work. Similarly, ask an M&A practitioner, he/she would tell you that marriages between firms are similar:
the two firms have to make the merger work. Practitioners would list two salient aspects of mergers/
acquisitions that are extremely important, but receive scant attention in courses on mergers/ acquisitions:
M&A Risk Management and Merger Integration.
For example, consummating a merger can take anywhere between six weeks to six months. During this
period, the stock prices of either company can move considerably North or South. What risks does this
entail, particularly in the case of cross-border transactions, where exchange rate fluctuations add
considerable risk? How can M&A Deal Design enable prudent risk management? Since employee
turnover can be a serious issue with merger integration, how can M&A Deal Design help in avoiding such
turnover?
Though Hostile Takeovers are relatively infrequent in India, this form of merger/ acquisition will become
important in the coming years. How do you acquire a company despite its management not willing to
cooperate with such a transaction? And as a target, how do you avoid being subject to a hostile takeover?
The penultimate part of the course will examine takeover tactics. Finally, we will examine leveraged
buyouts.
1.1 Pedagogical Approach
Complex real world decisions need solid frameworks for thinking and theories offer you those
frameworks they enable you to analyze the costs and benefits of each decision in a structured manner.
The pedagogical approach in this class would be one where we focus on learning and assimilating
frameworks that would enable your thinking.
The course will use a combination of lectures and case discussion. As a general rule of thumb, the lectures
will lead up to the cases. In other words, I will first spend some time (usually the preceding lecture or
lectures) providing the necessary theory and tools for tackling the cases. Then we will apply these
theories and tools in a case setting.
To get the most from this course you must actively engage in the learning process. This means devoting
time and energy to preparation before class and to be able to put forward and explain your points of view.
I expect that every student will be thoroughly prepared for each class.
1.2 What kind of Students should be interested in this course?
PLEASE READ THIS SECTION VERY, VERY CAREFULLY!
This course is indispensable to all students interested in pursuing Finance or Strategy careers. It would be
particularly value adding to students interested in pursuing careers in investment banking, management
consulting, private equity and Finance Divisions of corporations.
I expect the course to be a good blend of strategic thinking and quantitative analysis. While most
quant jocks (usually folks like me!) associate number crunching with rigor, rigor involves much more
than plain number crunching. As a newly minted MBA, I myself used to equate rigor with number
crunching. But then, my professional experience, particularly at JP Morgan, taught me to integrate
rigorous strategic thinking with meaningful number crunching. My academic training together with my
professional experience has taught me that rigor is about how deep you think about an issue. Do you just
scratch the surface or do you keep exploring layers as if you are peeling an onion?
In particular, in a highly strategic decision like M&A, numbers without strategy is blind while strategy
without numbers is limp. Therefore, this course will involve valuation and financial modeling (in Excel). I
expect students to be familiar will Excel, though not necessarily proficient in it. We will try to gain
economic and financial insights using thorough analysis.
The latter half of the course, particularly the one on Deal Design, will involve application of Financial
Derivatives (DID YOU NOTE THAT?). As you see in the press clipping from The Economic Times of
02
nd
July 2012 (M&A Deals May Have Call and Put Options), use of options in M&A Deal Design is a
worldwide practice and will be a reality in India as well.
Note that this course is not about the Institutional Features of Mergers & Acquisitions. Tax and legal
matters related to M&A will not be covered in this class (DID YOU NOTE THAT?).
Needless to say, the value that you will derive from the class is directly proportional to the work that you
put into the class. The material that we are covering in the class will be relevant from day one for those
who are looking to pursue a career in Finance or Strategy. But to be able to learn this important material,
you need to work diligently with me. Since this is an elective class, I encourage only motivated
students who are looking to learn material that will be useful from day one on their jobs to even 15-
20 years from now.
2.Learning Goals
Critical and Integrative Thinking: Each student shall be able to identify key issues in mergers and
acquisitions, develop a perspective that is supported with relevant information and integrative thinking
and to draw and assess conclusions.
Awareness and Working in Teams: Each student shall demonstrate an ability to work effectively in a
team, exhibiting behavior that reflects an understanding of the importance of individual roles and tasks,
and the ability to manage conflict and compromise, so that team goals are achieved.

Assessment: In-class quizzes, exams, individual assignments and group case assignments.
3.Required/ Recommended Textbooks
There is no good textbook that covers all the material covered in the class. The material that I provide
is a synthesis of my thoughts and my organization of the research in finance. Therefore, there is no
appropriate text book for this class. That said, the best of the existing lot (and hence the textbook) is:
Robert Bruner, Applied Mergers & Acquisitions, University Edition, Wiley Finance, ISBN 0-471-
395064.
You can also consult the following:
Mergers, Acquisitions and Other Restructuring Activities, Third Edition by Donald DePamphilis.
Academic Press, ISBN 0-12-209552-9.
Financial Markets and Corporate Strategy, 2
nd
Edition, Mark Grinblatt and Sheridan Titman,
Irwin McGraw-Hill, ISBN 0-07-229433-7.
3. Evaluation Components
The grading will be based on assignment, case submissions, and a final exam. The breakup is as follows:
Case write-ups (in groups) Code 1 20%
Assignments (individual) Code 1 20%
Class participation in the form of in-class spot quizzes (would be at the
beginning of class)
N/A 10%
Mid-term examination N/A 20%
Final examination (will cover only material after the mid-term) N/A 30%
Total 100%
Final Grade based on max(0.2*Case Write-ups + 0.2*assignments + 0.1*Spot Quizzes + 0.2 *
Mid-term + 0.3*Final Examination, Final Examination)
In other words, if your final exam performance dominates other parts of the evaluation,
your final exam score is what counts to your grade.

3.1 Case Write-ups
The case analysis report is essentially a 2 page memo (1.5 inch spacing, Times New Roman size 11, 1
inch margins on all sides). The Academic Associates will not read any report which does not adhere to all
these specifications. You can attach all the data and numerical analysis in the form of appendices. You
can write the two-page report in either of the following two ways
Answers to the specific questions that are given for each case at the end of this document.
An executive summary to the decision maker(s) in the case. In this case, you can use the
questions to guide your analysis and/or report.
When analyzing the case, think like a CEO first. Debate the issues involved and try to zero in on the main
issues involved in the case. Remember that the case encapsulates a situation that the protagonists in the
case encountered in practice. Put yourself in the shoes of the main actors in that situation and decide your
response by thinking through the costs and benefits of the decision. Essentially, debate the birds eye view
before you worry about the details (such as valuation, financing, modeling, etc.)
Note: The case may not have all the information that you need to analyze the case. As the
protagonist in the real world situation, you also have to decide (i) what other data you need to
arrive at your decision and (ii) where you will procure such data from.
4. Group Information
Cases will be submitted in groups of 5 or 6 students while the home works will be individual submissions.
Groups should be in the same section. Students are free to form groups according to their preferences.
5. Attendance and Punctuality
Learning is an interactive process. ISB students are admitted partly based on the experiences
they bring to the learning community and what they can add to class discussions. Therefore,
attendance is an important aspect of studying here. You have to be present in all the classes.
Absence is only appropriate in cases of extreme personal illness, injury or close family
bereavement. Voluntary activities such as job interviews, business school competitions, travel
plans, joyous family occasions, etc. are never valid reasons for missing any class. The faculty
with the assistance of the Academic Associate will keep track of your attendance and decide on
the nature and extent of penalty for any absence from the class. Penalty may include reduction in
grade. Late arrival is disruptive to the class environment; so you have to be in class before the
scheduled time.
6. Session and Assignment Schedule
The schedule and below is tentative. More details about the sessions and the relevant readings
would be provided later.
Week Topic
0 Revise DCF Valuation WACC approach
(Before Class
Starts)
Read notes for Class 0. Please master this material before the first class
since they will not be covered in class.
1A Concept of Synergies in M&A
1B Operating Synergies + HW 1 due
2A Financing Synergies + HW 2 due
2B Financing Synergies (contd.)
3A Price to pay
3B M&A Evidence and Perspectives + Paramount 93
4A Takeover Tactics
4B Primer on Options + Deal Design
5A Deal Design (contd.) + Paramount 94
5B Leveraged Buyouts & course Wrap-up

Schedule for HW and Case Submissions. All submissions by 10 PM on the date mentioned.
HW/Case Date of submission
HW 1 Wed, 16-Oct-13
HW 2 Tue, 22-Oct-13
Case Paramount 93 Tue, 29-Oct-13
HW 3 Wed, 06-Nov-13
Case Paramount 94 Sun, 10-Nov-13
HW 4 Fri, 15-Nov-13

7. Pre-requisite and Recommended Courses:
Corporate Finance and Investment Analysis are required.