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FNCE 251 Lecture Notes - Lecture 2: Sungard, Mezzanine Capital, Investment Banking

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skywolf653
7 Dec 2016
School
UPenn
Department
Finance
Course
FNCE 251
Professor
Yilmaz Bilge

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Document Summary

Buyouts- private group of investors acquire a company or a division financing it with a mixture of debt and equity. Lbo- acquisition of a mature company whereby a large proportion of the acquiring funds are borrowed by the acquirers . Growth equity doesn"t use a lot of debt, if any and are often a minority. You should have a good legal background when dealing with distressed deals. Pe can have an edge over strategic buyers: Fewer transaction issues: may be able to raise more debt because the bank may trust them more able to pay a higher price. Less power struggle because the owner can still have control. Strategic buyers may have an edge over pe: can pay more because they"ll be able to leverage synergies in the future. There is persistence in perf in pe but not in mutual funds (e. g. , the top quartile tends to remain in the top quartile next.

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Related Questions

Question 2:What are the possible strategic options Axiata may adopt to reduce its gearing or debt level? home / study / business / finance / questions and answers / over the years, axiata group bhd has gained a sizeable ... Question: Over the years, Axiata Group Bhd has gained a size... Bookmark Over the years, Axiata Group Bhd has gained a sizeable foothold in the emerging markets of Sri Lanka, Bangladesh, Cambodia, India and most recently Nepal. However, investors are more focused on the challenges Axiata is facing on the home front, which contributed 65.3% of normalised net profit in 1H2016. This year alone, Axiata’s home company, Celcom’s normalised net profit fell 25.4% due to stiff competition especially from Telekom Malaysia Bhd, DiGi.Com Bhd and U Mobile Sdn Bhd. Against this backdrop, Axiata has trimmed its dividend this year to keep its capital expenditure (capex) plans on track. Subsequently, there were reports last week that Axiata plans to raise US$700 million in cash by reducing its holdings in some foreign operations. Axiata last month declared an interim dividend of five sen per share, down from eight sen previously. If the company maintains its final dividend at 12 sen per share, that would give a total dividend payout of 17 sen, down 15% from the previous year. Since most telcos have been labelled dividend stocks, the reduction of the dividend has put some selling pressure on Axiata’s share price, which has fallen 12.6% year on year (y-o-y) to close at RM5.32 last week. Some analysts are concerned about further dividend cuts however unlike its peers, DiGi.Com Bhd and Maxis Bhd, Axiata is not a pure dividend yield counter. The group’s foreign investments businesses have been slow however they are in the most populous countries in the world. Axiata has a 66.4% stake in PT XL Axiata Tbk in Indonesia that serves 42 million subscribers. It also has 19.8% equity interest in India-based Idea Cellular Ltd that serves a whopping 172 million subscribers. In Bangladesh, Axiata’s 91.59%-controlled Robi Axiata Ltd serves 28.3 million subscribers and also has an 83.32% stake in Sri Lanka’s largest mobile operator, Dialog Axiata Plc, that serves 10.9 million subscribers. In Cambodia, 95.3%-controlled Smart Axiata Co Ltd serves 7.6 million subscribers and the recently concluded 80% acquisition of Ncell Private Ltd gives Axiata another 13 million subscribers in Nepal. To top these off it has 28.32% stake in Singapore’s M1 Ltd, which has 2.06 million customers, and Axiata is one of the largest and most diversified telcos in Asia in terms of population coverage. Some investment analysts do not find that attractive, simply because Axiata needs to pour in a lot of money before this large pool of subscribers generates the desired profit. Axiata has already spent RM2.29 billion in capex in the first half of this year and is expected to spend RM5.7 billion for the full year. It is interesting to note that the bulk of the capex has been focused on Indonesia’s XL and Bangladesh’s Robi. At the same time, Indonesia-listed XL has also been one of the worst performing for Axiata in terms of earnings contribution. One reason is the costly but necessary shift from legacy services to data. Based on Axiata’s current gearing the acquisition of Ncell has lifted Axiata’s gross debt-to-Ebitda of 2.46 times and net debt-to-Ebitda of 1.53 times. While there is not much headroom, it is still within the 2.5 times gross debt-to-Ebitda ceiling that would concern ratings agencies. Note that Axiata has over RM8 billion in cash on hand. Moody’s on Sept 1 maintained Axiata’s long-term Baa2 rating. “Leverage increased to 2.7 times in 1H2016 from 2.3 times in December 2015 primarily a result of its partial debt-funded acquisition of Ncell in April 2016,” Moody’s report says. Furthermore, Moody’s expects Axiata’s gross gearing to return to 2.3 times over the next 12 months, “when considering a full-year contribution from Ncell and steady growth in Axiata’s key markets”. Axiata is still expected to reduce its gearing. Question 1:Based on the case information, analyze the key concerns for Axiata. Question 2:What are the possible strategic options Axiata may adopt to reduce its gearing or debt level? Question 3:As a stock analyst, comment on Axiata’s current and future position. Question 4: Provide your recommendation (Buy or Sell) for Axiata’s stocks? Justify your recommendation.

I have a essay written up already, the problem is that I submitted it and received a 62% return from turnitin, which is totally unacceptable. It must be below 20%. Is it possible for you to look over it, make any corrections or suggestions to re-submit it. The majority of the repetitiveness was from my intro paragraph and the definitions I used in the essay. Sent at 04:42 AM The essay is attach. I will need this by this evening if that's possible. thanks

Identify the type of corporate restricting that fits with common theories of what are assumed to be causes of mergers and acquisitions.

Corporate reconstructing is more often defined as re-designing organization’s practice and structure; so to remain competitive and sustainable in the market (s). There may be several reasons for corporate restructuring. These includes, but not limited to, re-positioning in the market, discovery of a new market or becoming more profitable and/or economical. The corporate restructuring is generally classified into or two different categories: operational reconstructing and financial reconstructing. This entails changes in the alignment of firm’s asset structure by acquiring new business outright, by partial sale, by a spin-off of companies or via product lines. This can also include downsizing through closure of non-profitable units. Financial reconstructing deals with the changes in the capital structure of the firm. Share repurchase or adding debt in capital structure; just to name. Financial limiting hardly deals with mergers and acquisitions, hence we will discuss the cause of mergers and acquisitioning and how it is related to that the operational restructuring only.

Omit the chart in the question!

There are several types of Restructuring are given below:

A merger is a combination of two or more firms who combine all operations, officers, structure and other functions of business to form a new entity. Desired effect being not just the accumulation of assets and liabilities of the distinct entities, but also to achieve several other benefits such as: economics of scale, acquisition of new technologies and having access to new markets. Additionally, the merger allows for one company giving shareholders in the other stock in exchange for surrounding the stock of the first company. And it allow for the entities to retain its original identity.

Mergers can be classified into the following categories:

Horizontal Mergers

Two merged units were doing the same business i.e. TMobile and Sprint they were competitors with one another in the market. The basic motive in this type of merger is to consolidate in the market so as to gain advantage in negotiating with customers as well as having better position with respect to other competitors.

Vertical Mergers

This type of mergers is conducted between customer and suppliers of a value chain process and main motive in this type of merger is gain maximum efficiency in supply chain and minimization of transaction cost.

Congener Mergers

In this type of mergers, the two firms will be sharing similar kind of industry structure at least in one form of their operation and therefore try to combine operation in that one form and get efficiency benefit in supply chain and other operations.

Conglomerate

A conglomerate merger is a merger between two firms having unrelated business. The motive behind a conglomerate is a.) Better utilization of financial resources b.) Increase in debt capacity, c.) Increase in the share price by increased EPS with decreased cost capital d) Cross selling and e.) Synergy

Cash-out merger

In this type of merger the share of one unit involved in merger don’t want to retain their share in the merged unit and therefore are compensated with cash in place of the share.

Acquisitions or take-over has said to have happened when the acquirer company buys out majority of the shares of the acquired company and the ownership of the assets and liabilities of the acquired company get transferred to the acquirer company. The process of acquisition or take-over may be conducted in both friendly and hostile manner depending upon the specific strategy of the acquirer.

Friendly takeover

In a friendly takeover, the target’s board and management recommend shareholders’ approval. To gain control, the acquiring company usually will offer a premium to the current stock price. The excess of the price over the target’s premerger share price is called a purchase premium and can vary widely by country, which reflects the perceived value of obtaining a controlling interest in the target, the value of expected synergies resulting from combining the two entities and any overpayment of the target firm. Acquirers often prefer friendly takeovers because the post-merger integrations process in usually more expeditious when both parties are cooperating fully and customer, employee attrition is less.

Hostile takeover

A Hostile takeover occurs when the offer is unsolicited, the approach was contested by the target’s management and control changed hands. The acquirer prefers hostile mode rove the friendly mode only when it becomes possible to acquire the shares in a friendly mode. The acquirer may attempt to circumvent management by offering to buy shares directly from the targets from the target’s shareholders and buy shares in a public stock exchange. A hostile takeover can be accomplished through either a tender offer or a proxy fight.

The Pros to a merge and an acquisition is that both types of transactions include the potential increase in the competitiveness, cost-efficiency and stock value of the new enterprise. And with everything pro there has to be Cons. One disadvantage of these transactions; it could be very expensive. A significant amount of capital typically must be raided before entering negotiations. Another mergers drawback is that there is now a new owner, co-owners, in which they must now collaborate.

In conclusion any entity or entities that have chosen to merge or entering an acquisition should consider prior to move. Identify the goals of acquisition clearly, if the move is a good fit and what conditions must be met for the pursing the merge or the acquisition. An in-depth due diligence must occur; the financial records must be thoroughly examined, is the marketplace a profitable absolute, as well as the senior executives should also be conducted. There could be potential for disaster if all areas are not explored. Negotiation process is should have clear written rules and guidelines before following through with the merger or acquisition. Assembling an acquisition team can be very valuable to the success of the new owners. The team will be able to define the responsibilities of each company; considering all parties are in agreement with the new implementations such as computer systems, new HR policies and so forth. Lastly, be flexible and ready for unexpected surprises and have a supplemental plan in case of potential disasters.

Over the years, Axiata Group Bhd has gained a sizeable foothold in the emerging markets of Sri Lanka, Bangladesh, Cambodia, India and most recently Nepal. However, investors are more focused on the challenges Axiata is facing on the home front, which contributed 65.3% of normalised net profit in 1H2016. This year alone, Axiata’s home company, Celcom’s normalised net profit fell 25.4% due to stiff competition especially from Telekom Malaysia Bhd, DiGi.Com Bhd and U Mobile Sdn Bhd. Against this backdrop, Axiata has trimmed its dividend this year to keep its capital expenditure (capex) plans on track. Subsequently, there were reports last week that Axiata plans to raise US$700 million in cash by reducing its holdings in some foreign operations. Axiata last month declared an interim dividend of five sen per share, down from eight sen previously. If the company maintains its final dividend at 12 sen per share, that would give a total dividend payout of 17 sen, down 15% from the previous year. Since most telcos have been labelled dividend stocks, the reduction of the dividend has put some selling pressure on Axiata’s share price, which has fallen 12.6% year on year (y-o-y) to close at RM5.32 last week. Some analysts are concerned about further dividend cuts however unlike its peers, DiGi.Com Bhd and Maxis Bhd, Axiata is not a pure dividend yield counter. The group’s foreign investments businesses have been slow however they are in the most populous countries in the world. Axiata has a 66.4% stake in PT XL Axiata Tbk in Indonesia that serves 42 million subscribers. It also has 19.8% equity interest in India-based Idea Cellular Ltd that serves a whopping 172 million subscribers. In Bangladesh, Axiata’s 91.59%-controlled Robi Axiata Ltd serves 28.3 million subscribers and also has an 83.32% stake in Sri Lanka’s largest mobile operator, Dialog Axiata Plc, that serves 10.9 million subscribers. In Cambodia, 95.3%-controlled Smart Axiata Co Ltd serves 7.6 million subscribers and the recently concluded 80% acquisition of Ncell Private Ltd gives Axiata another 13 million subscribers in Nepal. To top these off it has 28.32% stake in Singapore’s M1 Ltd, which has 2.06 million customers, and Axiata is one of the largest and most diversified telcos in Asia in terms of population coverage. Some investment analysts do not find that attractive, simply because Axiata needs to pour in a lot of money before this large pool of subscribers generates the desired profit. Axiata has already spent RM2.29 billion in capex in the first half of this year and is expected to spend RM5.7 billion for the full year. It is interesting to note that the bulk of the capex has been focused on Indonesia’s XL and Bangladesh’s Robi. At the same time, Indonesia-listed XL has also been one of the worst performing for Axiata in terms of earnings contribution. One reason is the costly but necessary shift from legacy services to data. Based on Axiata’s current gearing the acquisition of Ncell has lifted Axiata’s gross debt-to-Ebitda of 2.46 times and net debt-to-Ebitda of 1.53 times. While there is not much headroom, it is still within the 2.5 times gross debt-to-Ebitda ceiling that would concern ratings agencies. Note that Axiata has over RM8 billion in cash on hand. Moody’s on Sept 1 maintained Axiata’s long-term Baa2 rating. “Leverage increased to 2.7 times in 1H2016 from 2.3 times in December 2015 primarily a result of its partial debt-funded acquisition of Ncell in April 2016,” Moody’s report says. Furthermore, Moody’s expects Axiata’s gross gearing to return to 2.3 times over the next 12 months, “when considering a full-year contribution from Ncell and steady growth in Axiata’s key markets”. Axiata is still expected to reduce its gearing. Question 1:Based on the case information, analyze the key concerns for Axiata. Question 2:What are the possible strategic options Axiata may adopt to reduce its gearing or debt level? Question 3:As a stock analyst, comment on Axiata’s current and future position. Question 4: Provide your recommendation (Buy or Sell) for Axiata’s stocks? Justify your recommendation.