Course Title: FBE 560: MERGERS AND ACQUISITIONS Syllabus for Spring 2012 Professor: Lloyd Levitin Office:

Acc. 301E Office Phone: 310-740-6524 E-mail: levitin@marshall.usc.edu

Lecture Class Thursday Office Hours Mondays Thursdays

6:30 9:30 P.M.

Room: JKP 210

11:00 11:45 A.M. 2:30 4:45 P.M.

Introduction and Course Objective The primary objective of the course is for each student to gain a well-rounded understanding of the major strategic, economic, financial, human resources, and governance issues of mergers, acquisitions, and restructuring. The M&A environment is a fast-paced, highly complex world where transforming transactions can have a major impact on both domestic and global economies and the consequences of error are large. Given the generally high level of mergers and acquisitions and their important role in the economy and in corporate strategy, it is likely that each of you will have some contact with mergers and acquisitions at some point early in your careers. This course is designed to provide you with a competent foundation in all areas of M&A practice, with an emphasis on the best practices. Learning Objectives This course will help you to: Understand the role that M&A plays in the contemporary global market, and its use as a strategic tool to provide growth, enhance competitive position, transform a company or industry, and create shareholder value. Develop a framework that can be used for analyzing M&A transactions including understanding strategic rationale, valuation methodologies, deal structures, bidding strategies, and the need for a value proposition. Know how M&A can be used successfully as well as its pitfalls, dangers and risks. Foster an understanding of the M&A process from target selection to doing the deal (including due diligence, integration planning, negotiating the agreement, announcing the deal), to closing and integration. Have an understanding of commonly used takeover tactics and defenses. Choose a path for restructuring that will meet corporate goals and create shareholder value. Understand the practical limitations of the various valuation approaches. Manage the deal structuring process to minimize the risk that a merger or acquisition will not meet expectations. Know when alliances or joint ventures are preferable alternatives to mergers and acquisitions.

Who Should Take This Course The course is suitable for any Marshall MBA candidate who desires a basic knowledge of M&A transactions in order to do effective work in a wide range of fields, including corporate development, corporate finance, investment banking, and consulting. The course is most suitable for students considering careers in finance. Prerequisite GSBA 521 or GSBA 521b or GSBA 548. Required Materials Applied Mergers and Acquisitions, by Robert Bruner, Wiley, 2004. A course packet that contains the assigned cases and articles (available at the USC Bookstore). Course Notes: Copies of lecture slides and other class information are available through your Blackboard account. Teaching Methods This course is taught through a combination of readings, group projects, case discussions and lectures. Each session will involve class discussion based on the lectures or assigned cases. We begin each session with a discussion of current events. You are encouraged to visit dealbook.nytimes.com before each class to obtain a grasp of recent news. About the Instructor Lloyd Levitin is a Professor of Clinical Finance and Business Economics at Marshall. He was Executive Vice President and CFO of Pacific Enterprises from 1982-1995 (now Sempra Energy), and was actively involved in the firms diversification program which included numerous acquisitions. He testified as an expert on utility diversification to the Senate Finance Committee of the U.S. Congress and has been a consultant for JurEcon, Inc., a nationwide consulting and research firm for management and counsel. He has a MBA from Wharton and a JD from University of San Francisco. He practiced as a CPA after receiving his MBA, and as an attorney after receiving his JD. Grading Summary: Assignments TESTS Mid-Term Final Exam Points 25 35 24 6 10 TOTAL 100 % of Grade 25.0% 35.0% 24.0% 6.0% 10.0% 100.0%

4 CASES (6 points each) CLASS PARTICIPATION PEER EVALUATION

Final grades represent how you perform in the class relative to other students. Your grade will not be based on a mandated target, but on your performance. Three items are considered when assigning final grades:

1. Your average weighted score as a percentage of the available points for all assignments (the points you receive divided by the number of points possible). 2. The overall average percentage score within the class. 3. Your ranking among all students in the class. Cases (24% of your grade). There are four assigned cases set forth on the CLASS SCHEDULE AND ASSIGNMENTS. You are to prepare answers to the case discussion questions set forth on pages 6 and 7 and hand in a hard copy at the beginning of the appropriate class. Bring two copies with you, so you can consult your results during the class discussion. Each group should submit two to three pages (and not a single page more) memorandum of analysis and recommendations covering the case study questions, plus any accompanying exhibits you wish to include as appendices. Be sure to indicate how you arrived at your conclusions. I care about the thinking process and your logic behind your answer. Write these as if you were writing for the CEO or major decision maker in the case. Start each paragraph with a number referring to the question you are answering. One of the challenges of a merger and acquisitions course is that students backgrounds are generally very different, specifically coming from different programs and careers. For some of you the financial material included in the case will be fresh, but for some others, it will rusty (or even very rusty). Therefore, one week before the case is due I will provide you with some of the financial analysis necessary to work the case so that you feel comfortable and competent in analyzing the case questions, as well as my expectations for the write-up. All cases are due in the last 4 weeks of the course. This timetable is designed to give you the opportunity to apply the concepts and materials you have learned in the first 11-12 weeks of the course to complex, real world problems. Understanding the M&A material is important but being able to explain them to your boss or decision maker is equally important. Brevity is a virtue for case write-ups. Do not repeat the facts of the case unless necessary to your answer. You should form groups of 4-6 students to work on the assigned cases. It is important that you include your name on the cover sheet of each assignment so that all members get credit. You are to email the members of your group to me by February 22. If you have problems finding a group, you must let me know, and I will assign you to groups already formed, and notify the welcoming group. Failure to follow this procedure will result in your doing the cases without team members. If you have questions about the cases, please raise your questions in class. Since these assignments are graded on a competitive basis, it would be unfair to give special help to any one individual or group during office hours or by email. Case assignments must be turned in on the due date during class time shown in the Class Schedule. Any assignment turned in late will receive a grade deduction. If you are unable to attend class on that day, make arrangements for it to be delivered to the classroom or to my mailbox by the start of class. If you feel that an error has occurred in the grading of any assignment, you may, within one week of the date the assignment is returned to you, write me a memo in which you request that I reevaluate the assignment. Attach the original assignment to the memo, and explain fully and

carefully why you think the assignment should be re-graded. Be aware that the re-evaluation process can result in three types of grade adjustments: positive, none, or negative. Class Participation (6% of your grade). Attendance and participation are essential for success in this course. Students are expected to actively participate in the class discussions. Class meetings will involve discussions of the assigned readings and cases. Preparation for each class is essential. . In evaluating your class participation I will consider the quality and frequency of your participation, with a clear emphasis on quality. Students are required to display their name cards in each class. I will have no other way to determine who is present and participating. Peer Evaluation (10% of your grade). Study groups provide a valuable learning experience how to work effectively and efficiently in groups (a common practice in Corporate America), learning from others, and sharpening a students ability to communicate to others. However, human nature being what it is, some students are tempted to relax and let others carry their load. In order to provide an incentive for all students to make maximum contributions to the study group, students will be asked to grade each team members contributions on a 0 to 10 point scale. This evaluation is to be submitted by email to the Instructor before the last day of classes. Any team member who does not email his (her) evaluation of team members will be deemed to have given a 10 point score to each member of the team. Class Cancelled. Class scheduled for April 12th is cancelled. A make-up class will be scheduled in the following week, which will be videotaped for those students unable to attend. CLASS SCHEDULE AND ASSIGNMENTS Tasks, Readings, and Due Dates For Cases Bruner: Chapter 4 (Pages 69-91) and Chapter 5 Bruner: Chapter 6 (pages 123-148, 165-167; 168-176); Readings in Course Packet: (1) Note on Corporate Strategy (2) Strategies of Unrelated Diversification (3) When to Ally and When to Acquire (4) To Diversity or Not to Diversify Bruner: Chapters 25 and 29 Bruner: Chapter 11; Readings in Course Packet: (1) Methods of Valuation for Mergers and Acquisitions (2) Notes on Mergers and Acquisitions and Valuation

Lecture and Discussion Topics Week 1 1/12 Week 2 1/19 Introduction to M&A

Strategy

Week 3 1/26 Week 4 2/2

Acquisition Process Valuation

Lecture and Discussion Topics Week 5 2/9 Deal Structure

Tasks, Readings, and Due Dates For Cases Bruner: Chapters 18, 19 and 20; Reading in Course Packet: Stock or cash? The Trade-offs for Buyers and Sellers in Mergers and Acquisitions Bruner: Chapter 22 (pages 609-622), Chapter 23 (pages 636-651) and Chapter 26; Readings in Course Packet: M&A Legal Context: Basic Framework for Corporate Governance Bruner: Chapter 8 (pages 207-228) Bruner: Chapter 30 Reading in Course Packet: The Fine Art of Friendly Acquisition Bruner: Chapter 31 Bruner: Chapter 29 Bruner: Chapter 35; Readngs in Course Packet: Pitch Book: Proposed Acquisition of Heller Financial by United Technologies Corporation; Bruner Chapter 35. Bruner: Chapters 32, 33 and 34

Week 6 2/16

Deal Structure (continued)

Week 7 2/23

Due Diligence Negotiation

Auctions Documenting the Deal Week 8 3/1 MIDTERM (Covers assigned material and lectures for first 7 weeks) Communications

Week 9 3/8 3/12-3/17 Week 10 3/22

Hostile Acquisitions Spring Recess Integration

Bruner: Chapter 36 and Chapter 24; Reading in Course Packet: Making the Deal Real: How GE Capital Integrates Acquisitions

Week 11 3/29

Week 12 4/5

Securities Law Applicable to M&A Bruner: Chapter 27 Antitrust Law Bruner: Chapter 28 Preliminary discussion of USX Corporation Case Bruner: Chapter 6 (pages 148-165; Restructurings 167-168). Reading in Course Packet: (1) Divestiture: Strategys Missing Preliminary discussion of case Time Inc.s Link Entry into the Entertainment Industry (2) The Strategic Secret of Private Preliminary discussion of case Philip Morris Equity Companies & Kraft Case USX Corporation Case Write-Up Due Class discussion of USX Corporation case Class discussion of Time Inc.s Entry Into Entertainment Industry Time Inc.s Entry Into Entertainment Industry Case WriteUp Due

Week 13 4/12

Lecture and Discussion Topics Week 14 4/19 Preliminary discussion of Acquisition of Consolidated Rail Corp. Cases (A) and (B) Class discussion of Philip Morris Companies & Kraft Case Week 15 4/26 REVIEW Class discussion of Acquisition of Consolidated Rail Corp. Cases (A) and (B) FINAL EXAM 7:00-9:00pm

Tasks, Readings, and Due Dates For Cases Philip Morris Companies & Kraft Case Write-up Due

Acquisition of Consolidated Rail Corp. (A) and (B) Cases Write-Up Due

5/3

ASSIGNED QUESTIONS FOR CASE WRITE-UP Case 1: USX Corporation 1. As a financial analyst, how would you go about trying to value a multi-business company like USX, to assess whether it is being undervalued by the stock market? 2. What problems does a financial analyst encounter in making such an analysis as to whether a multi-business company like USX is undervalued by the stock market? 3. Which restructuring option Icahns spin-off proposal or the companys targeted stock proposal will create the most value for shareholders? For creditors? Explain your answer. 4. For what kinds of companies is targeted stock most appropriate? Least appropriate? 5. Should managers be responsible only to stockholders, or instead to a broader set of constituencies that includes the firms various corporate stakeholders (e.g., creditors, employees, the community)?

Case 2: Time Inc.s Entry Into The Entertainment Industry (A) 1. How does Munro justify his decision to reject the Paramount offer at the annual shareholders meeting of Time Inc.? 2. As a Time Inc.s shareholder, what do you think of Munros decision to reject the Paramount offer? 3. What were Times options after getting the Paramount bid? Case 3: Philip Morris Companies & Kraft, Inc. 1. How did the stock market assess Philip Morriss $90 per share bid for Kraft? Was this stock market assessment justified? 2. Should Philip Morris buy Kraft? Answer the question from the viewpoint of Hamish Maxwell and also from the viewpoint of a shareholder of Philip Morris. 3. If you were on the Krafts Board of Directors, would you agree to the Kraft Restructuring Plan? Why or why not? 4. Philip Morris acquired Kraft at $106 per share. Was John Richman a failure? Case 4: The Acquisition of Consolidated Rail Corporation (A) 1. Why did CSX include and Conrail agreed to the no-talk clause, lock-up options, break-up fee, and poison pill shareholder rights plan? Who benefits and who loses from their use? 2. As a Conrail shareholder you can tender your shares to CSX at $92.50 per share in the first stage offer. What are the arguments for and against tendering your shares? The Acquisition of Consolidated Rail Corporation (B) 1. Is Conrail worth more to Norfolk Southern or CSX? 2. In a bidding war, who should be willing to pay more, Norfolk Southern or CSX?

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