An introduction to corporate finance transactions and techiques 2nd ros geddes

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AN INTRODUCTION TO CORPORATE FINANCE TRANSACTIONS AND TECHNIQUES Second Edition Ross Geddes AN INTRODUCTION TO CORPORATE FINANCE The Securities & Investment Institute Mission Statement: To set standards of professional excellence and integrity for the investment and securities industry, providing qualifications and promoting the highest level of competence to our members, other individuals and firms The Securities and Investment Institute is the UK’s leading professional and membership body for practitioners in the securities and investment industry, with more than 16,000 members with an increasing number working outside the UK It is also the major examining body for the industry, with a full range of qualifications aimed at people entering and working in it More than 30,000 examinations are taken annually in more than 30 countries You can contact us through our website Our membership believes that keeping up to date is central to professional development We are delighted to endorse the Wiley/SII publishing partnership and recommend this series of books to our members and all those who work in the industry Ruth Martin Managing Director AN INTRODUCTION TO CORPORATE FINANCE TRANSACTIONS AND TECHNIQUES Second Edition Ross Geddes Copyright # 2006 John Wiley & Sons Ltd, The Atrium, Southern Gate, Chichester, West Sussex PO19 8SQ, England Telephone (þ44) 1243 779777 Email (for orders and customer service enquiries): Visit our Home Page on All Rights Reserved No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning or otherwise, except under the terms of the Copyright, Designs and Patents Act 1988 or under the terms of a licence issued by the Copyright Licensing Agency Ltd, 90 Tottenham Court Road, London W1T 4LP, UK, without the permission in writing of the Publisher Requests to the Publisher should be addressed to the Permissions Department, John Wiley & Sons Ltd, The Atrium, Southern Gate, Chichester, West Sussex PO19 8SQ, England, or emailed to, or faxed to (þ44) 1243 770620 Designations used by companies to distinguish their products are often claimed as trademarks All brand names and product names used in this book are trade names, trademarks or registered trademarks of their respective owners The Publisher is not associated with any product or vendor mentioned in this book This publication is designed to provide accurate and authoritative information in regard to the subject matter covered It is sold on the understanding that the Publisher is not engaged in rendering professional services If professional advice or other expert assistance is required, the services of a competent professional should be sought Other Wiley Editorial Offices John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, USA Jossey-Bass, 989 Market Street, San Francisco, CA 94103-1741, USA Wiley-VCH Verlag GmbH, Boschstr 12, D-69469 Weinheim, Germany John Wiley & Sons Australia Ltd, 42 McDougall Street, Milton, Queensland 4064, Australia John Wiley & Sons (Asia) Pte Ltd, Clementi Loop #02-01, Jin Xing Distripark, Singapore 129809 John Wiley & Sons Canada Ltd, 22 Worcester Road, Etobicoke, Ontario, Canada M9W 1L1 Wiley also publishes its books in a variety of electronic formats Some content that appears in print may not be available in electronic books British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library ISBN-13 978-0-470-02675-5 (PB) ISBN-10 0-470-02675-8 (PB) Project management by Originator, Gt Yarmouth, Norfolk (typeset in 12/16pt Trump Mediaeval) Printed and bound in Great Britain by T.J International Ltd, Padstow, Cornwall This book is printed on acid-free paper responsibly manufactured from sustainable forestry in which at least two trees are planted for each one used for paper production For Alexander, Clare, Colin, Ellery and Gillian CONTENTS About the author ‘BEHIND THE CHINESE WALL’ xv Corporate finance in investment banking Chinese walls Corporate finance assignments Flotations/IPOs Mergers, acquisitions and divestitures Leveraged buyouts and management buyouts 13 Financial advice 13 Careers in corporate finance 15 Organisation of this book 20 214 ADDITIONAL READING Galpin, T J and M Hendon (2000) Tolley’s Company Acquisitions Handbook Tolley Publishing (1-860-12896-3) Herzel, L and R Sheppo (1990) Acquisitions, Mergers and Defences in the USA Blackwell Publishers (0-631-16422-7) Hubbard, N (2001) Acquisitions Palgrave (0-333-94548-4) Houghton, G (2000) Due Diligence Accountancy Books (1-85355902-4) Lajoux, A R (2000) The Art of M&A Due Diligence Irwin Professional (0-786-31150-9) McKinsey & Co (2005) Valuation: Measuring and Managing the Value of Companies (4th Edition) John Wiley & Sons (0-471-70221-8) Rappaport, A (1998) Creating Shareholder Value: A Guide for Investors and Managers (2nd Edition) Free Press (0-68484410-9) Rivas, J (ed.) (2000) The EU Merger Regulation and the Anatomy of the Merger Task Force Kluwer Law International (9-04119767-2) Robbie, K and M Wright (1996) Management Buy Ins Manchester University Press (0-719-04281-X) Wasserstein, B (2000) Big Deal: 2000 and Beyond Time Warner (0-446-52642-8) Weston, F J (2000) A Practitioners’ Guide to Takeovers and Mergers in the European Union: 1999/2000 Cedar Tree Press (1-898-83034-7) Weston, F J (2001) Mergers and Acquisitions McGraw Hill (0-071-36432-3) INDEX 3i Group 123 ABN Amro Rothschild 99 accelerated bookbuilding, concepts 98À9 accountancy firms 10À11, 19À20, 84À5, 95, 184 accountancy qualifications 15À16 accounting alignment of policies 147À8 flotations 6À8, 40À2, 52À5 profit figures 174À5 acquisitions see also mergers concepts 102À13 adjusted present value (APV), concepts 190À1 ADRs see American Depository Receipts Advent 123 advisers 2À3, 6À8, 10À11, 13À14, 40À63, 66À81, 84À5, 102, 112 AIM see Alternative Investment Market Allied Domecq 102 allocation of shares, flotations 61À3, 75À81 allotment letters 62 Alternative Investment Market (AIM) 47À9, 90À4 American Depository Receipts (ADRs) 53, 73À5 Amoco 104À5 amortisation 151À7, 186À9 analysts/executives, careers 15À20 Anglo-Saxon economies, hostile takeovers 10 annual general meetings 35 annual reports 33À5, 71À4, 135À42, 197À8 see also financial statements APM see arbitrage pricing model appendix 183À198 APV see adjusted present value Aquitaine 104 arbitrage pricing model (APM), concepts 193 art, valuations 157 asset values concepts 139À40, 177À8, 181 intangible assets 181 NAV 117À18, 149À50, 155À7, 177, 186 terminal values 139À40 assignments, corporate finance 513 associates/managers, careers 15À20 auctions, divestitures 12 audits, flotations 54À63 216 Autodis 124 Aventis 104À5 B&Q 100 balance sheets 33, 71À4, 117À18, 120À2, 128, 135À42, 143À6, 154À7, 175À80 see also financial statements Bank of America 122 Bank of England 121 Bankers’ Acceptances (BAs) 28À9 banks 2, 6À8, 26À32, 40, 41, 53À63, 75À81, 99, 118À25, 184 bought deals 94À9 flotations 53À5, 75À81 lead banks 53À5, 57À63, 75À81 MBOs 118À25 syndicates 6À8, 40, 53À63, 75À81, 99 Barclays 98, 122, 123 BAs see Bankers’ Acceptances Belgium 42, 102 Berkeley 92 BET 103 betas 168À9, 193À7 bids, divestitures 12À13 biotechnology sector 42, 61 Blackberry devices 19 block trades see bought deals Bloomberg 194À5 Blue Book see City Code on Takeovers and Mergers boards of directors 13À14, 35, 102 see also directors fairness opinions 13À14 bonds see also long-term debt finance concepts 27, 29À34, 124À5, 130À3 convertible debt 20, 26À7, 36À8, 160 coupon 27, 29À32, 36À8, 124À5, 130À2 INDEX credit ratings 30À2, 124À5 government bonds (Gilts) 29À32, 130À2, 166, 170À2, 194À5 high-yield bonds 124À5 international comparisons 30À3 maturity 27, 29À34, 131À2 types 29À32, 124À5, 130À2 US market 30À1, 33À4, 37À8 valuations 130À3 yields 30À2, 38, 124À5, 130À2, 165À6 book values 117À18, 149À50, 153À7, 161À2, 177, 181, 186À7 ‘bookbuilding’ see pre-marketing bookrunners, global offerings 75À81 Boots 177 bootstrap transactions, M&As 109À10 bought deals, concepts 94À9 BP 8, 47, 69, 87, 97À8, 104À5, 133 Brewer Dolphin Securities 14 British Airways 69 British Gas 42, 100 BT 33À4, 37, 69, 77, 87, 90À4 burnout, corporate financiers 20 business fit, divestitures 11 ‘busted convertibles’ 38 buyouts see also leveraged ; management concepts 13, 20À1, 45, 105À6, 115À25 types 116 BZW 98 cable television companies 67À8 Canada 68À9, 85À6 capabilities, firms 19 INDEX capital see also debt finance; equity finance concepts 20, 25À38 cost of capital 119, 159À72, 175À81, 189À91, 192À7 expenditure 137À42 life cycle 26À7, 41 sources 20, 25À38, 40À63, 66À81, 84À100, 116À25, 160À72 structures 2À3, 7À8 working capital 54À5, 59, 118À19, 137À42, 179À80 capital asset pricing model (CAPM) assumptions 169 concepts 168À72, 192À4 critique 172, 193À4 definition 168À9 literature 169 capital employed concepts 175À81 intangible assets 181 capital-charge calculation method, economic profit 178À80 capitalisation of earnings approach, valuations 148À9, 187À9 capitalisation of forecast earnings, survey 187À9 capitalisation of historic earnings, survey 1879 CAPM see capital asset pricing model careers, corporate finance 15À20 carve-outs 13À14, 43, 44À5 cash cover, bank finance 120À2 cash flow return on investment (CFROI) see also shareholder value added concepts 174À81 cash flows 21, 118, 128, 136À42, 217 151À2, 153À7, 160, 161À2, 174À81, 185À92 DCF 21, 130, 134À46, 160, 175À7, 185À92 free cash flow 136À42, 153À7, 161À6 cash on hand, enterprise value 143À6 cash offers, M&As 107À10 Cazenove 94, 99, 123 CC see Competition Commission CFROI see cash flow return on investment Chinese Walls see also confidential information concepts 3À21 definition share prices 3À6 Chrysler Corporation 67 Cisco Systems 103 Citibank 122 City Code on Takeovers and Mergers 110À13 City of London 2, 20 clients 19À20 acquisition/retention needs 19À20 flotations 6À8, 40À63, 66À81 Coca-Cola 177 Collins Stewart 45 Comet 100 commercial banks 10 see also banks commercial paper (CP) 28À9, 160 commissions international equity offerings 79À81 rights issues 90À4 common stock see ordinary shares comparable valuation techniques see relative valuation techniques 218 Competition Commission (CC) 111 confidential information 3À21, 95À6 see also Chinese Walls divestitures 12 marketed offerings 95À6 conflicts of interest 34, 52 conglomerate mergers see also mergers concepts 105, 106À7 conglomerates see also mergers concepts 103À4, 105, 106À7 consolidated financial statements, global offerings 71À4 conversion premium, concepts 36À8 conversion ratio, concepts 37À8 convertible debt 20, 26À7, 36À8, 160 see also hybrid securities concepts 36À8, 160 issuers 36 share prices 38 convertible preference shares 36 corporate, definition corporate bonds see also bonds concepts 27, 29À32, 130À2 corporate finance see also transactions assignments 5À13 careers 15À20 Chinese Walls 3À21 concepts 1À21, 26, 84À5, 95À6, 100, 102, 104, 110À13, 160 definition 1À2 departmental locations 4À5 investment banks 2À3 project management 18À20 relationships 3, 13À14, 54À63 corporate finance directors 184 corporate financiers INDEX burnout 20 careers 15À20 early retirement 20 induction/training programmes 18 Machiavellian qualities 19 roles 2À3, 5À14, 18À20, 26, 84À5, 95À6, 100, 102, 104, 110À13, 160 skills 15À20 ‘title inflation’ 17À18 corporate valuation methods see also valuations approaches 127À8, 132À57, 185À6 concepts 2, 10À12, 18À20, 21, 60À3, 127À57, 183À98 examples 152À7 fairness opinions 2À3, 13À14 intrinsic value 128, 132À57, 185À6 relative valuation techniques 21, 128, 132À3, 142À3, 146À57, 185À6 sources of information 197À8 survey 130, 183À98 types 2, 21, 127À8, 132À57, 185À98 cost of capital see also weighted average cost of capital CAPM 168À72, 192À4 concepts 119, 159À72, 175À81, 189À91, 192À7 definition 160À2, 178 minimisation efforts 160 risk 178 ROCE 177À81 cost of debt, concepts 165À6, 178À80 cost of equity concepts 74, 161À2, 166À8, 174À5, 192À7 definition 166À7 INDEX costs 74, 119, 159À72, 174À81, 189À91, 192À7 flotations 46À7, 66À7, 71, 79À81 M&As 105 rights issues 90À4 coupon see also bonds concepts 27, 29À32, 36À8, 124À5 coverage ratios 120À2 CP see commercial paper Crawford’s Directory 184 credit ratings, bonds 30À2, 124À5 credit risk 29À32 CREST 91 cumulative preference shares 34 currencies, LIBOR 32 custodians, DRs 74 Daimler Benz 67, 71 data rooms, divestitures 12À13 Datastream 194À5 DCF see discounted cash flow debentures see also bonds concepts 29À32, 36 debt finance 20, 26À33, 36À8, 41À2, 116À25, 144À6, 151À7, 160À6, 178À80, 189À92 see also long-term ; shortterm convertible debt 20, 26À7, 36À8, 160 cost of debt 165À6, 178À80 definitions 27 MBOs 116À25 types 27À32, 36À8 debt risk premium, concepts 165À6 debt securities see also bonds concepts 27À32, 107À8 debtÀequity ratio 121À2, 162À3, 189À92 219 deep discounted rights issues, concepts 93À4 delistings 13 demergers, concepts 100 Depository Receipts (DRs) 53, 73À5 depreciation 136À42, 151À7, 181, 186À9 Detica Group plc 49À51 Deutsche Bank 122 dilution M&As 109À10 rights issues 85 directors 7À8, 13À14, 17À20, 35, 72À3, 86, 111À13 see also boards ; managers external directors 7À8, 52 fairness opinions 13À14 managing directors 17À20 remuneration 147À8 roles 19À20 disclosures, flotation costs 46À7, 71 discount rates concepts 21, 88, 128, 131À42, 143, 146, 160À72, 192À7 cost of capital 160À72, 192À7 determination 143, 146, 160À72 inflation rates 163À5 real discount rates 163À5 rights issues 88, 93À4 risk 132 discounted cash flow (DCF) 130, 134À46, 160, 175À7, 185À92 approaches 189À92 APV method 190À1 concepts 130, 134À46, 160, 175À7, 185À92 critique 145À6, 186 ECF method 190À2 forecasts 134À46, 160, 190À1 survey 185À92 SVA method 190À1 220 discounted cash flow (DCF) (cont.) terminal values 134À46, 191À2 WACC method 189À92 distribution, flotations 61À3, 75À81 diversification global offerings 68À9 M&As 104, 105 secondary offerings 43À4 divestitures auctions 12 bids 12À13 business fit 11 concepts 2, 8, 11À13, 20À1 confidential information 12 data rooms 12À13 financial statements 12 forecasts 12 information memorandum 12 letters 12 short-lists 11À13 valuations 11À12 dividend discount model, concepts 192À3 dividend yield, concepts 150À1, 153À7 dividends 13À14, 32À8, 150À1, 153À7, 166À7, 192À3 see also shares concepts 32À8, 150À1 preference shares 32À4 special dividends 13À14 Dixons 44 documentation 7À8, 10À11, 18À20, 48À9, 52À63, 70À81 flotations 48À9, 52À63, 70À81 international equity offerings 70À81 prospectuses 7À8, 18À20, 48À9, 54À63, 70À81 rights issues 84À100 underwriting agreements 7À8, 53À5, 62À3, 77À81 Dresdner Kleinwort Benson 99 INDEX Dresdner Kleinwort Wasserstein 14 DRs see Depository Receipts dual listings 67À8 due diligence 10À11, 19, 54, 56, 57À63, 76À81 flotations 54, 56, 57À63, 76À81 global offerings 76À81 early retirement, corporate financiers 20 earnings adjustments 109À10, 136À42, 147À8, 151À7, 161, 179À80, 186À9 PE ratios 107, 109À10, 142À3, 148À54 per share (EPS) 109À10, 176 earnings before interest, tax, depreciation and amortisation (EBITDA) 151À7, 186À9 earnings before interest and tax (EBIT) 136À42, 147À8, 154À7, 161, 179À80, 186À9 EBITDA see earnings before interest, tax, depreciation and amortisation ECMs see equity capital markets economic profit see also shareholder value added advantages 175À7 calculation 177À81 components 175À81 concepts 21, 173À81, 190À1 critique 181 definition 174À5 intangible assets 181 limitations 181 short-termism dangers 181 economic value added (EVA) see also shareholder value added concepts 128, 173À81, 190À1 economies of scale 105 ECP see EuroCommerical Paper INDEX ego-driven mergers 106 Electrabel 102 electricity industry 69 Elf 104 emerging markets 66, 68À9 Enel 42, 45 Energis 99 enterprise value 143À6, 151À7, 186À9 components 143À6 concepts 143À6, 151À7 definition 144, 151 enterprise value/EBIT ratio 186À9 enterprise value/EBITDA ratio 151À7, 186À9 survey 186À9 EPS see earnings per share equities see shares equity capital markets (ECMs) 2À3, 6À7, equity carve-outs 13À14, 43, 44À5 equity cash flow (ECF), concepts 190À1 equity finance 26À7, 32À8, 40À63, 66À81, 118À25, 160À8, 174À5, 178À80 see also shares equity risk premium (ERP) 169À72, 193À7 equity value concepts 144À6, 150À1, 155À7 definition 145 ERP see equity risk premium estimation errors, forecasts 145À6 EURIBOR 32 Eurobond market 75, 133 EuroCommerical Paper (ECP) 28 ‘Euroland’ 30À1 Europe 28, 30À1, 42À3, 69, 78À9, 85, 98, 111, 113, 123, 125, 142 Excel spreadsheets 134 executives/analysts, careers 15À20 221 expected returns 161À72 external directors 7À8, 52 see also directors fairness opinions 2À3, 13À14 see also financial advice FCF see free cash flow fees international equity offerings 79À81 rights issues 90À4 underwriters 80À1, 90À4 Fina 104 finance, definition financial acquisitions see also leveraged buyouts; management buyouts; mergers concepts 105À6, 107, 115À25 financial advice, concepts 2À3, 13À14 financial advisors 14, 84À5, 102, 112 major players 14, 84À5, 102 quoted companies 14, 102, 112 Financial Services Authority (FSA) 50À1, 110À13 financial statements 12, 19À20, 33, 35, 54À63, 71À4, 128, 135À46, 154À7, 175À80 see also annual reports; balance sheets; income statements divestitures 12 Financial Times 86À7 financing, M&As 107À10 Finelist 124 fixed-income securities see bonds floating rate notes see also bonds concepts 29, 31À3 flotations 2À3, 4, 6À8, 39À63, 65À81 see also initial public offerings; new issues 222 flotations (cont.) advantages 40À2, 46, 66À8 AIM 47À9 allocation of shares 61À3, 75À81 concepts 6À8, 40À63, 65À81 costs 46À7, 66À7, 71, 79À81 definition 40 disadvantages 46À7 disclosure costs 46À7, 71 documentation 48À9, 52À63, 70À81 due diligence 54, 56, 57À63, 76À81 global offerings 47À9, 61, 65À81 LSE 47À51 marketing aspects 52À5, 56, 57À63, 75À81 methods 479 over-subscribed offerings 62 parties 6À8, 40À4, 52À5, 75À81 placings 47À8, 61À3, 74À5 pricing problems 13À14, 40À2, 46À7, 61, 63 processes 52À63 prospectuses 7À8, 18À20, 48À9, 54À63, 70À81 reasons 40À6 regulations 6À8, 40À2, 49, 52À63, 69À81 ‘roadshows’ 48À9, 56, 60À3, 76, 99 secondary offerings 8, 40, 42À5, 61, 83À100 share prices 40À2, 46À7, 48, 55À63, 68À9, 77À81, 127 strategy formulation 46 structural considerations 46, 56 suitability considerations 49, 52 syndicates 6À8, 40, 53À63, 75À81 timetables 7À8, 40, 55À63, 71À81 verification 54, 56, 57À63 Forbes Global 110 INDEX Ford 105 forecasts 12, 54À5, 59, 134À46, 190À1 DCF 134À46, 190À1 divestitures 12 estimation errors 145À6 flotations 54À5, 59 formal marketing, flotations 59À60 France 42, 102, 124 free cash flow (FCF), concepts 136À42, 153À7, 161À6 Freeserve 44 FSA see Financial Services Authority FTSE 100 86 funding triangle 118À19 further equity offerings 2, 4, 20À1 GAAP see Generally Accepted Accounting Principles Galley, Carol 86À7 GDRs see Global Depository Receipts gearing 13, 40À2, 120À2, 162À3, 190 see also debtÀequity ratio gearing ratio, bank finance 1202 Generally Accepted Accounting Principles (GAAP), US 54, 71 geometric mean 195À6 Germany 42, 67, 71 Gilts see government bonds GlaxoSmithKline 47, 105 Global Depository Receipts (GDRs) 73À5 global offerings see also international equity offerings bookrunners 75À81 diversification 68À9 due diligence 76À81 flotations 47À9, 61, 65À81 international investors 68À9 INDEX liquidity reasons 69 prospectuses 71À81 reasons 66À81 regulations 69À81 returns 68À9 trends 66, 69À70 US 67À81 global syndicates 77À81 glossary 199À218 Goldman Sachs 94, 122 government bonds (Gilts) 29À32, 130À2, 166, 170À2, 194À5 see also bonds government Treasury Bills (Tbills) 28 graduates 15À16, 18 Great Wall of China ‘greenshoe’ options 81 Gucci 43 ‘gut feelings’ 188À9 Hanson 103 Hertz 105 high-yield bonds 124À5 see also bonds historic book value 181, 187 historical financial results, divestitures 12 ‘hold and fade’ method, cash flow valuations 191À2 horizontal mergers see also mergers concepts 104À6 hostile takeovers 10, 67 see also mergers and acquisitions Anglo-Saxon economies 10 HSBC 47, 99, 123, 167À8, 171 hybrid securities see also convertible debt concepts 36À8 types 36 223 ICI-ZENECA 100 Impact Day, underwriting period 63 ‘in the money’ convertibles 38 income statements 71À4, 128, 135À42, 154À7, 175À80 see also earnings induction/training programmes, corporate financiers 18 inflation rates, discount rates 163À5 information memorandum, divestitures 12 initial public offerings (IPOs) 2, 4, 6À8, 13, 20À1, 26À7, 39À63, 77, 95À6, 127, 134 see also flotations concepts 6À8, 13, 20, 26À7, 39À63, 77, 95À6, 127 definition 40 parties 6À8, 40À4, 52À5, 75À81 processes 52À63 insider information 4À5 institutional buyouts (IBOs), concepts 116 institutional investors 11À12, 41, 47À8, 61À3, 68À70, 74À5, 116À25 bought deals 94À9 MBOs 116À25 placings 47À8, 61À3, 74À5 QIBs 74À5 intangible assets 181 integrated securities houses 10 interest cover ratio, bank finance 120À2 interest payments see also coupon concepts 27À32, 36À8, 120À2 interest rates 29À32, 120À2, 166, 168À72, 193À7 internal rate of return (IRR) private equity firms 122À3 survey 187À8 224 international equity offerings see also global offerings bookrunners 75À81 concepts 48À9, 61, 65À81 costs 66À7, 71, 79À81 Depository Receipts 53, 73À5 diversification 68À9 documentation 70À81 investors 68À9 liquidity reasons 69 M&As 67 marketing 75À81 prospectuses 71À81 reasons 66À81 regulations 69À81 returns 68À9 sectors 67À8 share prices 68À9, 77À81 stabilisation processes 81 tranches 76À81 trends 66, 69À70 US 67À81 international investors, global offerings 68À9 Internet 3À4, 12À13, 42, 44, 61, 99, 103, 107À8 ‘Internet bubble’ 3À4, 42, 44, 107À8 intrinsic value see also discounted cash flow concepts 128, 132À42, 185À6 uses 134 Introduction, Detica Group plc 49À51 invested capital see capital employed investment banks see also banks concepts 2À21, 52À5, 57À63, 76À81, 95À9 corporate finance 2À3 departments flotations 52À5, 57À63, 76À81 investment stories 7À8 INDEX investment-grade bonds 124 investors 11À12, 41, 47À8, 61À3, 68À70, 74À5, 116À25, 175À81 see also institutional investors; shareholders IPOs see initial public offerings Ireland 49À51 IRR see internal rate of return Italy 42, 45, 77 Japan 30, 42, 71À3 joint ventures see also mergers JP Morgan 73À4, 122 KBC Peel Hunt 14 Kingfisher 100 Kohlberg, Kravis and Roberts (KKR) 107 Lattice 100 lawyers 10À11, 19À20, 53À63, 76À81, 84À5, 95À6 see also legal issues LBOs see leveraged buyouts lead banks, flotations 53À5, 57À63, 75À81 legal issues 6À8, 10À11, 19À20, 40À2, 52À63, 76À81, 84À5, 95À6 see also lawyers flotations 6À8, 40À2, 52À63, 76À81 Lehman Brothers 122 letters, divestitures 12 leveraged buyouts (LBOs) concepts 13, 105À6, 116À25, 127, 152 definition 116 LIBOR see London Inter-Bank Offer Rate life cycle, sources of capital 26À7, 41 limited liability, shares 35 INDEX liquidity reasons, global offerings 69 listed companies 7À8, 13, 34À5, 40À63, 66À81, 85 see also flotations; quoted companies advantages 40À2, 46, 66À8 AIM 47À9, 90À4 delistings 13 disadvantages 46À7 dual listings 67À8 listing particulars 7À8, 54À63, 70À3 LSE 47À51, 90À4 suitability considerations 49, 52 listing particulars 7À8, 54À63, 70À3 Lloyds TSB 177 loans 10, 26À32, 41, 118À25 M&As 10 MBOs 118À25 locations, corporate finance departments 4À5 London Business School 90À4, 194À5 London Inter-Bank Offer Rate (LIBOR) 31À2, 121À2 London Stock Exchange (LSE) 8, 13, 47À51, 53À63, 85, 89, 90À4, 100 long-term debt finance 20, 26, 29À34, 36À8, 144À6, 151À7 see also bonds concepts 26, 29À34, 144À6 definition 29 issuers 29À30 types 29À32, 36À8 uses 27, 29À32 LSE see London Stock Exchange M&As see mergers and acquisitions Machiavellian qualities, corporate financiers 19 225 management buyins (MBIs), concepts 116 management buyouts (MBOs) concepts 13, 20À1, 45, 105À6, 115À25, 127 core financial elements 116À18 definition 105À6, 116 example 116À18 financial structure 118À25 secured lending 120À5 trends 116À17, 122À3 types 116 unsecured debt 120, 123À5 management fees 80 managers 13, 15À21, 45, 80, 105À6, 115À25, 127 SVA judgements 181 syndicates 75À81 managers/associates, careers 15À20 managing directors 17À20 see also directors market capitalisation, concepts 148À9, 151À7, 187À9 market risk premium, concepts 168À72, 193À7 market to book value ratio 149À50, 153À7 market values concepts 89, 132À4, 148À57, 161À6 definition 133 rights issues 89 marketed offerings, concepts 94À6 marketing aspects flotations 52À5, 56, 57À63, 75À81 international equity offerings 75À81 secondary offerings 95À100 Marshall, Alfred 174 maturity, bonds 27, 29À34, 131À2 MBAs 15À16, 18 MBIs see management buyins 226 MBOs see management buyouts mean and median statistics, valuation example 152À7 meetings 18À20 merchant banks 52À5, 97 see also banks mergers and acquisitions (M&As) 2À3, 6À13, 16, 20À1, 67, 93À4, 100, 101À13, 116À25, 134, 185À7 bootstrap transactions 109À10 cash offers 107À10 City Code on Takeovers and Mergers 110À13 concepts 2À3, 6À13, 20À1, 93À4, 100, 101À13, 134, 185À6 demergers 100 diversification 104, 105 ego-driven mergers 106 EPS 109À10 examples 104À5 financing options 107À10 hostile takeovers 10, 67 international aspects 67, 102À4 loans 10 MBOs 13, 20À1, 45, 105À6, 115À25 parties 6À8 PE ratios 107, 109À10 premia 187 reasons 102À4 regulations 110À13 shares 100, 107À13 short-lists 9À10 strategy 9, 11, 102À4 synergies 10, 185 taxation 108À9 trends 102À3, 106À7 types 104À6 valuations 10, 132, 134 value creation 104 waves 106À7 Merrill Lynch 86À7, 98 mezzanine finance 118À20, 123À5 INDEX concepts 120, 123À5 definition 120 mining companies 68 minority shareholdings 150À1 money markets see also short-term debt finance concepts 27À9 Monument Oil and Gas 92À3 Moody’s 124 MORI 86 NASDAQ 67À8 National Computer Systems (NCS) 93À4 National Grid 99 National Westminster Bank 104 NAV see net asset value NCS see National Computer Systems negotiated transactions, divestitures 12 net asset value (NAV) 117À18, 149À50, 155À7, 177, 186 net operating profit after tax (NOPAT) 161, 163À4, 177À80 new issues see also flotations concepts 5, 6À8, 20À1, 26, 40À63, 66À81 timetables 7À8, 26, 40, 71À81 New York Stock Exchange 67, 71 NM Rothschild 97À8 nominal rates, WACC 163À5 non-cumulative preference shares 34 non-executive directors 52 non-voting ordinary shares 35 NOPAT see net operating profit after tax offers for sale, flotations 47À8, 62À3 Office of Fair Trading (OFT) 90, 111 INDEX ‘Official List’, LSE 47 OFT see Office of Fair Trading oil and gas industry 42, 100, 104À5, 107 opportunity cost of capital see also weighted average cost of capital concepts 160À6, 168À9 ‘optimal issue price’ 61 optimal weightings, WACC 162À6 ordinary shares 20À1, 34À8, 145, 160 see also shares ‘over-allotted’ shares 81 over-subscribed offerings 62 overdrafts 26À7 see also banks overview 20À1 Panel on Takeovers and Mergers (Takeover Panel) 110À13 par values, shares 32À3 pathfinder prospectuses 48À9, 60À1 payment in kind bonds (PIK), M&As 108 PDF files 12 PE ratios see price earnings ratios Pearson 87, 93 pension funds 69À70 PER see price earnings ratios performance issues, SVA 174À81 Pernod Ricard 102 perpetuities 140À2, 191À2 Pharmaceutical sector 107 placings, flotations 47À8, 61À3, 74À5 PR teams 19, 54À5, 84À5, 95À6 pre-emption rights see also rights issues concepts 85À100 pre-marketing, flotations 59À60, 77À81 227 preference shares 20À1, 32À4, 36, 107À8, 144À5 characteristics 32, 34 concepts 32À4, 36, 107À8, 144À5 dividends 32À4 premia, mergers and acquisitions 187 present value, concepts 128, 130À2, 134À42, 181, 190À1 presentations, flotations 48 price earnings (PE) ratios 107, 109À10, 142À3, 148À57 concepts 109À10, 142À3, 148À54 definition 148 price to book value ratio see market to book value ratio ‘price-sensitive’ information 4À5 price/EBIT multiple 149 pricing problems 13À14, 40À2, 46À7, 61, 63 primary offerings 40À63 see also flotations private equity firms 11À12, 122À3 privatisations 42À3, 45, 48, 66, 69, 79À80, 97À8 profit and loss statements see income statements project management 18À20 promissory notes 28 see also commercial paper prospectuses documentation 7À8, 18À20, 48À9, 54À63, 70À81 global offerings 71À81 pathfinder prospectuses 48À9, 60À1 regulations 57À9, 70À81 public companies 7À8, 13, 34À5, 40À63 see also listed companies delistings 13 228 Qualified Institutional Buyers (QIBs) 74À5 questionnaires, corporate valuation methods 184À98 quoted companies 13À14, 40À63, 66À81, 85 see also flotations; listed companies delistings 13 financial advisors 14, 102 R&D see research and development Railtrack 69 real options 187 ‘red herring’ prospectuses 71À2 redundant assets 143À6 registration statements, SEC 70À3 regulations 6À8, 21, 49, 52À63, 69À81, 95À100, 110À13 flotations 6À8, 40À2, 49, 52À63, 69À81 international equity offerings 69À81 M&As 110À13 prospectuses 57À9, 70À81 rights issues 84À100 secondary offerings 95À100 relationships, corporate finance 3, 13À14, 54À63 relative risk, betas 168À9, 193À7 relative valuation techniques adjustments 147À8 concepts 21, 128, 132À3, 142À3, 146À57, 185À9 critique 146À8, 185 earnings’ adjustments 147À8 examples 152À7 multiples adjustments 147À8, 152À7 uses 134, 142À3, 146À57, 185 remuneration, management excesses 147À8 replacement cost asset value 187 INDEX reporting accountants, flotations 54À5 reputations 13À14, 40À2, 67 research and development (R&D) 178 research reports, flotations 60 research, sales and trading 3À4 residual income see shareholder value added residual values see terminal values retention, clients 19À20 return on capital employed (ROCE) 175À81 return on equity, shortcomings 1756 returns 21, 35À8, 68À9, 118À20, 122À3, 128, 152À7, 160À6, 173À81, 187À8, 189À91 CAPM 168À72 emerging markets 68À9 expected returns 161À72 institutions 123 IRR 122À3, 187À8 risk 118À24, 160À6, 168À72, 175À81 SVA 21, 128, 173À81, 190À1 WACC 160À6, 175À81, 189À91 rights issues concepts 8, 83À100 costs 90À4 deep discounted rights issues 93À4 dilution protection 85 discounts 88, 93À4 documentation 84À100 examples 87 fees and commissions 90À4 international comparisons 85À6 regulations 84À100 share prices 8, 87À9, 93À4 theoretical rights price 88À9 timetables 90À4 underwriters 88, 90À4
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