Management > Management > The Law of Mergers and Acquisitions

The Law of Mergers and Acquisitions posted by duggu on 1/21/2008

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Courseware/Lectures

Test/Tutorials

Course Highlights

To provide practice analyzing legal issues in a realistic context, several take-home writing exercises are available. Each class discussion is enhanced by the inclusion of a practicing lawyer who serves as a guest commentator, and by the study materials, including actual court decisions and press releases.

Course Description

This course is designed to give students an introduction to the law-sensitive aspects of Mergers & Acquisitions (M&A). In Module I, we examine the legal implications of key roles and deal structures, and walk through some of the issues that would typically arise in a simple and friendly transaction. We also give a class to the legal issues arising in LBOs and the legal concerns of financial sponsors more generally, and another class to employment-related issues, including those relating to managers facing unsettled circumstances.

In Module II, we look at a variety of complications, including those that arise in the friendly or unfriendly purchase of a publicly-held company; deals involving distressed and hi-tech companies; antitrust concerns; allegations of misconduct by management or board members; and deals involving non-U.S. companies.

Syllabus

Goals and Approach

This course is designed to give students an introduction to the law-sensitive aspects of Mergers & Acquisitions (M&A). In Module I, we examine the legal implications of key roles and deal structures, and walk through some of the issues that would typically arise in a simple and friendly transaction. We also give a class to the legal issues arising in LBOs and the legal concerns of financial sponsors more generally, and another class to employment-related issues, including those relating to managers facing unsettled circumstances.

For each class, we will have one or more guest commentators who will play a major role. The guest commentators are all practicing lawyers with solid expertise on their topics.

A class-by-class outline, with a tentative list of guest commentators, is attached.

The course is not designed to make managers into amateur lawyers. Nor is it a course in legal first aid. M&A raises many legal issues that affect strategy, deal structure, responsibility and liability. The best senior managers possess a sensitivity about these issues that enhances their general effectiveness as leaders and planners and enables them to avoid problems and use legal support wisely. The purpose of this course is to give students a strong boost towards that sensitivity. Also, since this is the only law course most of the students in the class will take, we will spend some time on legal fundamentals when such a foundation is needed.

Relationship to Other Courses

There are no prerequisites, required or recommended. This course can be taken by students who have taken another law course at Sloan. It is expected that many students in this class will have taken the basic M&A course, and there will not be much overlap.

Expectations of Students and Grading

The main deliverable will be two take-home exercises, in which students will be asked to spot and assess the legal issues in a realistic M&A context. Students will have 90 minutes to do each exercise, but there will be some flexibility as to the particular ninety-minute period a student can choose. The tentative schedule for the exercises is as follows. The first exercise will be available beginning on class 7 and must be completed in 3 days. It will cover materials from classes 1 through 6. The second exercise will be available beginning class 11 must be completed in 2 days. It will cover materials from classes 7 through 11. Each student will make arrangements with the Teaching Assistant to have the exam e-mailed to him or her at a mutually convenient time, and the student will e-mail back to the TA the completed exercise within 90 minutes of having received it. Each student must work independently on the exercise, but can consult any readings assigned in the class and any notes prepared by that student. For each exercise, your answer may not exceed 500 words. This format is designed to give students a generous amount of time to write an answer, so that students who write slowly (perhaps because English is a second language) will not have a problem finishing the exercise. (Note: Last year there was a single exercise with three 500-word questions and students were given 5 hours. However, the type of question will not change. Last year's exercise is available on the class server.)

Apart from the two take-home exercises, there are no exams or other written deliverables.

Students are expected to attend class and prepare for each class. Each student will be "on deck" twice during the semester. On deck assignments will be arranged in advance with the TA. "On deck" students are expected to do the readings with special care and be prepared to answer questions about them.

Grading is not formulaic, but will be based approximately as follows:

First take-home exercise...............33.3%
Second take-home exercise...........33.3%
Attendance and participation.........33.3%

Readings

Students should consider purchasing the following two books:

Oesterle, Dale. Mergers and Acquisitions in a Nutshell. West Group, 2001.
Almost all of Oesterle will be assigned.
Bagley, Constance, and Craig Dauchy. The Entrepreneur's Guide to Business Law. West, 1998.
About a third of Bagley will be assigned.

Other readings will be made available or handed out in class.

Calendar

CLASS # TOPICS GUEST SPEAKERS

Module I - An Overview of Fundamentals

1 An Overview of Key Players, their Legal Responsibilities and Early Roles Terry Mahoney,
Partner at LeBoeuf, Lamb, Greene and MacRae, LLP

2 and 3 Tax Considerations in Deal Structures Martin Allen,
Partner at Kirkpatrick and Lockhart, LLP

4 Putting the Deal Together Terry Mahoney,
Partner at LeBoeuf, Lamb, Greene and MacRae, LLP

5 Employment Law: The Perspectives of Key Employees and of the Corporation as an Employer Lou Rodriques,
Partner at Sullivan and Worcester, LLP

6 LBOs and the Perspective of Financial Sponsors John LeClaire,
Partner at Goodwin Procter, LLP

Module II - Some Complications

7 Intellectual Property as an Asset; Selling and Buying the Hi-tech Start-up Greg Moore,
Partner at Ropes and Gray, LLP

8 The Legal Liability of Managers and Board Members Lisa Wood,
Partner at Nutter, McClennen and Fish, LLP

9 Antitrust Concerns and Regulatory Clearance Dan Goldberg,
Partner at Bingham McCutchen, LLP

10 The Distressed Company Ellen Carpenter,
Partner at Roach and Carpenter, PC

11 and 12 Some Complex Deal Terms (including issues that arise in the purchase of a publicly-held company) Stuart Cable and Jim Materese,
Partners at Goodwin Procter, LLP

13 Wrap-up

Further Reading:

Reading List for Classes 1-13

Students should consider purchasing the following two books:

Oesterle, Dale. Mergers and Acquisitions in a Nutshell. West Group, 2001.
Most of Oesterle will be assigned.
Bagley, Constance, and Craig Dauchy. The Entrepreneur's Guide to Business Law. West, 1998.
About a third of Bagley will be assigned.

Other readings will be made available or handed out in class.

There will be substantial additions to this reading list. Many of the guest commentators will be supplementing these readings.

Module I - An Overview of Fundamentals

Class 1: An overview of key players, their legal responsibilities and early roles.

Oesterle, Nutshell. "The Basics of a Corporate Acquisition." Chap. 1.
Excerpts from Texaco v. Pennzoil, 729 S.W.2d 768; materials discussing deal that are pages 1-12 of the bound handout (OCW).
Mr. Mahoney's "Pennzoil v. Texaco Deal Timeline"; hardcopy distributed in class.
Draft Letter of Intent, pages 13-17 of the bound handout.

Classes 2 and 3: Tax considerations in deal structures.

Oesterle, Nutshell. "Federal Tax Treatment of Mergers, Acquisitions, and Reorganizations." Chap. 8.
Mr. Allen's outline on "Acquisitions and Dispositions of Businesses"; pp. 18-33 of the bound handout. *
Mr. Allen's Excel spreadsheet, Fact Patterns #1, #1(b), and #2: hardcopy was distributed in class; file has been posted on the class server; please note NOT to refer to the Fact Patters on pp. 34-45 of the bound handout. *

* Students are expected to have a broad understanding of the tax issues related to M&A deals, as well as some of the tax choices that managers face in deciding upon a deal structure. Some such examples may include (but are not limited to): the different implications of paying with stock versus cash, the relevance of goodwill, the basic differences of buying assets versus stock, why a manager would make a 338 election (or (h) or (h)(10)), and/or the value of NOLs. The goal is to help students understand the big, strategic tax issues that mangers must consider when doing deals. Students are not expected to be able to determine precise tax consequences, nor will they have to do any math or make any tax computations for this course.

Class 4: Putting the deal together.

Marked up copy of the Stock Purchase Agreement; pages 46-97 of the bound handout; you will only be responsible for knowing in detail sections 3.1(a), 5.5, 5.7, 5.9(e), 5.11, 5.12, 5.21, 5.22, 5.23, 5.24, 9.2(b), and 9.3. **
Section 2.4 on Liabilities (excerpt from Model Agreement for the Purchase of a Business); pp. 98-102 of the bound handout.
Mr. Mahoney's PowerPoint presentation, a paper version of which was distributed in class. It has also been posted on the class server.

** However, students are also expected to understand the broad but relevant deal-related issues surrounding concepts like "material adverse change clauses", "representations and warranties", and GAAP accounting.

Class 5: Employment law: The perspectives of key employees and of the corporation as an employer.

Bagley, Entrepreneur's Guide. "Leaving Your Employer." Chap. 2 (pp. 9-28). (Skip "Putting It into Practice")
------. "Marshalling Human Resources." Chap. 10 (pp. 265-324). (Skip "Putting It into Practice")

Class 6: LBOs and the perspective of financial sponsors.

Oesterle, Nutshell. "The Target Board's Power to Block Takeovers." Chap. 9.
------. "The Board of Directors' Decision to Sell the Firm." Chap. 10.
Mills Acquisition Co. v. Macmillan, Inc., 559 A.2d 1261 (OCW). ***
Kendall and LeClaire. "The Benchmark Case and the Limits of Preferred Stock Options." ***

*** Handout, to be distributed in class 4.

Module II - Some Complications

Class 7: Intellectual property as an asset; Selling and buying the hi-tech start-up.

Bagley, Entrepreneur's Guide. "Intellectual Property and Cyberlaw." Chap. 14 (pp. 487-551).

Class 8: The legal liability of managers and board members.

Bagley, Entrepreneur's Guide. "Going Public." Chap. 17 (pp. 649-703).
Sarbanes-Oxley Advisories.

Class 9: Antitrust concerns and regulatory clearance.

Antitrust Law in a Peanut (Akula) (for general background).
Varta Bosch (EU ruling on a proposed merger).
Department of Justice Press Release: Gemstar-TV Guide Settlement (the "gun-jumping" problem in mergers).
AOL/Time Warner merger items:
Federal Trade Commission Approval (OCW).
Federal Communications Commission Approval (OCW).
Comments of FCC Commissioner Powell (OCW).
Oesterle, Nutshell. "Antitrust Legislation on Acquisitions." Chap. 13 (pp. 273-279).

Class 10: The distressed company.

Bagley, Entrepreneur's Guide. "Creditors' Rights and Bankruptcy." Chap. 12 (pp. 384-430).
Oesterle, Nutshell. "Successorship Issues: Assignments of Contract Rights and Successor Liability." Chap. 5, but only sections 19, 20, and 21 (pp. 98-120).

Classes 11 and 12: Some complex deal terms, including issues that arise in the purchase of a publicly-held company.

Oesterle, Nutshell. "The Target Board of Directors' Power to Block Takeovers." Chap. 9 (pp. 231-253).
------. "The Board of Directors' Decision to Sell the Firm." Chap. 10 (pp. 255-265).

Class 13: The hard edge of financial regulation.

Akula. "Business Crime: What To Do When the Law Pursues You." Sloan Management Review 41, 3 (Spring 2000).
In the matter of John Gutfreund. (SEC release on action against Solomon executives) (optional unless you are on deck) (OCW).