Day 107 in MIT Sloan Fellows Class 2023, M&A and PE 2 "M&A structure and Pepsi-Quaker cases"

Type of merger

Reading: Forms of Takeover: Mergers

Statutory merger: In a statutory merger, the acquiring firm absorbs the assets and liabilities of the target company and the target company ceases to exist.
Subsidiary merger: In a subsidiary merger, in contrast, the target company remains a legally independent entity and becomes a legally independent subsidiary of the acquirer.

Process of merger

Reading: Forms of Takeover: One Step vs. Two Step Mergers

One step merger

One way to go is that the buyer and seller jointly negotiate a merger agreement.
In practice, all that is required is a simple majority (>50%) for the deal to pass, though some incorporation documents or state laws may require a supermajority vote.
The main advantage of the one step merger is that the acquiring company does not have to deal with the individual shareholders of the target company.

Two step merger

The acquirer first gains control over the target's shares and subsequently merges the companies.
The second step then is to merge the companies. Depending on the fraction of shares acquired in the first step, this can generally take the form of a so-called long-form merger or a short-form merger:
- Long form: If the acquiring company has acquired more than 50% but less than 90% of the shares, the target company is required to issue a proxy statement, call and hold a (special) meeting of its shareholders, and obtain the required shareholder votes.
- Short form: If the acquirer controls more than 90% of the votes after the first step, it can merge the companies without a vote of the target shareholders (at least under Delaware law).

Pepsi and Quaker case

100% share offer means some uncertainty of share price fluctuations
Not exclusive deal
Some potential synergies between Pepsi and Quaker
- Distribution system
- Negotiation power to retail and suppliers
- Shared resources
- International expansion
- Collaborative R&D for tropicana
Share price after acquisition without fluctuation would be calculated by the post-merger company share price. Given information, (TARGET COMPANY A: $x1, y1 ; COMPANY B: $x2, y2) TARGET COMPANY will receive (buying_price*y1+x2*y2)/(y1+y2) - x1
In a share deal, we set an exchange rate between two companies. However you can set flexible rules based on both intentions as follows.

Some fixed ratio collar would be possible as well.
Quaker went to Coke, and its boarding member provided more competitive price than Pepsi. However, its shareholder did not welcome this decision and Pepsi was back to the deal.
Anticipation is key. Anticipating overbids impact and shareholder vote action.

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