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
PepsiCo's Bid for Quaker Oats (A) - Case - Faculty & Research - Harvard Business School
- 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.