Question 1

Would you characterize this as a reverse or forward merger? Based on your answer why was this type of reorganization selected by SoftBank? Will this takeover require a vote by Softbank shareholders?

Accepted Answer

This is a reverse merger in which the merger sub is merged into Sprint-Nextel with Sprint surviving. The purpose of this reorganization is to avoid requiring a SoftBank shareholder approval, to keep Sprint intact to allow its vendor and customer contracts to transfer to SoftBank unless consent to assignment is stipulated in the contract. The portion of the form of payment consisting of New Sprint stock for Sprint-Nextel stock is tax free to Sprint - Nextel shareholders.

Question 2

Why did SoftBank use New Sprint shares as part of the tender offer to Sprint shareholders rather than its own shares?

Accepted Answer

While SoftBank's shares do not currently trade on U.S. stock exchanges, they could have been registered as ADSs. However, SoftBank is not a well-known firm in the U.S. and its shares might have been less acceptable to Sprint shareholders and may have traded at a discount from their true value. Consequently, it made more sense to use New Sprint shares.

Question 3

The convertible debt is described as a "stock lockup." How does the convertible debt discourage other interested parties from bidding on Sprint?

Accepted Answer

The convertible debt enables SoftBank to acquire 16.2% of Sprint's stock even if the merger is not completed at $5.25 per share, well below the firm's $7.25 price trading on public exchanges. Any new acquirer would have a potential competitor as a sizeable shareholder.

Question 4

What is goodwill and how is it created?

Accepted Answer

The answer of What is goodwill and how is it...

Question 5

Archer Daniel Midland (ADM) wants to acquire AgriCorp to augment its ethanol manufacturing capability. AgriCorp wants
the transaction to be tax-free for its shareholders. ADM wants to preserve AgriCorp's significant investment tax credits and tax loss carryforwards so that they transfer in the transaction. Also, ADM plans on selling certain unwanted AgriCorp assets to help finance the transaction. How would you structure the deal so that both parties' objectives could be achieved?

Accepted Answer

The answer of Archer Daniel Midland (ADM) wants to acquire...

Question 6

Why do boards of directors of both acquiring and target companies often obtain so-called "fairness opinions" from outside
investment advisors or accounting firms? What valuation methodologies might be employed in constructing these opinions?
Should stockholders have confidence in such opinions? Why/why not?

Accepted Answer

The answer of Why do boards of directors of both...

Question 7

What are the arguments for and against the proposed takeover being approved by U.S. regulators?

Accepted Answer

The answer of What are the arguments for and against...

Question 8

What are some of the important tax-related issues the boards of the acquirer and target companies may need to address prior to
entering negotiations? How might the resolution of these issues impact the form of payment and form of acquisition?

Accepted Answer

The answer of What are some of the important tax-related...

Question 9

When does the IRS consider a transaction to be non-taxable to the target firm's shareholders? What is the justification for the IRS' position?

Accepted Answer

The answer of  When does the IRS consider a...

Question 10

Under what circumstances can the assets of the acquired firm be increased to fair market value when the transaction is deemed a taxable purchase of stock?

Accepted Answer

The answer of  Under what circumstances can the assets...

Question 11

What is the form of payment and form of acquisition employed by SoftBank in its takeover of Sprint-Nextel? Is all or some of the total consideration paid to Sprint shareholders tax free?

Accepted Answer

The answer of What is the form of payment and...

Question 12

Tangible assets are often increased to fair market value following a transaction and depreciated faster than their economic lives.
What is the potential impact on post-transaction EPS, cash flow, and balance sheet?

Accepted Answer

The answer of Tangible assets are often increased to fair...

Question 13

Taxes are an important consideration in almost any transaction, and they are often the primary motivation for an acquisition.

Accepted Answer

Taxes are a consideration in transactions, but they are not typically the primary motivation for an acquisition; strategic business goals usually drive acquisitions.

Question 14

Acquiring Company buys 100% of Target Company's equity for $5,000,000 in cash. As an analyst, you are given the
following pre-merger balance sheets for the two companies. Assuming plant and equipment is revalued upward by $500,000,
what will be the combined companies' shareholders' equity plus total liabilities? What is the difference between Acquiring
Company's shareholders' equity and the shareholders' equity of the combined companies? Show your work.
 $$\begin{array}{c}
\text { Balance Sheets (Dollars) }\
\begin{array} { | l | c | c | } 
\hline & \text { Acquiring Company } & \text { Target Company } \
\hline \text { CurrentAssets } & 600,000 & 800,000 \
\hline \text { Plant and Equigment } & 1,200,000 & 1,500,000 \
\hline \text { Tatal Assets } & 1,800,000 & 2,300,000 \
\hline \text { Long-Tem Debt } & 500,000 & 300,000 \
\hline \text { Sharehalder's' Equity } & 1,300,000 & 2,000,000 \
\hline \text { Shareholder' Equity + Total } & 1,800,000 & 2.300,000 \
\text { Limbilities } & & \
\hline
\end{array}
\end{array}$$

Accepted Answer

The answer of  Acquiring Company buys 100% of Target...

Question 15

Target Company has incurred $5,000,000 in losses during the past 3 years; Acquiring Company anticipates pre-tax earnings of
$3,000,000 in each of the next 3 years. What is the difference between total taxes that would have been paid before the merger compared to actual taxes paid by the Acquiring Company after the merger assuming a marginal tax rate of 40 percent? Show your work.

Accepted Answer

The answer of Target Company has incurred $5,000,000 in losses...

Question 16

What is the purpose of the holding company structure adopted by SoftBank in this transaction?

Accepted Answer

The answer of What is the purpose of the holding...

Question 17

What is the purpose of the reverse termination and termination fees employed in the transaction?

Accepted Answer

The answer of What is the purpose of the reverse...

Question 18

Discuss how the form of acquisition (i.e., asset purchase or stock deal) could impact the net present value or internal rate of
return of the deal calculated post-closing.

Accepted Answer

The answer of Discuss how the form of acquisition (i.e.,...

Question 19

Under what circumstances might an asset become impaired? How might this event affect the way in which acquirers bid for target firms?

Accepted Answer

The answer of Under what circumstances might an asset become...

Question 20

What are the advantages and disadvantages of a tax-free transaction for the buyer? Be specific.

Accepted Answer

The answer of What are the advantages and disadvantages of...

Quiz 12: Structuring the Deal: