Course Title: FBE 560: MERGERS AND ACQUISITIONS Syllabus for Spring 2013 Professor: Lloyd Levitin Office:

Acc. 301E Office Phone: 310-740-6524 E-mail: levitin@marshall.usc.edu TA: Jon Ringer (jon.ringer@gmail.com) Lecture Class Tuesday and Thursday Office Hours Thursdays

12:30 1:50 P.M. Room: JKP104 2:30 5:30 P.M.

Introduction and Course Objective The primary objective of the course is for each student to gain a well-rounded understanding of the major strategic, economic, financial, human resources, and governance issues of mergers, acquisitions, and restructuring. The M&A environment is a fast-paced, highly complex world where transforming transactions can have a major impact on both domestic and global economies and the consequences of error are large. Given the generally high level of mergers and acquisitions and their important role in the economy and in corporate strategy, it is likely that each of you will have some contact with mergers and acquisitions at some point early in your careers. This course is designed to provide you with a competent foundation in all areas of M&A practice, with an emphasis on the best practices. Learning Objectives This course will help you to: understand the role that M&A plays in the contemporary global market, and its use as a strategic tool to provide growth, enhance competitive position, transform a company or industry, and create shareholder value. develop a framework that can be used for analyzing M&A transactions including understanding strategic rationale, valuation methodologies, deal structures, bidding strategies, and the need for a value proposition. know how M&A can be used successfully as well as its pitfalls, dangers and risks. foster an understanding of the M&A process from target selection to doing the deal (including due diligence, integration planning, negotiating the agreement, announcing the deal), to closing and integration. recognize the advantages and disadvantages of alternative deal structures have an understanding of commonly used takeover tactics and defenses. choose a path for restructuring that will meet corporate goals and create shareholder value. understand the practical limitations of the various valuation approaches. minimize the risk that a merger or acquisition will not meet expectations. know when alliances or joint ventures are preferable alternatives to mergers and acquisitions. develop a concept, design a deal, and present a proposal for a merger and acquisition transaction. understand how value is created (or destroyed) as result of corporate mergers, acquisitions, and restructuring transactions.

Who Should Take This Course Those who are seeking to become entrepreneurs, financial analysts, chief financial officers, operating managers, investment bankers, business brokers, portfolio managers, investors, corporate development managers, strategic planning managers, auditors, venture capitalists, business appraisers, consultants, or who simply have an interest in the subject. Prerequisite GSBA 521 or GSBA 521b or GSBA 548. Required Materials APPLIED MERGERS AND ACQUISITIONS (UNIVERSRITY EDITION) by R. Bruner (Wiley, 2004) ISBN: 0471395056 Course Notes: Copies of lecture slides and other class information are available through your Blackboard account. Teaching Methods This course is taught through a combination of readings, a group project and lectures. We begin each session with a discussion of current events. You are encouraged to visit dealbook.nytimes.com before each class to obtain a grasp of recent news. About the Instructor Lloyd Levitin is a Professor of Clinical Finance and Business Economics at Marshall. He was Executive Vice President and CFO of Pacific Enterprises from 1982-1995 (now Sempra Energy), and was actively involved in the firms diversification program which included numerous acquisitions. He testified as an expert on utility diversification to the Senate Finance Committee of the U.S. Congress and has been a consultant for JurEcon, Inc., a nationwide consulting and research firm for management and counsel. He has a MBA from Wharton and a JD from University of San Francisco. He practiced as a CPA after receiving his MBA, and as an attorney after receiving his JD. Grading Summary: Assignments TESTS Mid-Term Final Exam Points 25 35 25 5 10 TOTAL 100 % of Grade 25.0% 35.0% 25.0% 5.0% 10.0% 100.0%

M&A PITCH BOOK (group project) CLASS PARTICIPATION PEER EVALUATION ON GROUP PROJECT

Final grades represent how you perform in the class relative to other students. Your grade will not be based on a mandated target, but on your performance. Three items are considered when assigning final grades: 1. Your average weighted score as a percentage of the available points for all assignments (the points you receive divided by the number of points possible). 2. The overall average percentage score within the class. 3. Your ranking among all students in the class.

Midterm and Final Exam (Midterm 25% of your grade; Final 35% of your grade) The midterm and final exam will be closed-book, closed-notes. The final exam is cumulative from the beginning of the course. Laptops or any hand-held device with email capabilities cannot be used. You should bring a calculator to perform calculations. M&A Pitch Book (25% of your grade) This group project demonstrates your progress towards one of the key learning objectives of the course: Develop a concept, design a deal, and present a proposal for a merger and acquisition transaction. By the end of the third week of the semester, students will divide themselves into teams of four-to-eight students each to play the role of a publicly-traded company seeking to make an acquisition. Each team selects a real publicly-traded company it wants to represent, identifies a potential target (also a real publicly-traded firm), and prepares a Pitch Book, the purpose of which is to obtain CEO approval to commence negotiations. Key learning objectives include (1) M&A strategy, (2) target company selection, (3) value creation in an M&A transaction, (4) deal structuring, and (5) risk assessment and (6) ability to prepare a term sheet. This project will count 25% of your grade, the ground rules and deliverables for this project are stated on pages 6 and 7 of this syllabus. Peer Evaluation on M&A Pitch Book (10% of your grade) Study groups provide a valuable learning experience how to work effectively and efficiently in groups (a common practice in Corporate America), learning from others, and sharpening a students ability to communicate with others. However, human nature being what it is, some students are tempted to relax and let others carry their load. In order to provide an incentive for all students to make maximum contributions to the team project, students will be asked to grade each team members contributions on a 10-point scale. This evaluation is to be submitted by email to the Instructor before the last day of classes. Any team member who does not email his (her) evaluation of team members will be deemed to have given a 10-point score to each member of the team. Class Participation (5% of your grade). Attendance and participation are essential for success in this course. Students are expected to actively participate in the class discussions. Class meetings will involve discussions of the assigned readings and current events. Preparation for each class is essential. In evaluating your class participation, I will consider the quality and frequency of your participation, with a clear emphasis on quality. Students are required to display their name cards in each class. I will have no other way to determine who is present and participating. Academic Integrity USC seeks to maintain an optimal learning environment. General principles of academic honesty include the concept of respect for the intellectual property of others, the expectation that individual work will be submitted unless otherwise allowed by an instructor, and the obligations both to protect ones own academic work from misuse by others as well as to avoid using anothers work as ones own. All students are expected to understand and abide by these principles. SCampus, the Student Guidebook, (www.usc.edu/scampus or http://scampus.usc.edu) contains the University Student Conduct Code (see University Governance, Section 11.00), while the recommended sanctions are located in Appendix A. Students will be referred to the Office of Student Judicial Affairs and Community Standards for further review, should there be any suspicion of academic dishonesty. The Review process can be found at: http://www.usc.edu/student-affairs/SJACS/ . Failure to adhere to the academic conduct 3

standards set forth by these guidelines and our programs will not be tolerated by the USC Marshall community and can lead to dismissal. Student Disability Any student requesting academic accommodations based on a disability is required to register with Disability Services and Programs (DSP) each semester. A letter of verification for approved accommodations can be obtained from DSP. Please be sure the letter is delivered to be as early in the semester as possible. DSP is located in STU 301 and is open 8:30 AM to 5:00 PM, Monday through Friday. The phone number for DSP is (213) 740-0776. For more information visit www.usc.edu/disability. Technology Policy Laptop and Internet usage is not permitted during academic or professional sessions unless otherwise stated by the professor. Use of other personal communication devices, such as cell phones, is considered unprofessional and is not permitted during academic or professional sessions. ANY e-devices (cell phones, PDAs, iPhones, Blackberries, other texting devices, laptops, iPods) must be completely turned off during class time. Videotaping faculty lectures is not permitted, due to copyright infringement regulations. Audiotaping may be permitted if approved by the professor. Use of any recorded material is reserved exclusively for USC students registered in this class. Classes Cancelled Classed are cancelled for Mach 26 and April 2. Make-up classes will be scheduled in the following week, which will be videotaped for those students unable to attend. Add/Drop Process If you are absent six or more times prior to September 14, (the last day to withdraw from a course with a grade of W), I may ask you to withdraw from the class by that date. These policies maintain professionalism and ensure a system that is fair to all students. Retention of Graded Coursework Final exams and all other graded work which affected the course grade will be retained for one year after the end of the course if the graded work has not been returned to the student (i.e., if I returned a graded paper to you, it is your responsibility to file it, not mine). Emergency Preparedness/Course Continuity In case of a declared emergency if travel to campus is not feasible, USC executive leadership will announce an electronic way for instructors to teach students in their residence halls or homes using a combination of Blackboard, teleconferencing, and other technologies. Please activate your course in Blackboard with access to the course syllabus. Whether or not you use Blackboard regularly, these preparations will be crucial in an emergency. USC's Blackboard

learning management system and support information is available at blackboard.usc.edu.

COURSE READINGS/CLASS SESSIONS

Daily Activities Week 1 1/15 1/17 Week 2 1/22 1/24 Week 3 1/29 1/31 Week 4 2/5

Tasks, Readings, and Due Dates

Introduction to M&A Case Histories On M&A Failures

Bruner: Chapters 1 and 2 Bruner: Chapter 3: Pages 30-36; 54-56

M&A Strategies M&A Alternatives Valuation Valuation continued Valuation continued

Bruner: Chapter 6: Pages 123-148 Bruner: Chapter 5 Bruner: Chapter 9: Pages 247-291 Bruner: Chapter 11

2/7 Week 5 2/12 2/14 Week 6 2/19 2/21 Week 7 2/26 2/28

Initiating The Deal Seller

Familiarize yourself with the S-4 filing for Sears Holdings Corp. on 12/02/04. The form will be posted in Blackboard. Read carefully the opinions of the financial advisor for Kmart and Sears appearing on pages 52-67. Bruner: Chapter 31

Initiating The Deal - Buyer Acquisition Process For A Friendly Deal Deal Structuring Transaction Types Deal Structuring - Accounting Review for Midterm MIDTERM

Bruner: Chapter 7 Bruner: Chapters 8, 25, and 29

Bruner: Chapter 18

Week 8 3/5 3/7 Week 9 3/12 3/14 3/18-3/23 Week 10 3/26 3/28 Week 11 4/2 4/4 Week 12 4/9 4/11 Week 13 4/16 4/18 Week 14 4/23 4/25 Week 15 4/30 5/2 5/15

Deal Structuring Taxes Deal Structuring Financing Deal Structuring- Risk Reduction Provisions Deal Structuring Social Issues SPRING RECESS Deal Structuring Putting It All Together Integration

Bruner: Chapter 19 Bruner: Chapter 20 Bruner: Chapter 22 and 23 Bruner: Chapter 24

Bruner: Chapter 36

Legal & Regulatory Environment Board Bruner: Chapter 26 of Directors and Shareholder Voting Legal & Regulatory Environment Bruner: Chapter 27 Securities Laws Legal & Regulatory Environment Antitrust Takeover Attack & Defense Takeover Attack & Defense continued Restructuring Restructuring - continued Communication Best Practices REVIEW FINAL EXAM 2-4:00 P.M. Bruner: Chapter 28 Bruner: Chapter 33 Bruner: Chapter 34 Bruner: Chapter 6: pages 148-176 Pitch Book Due Bruner: Chapter 35 Bruner: Chapter 38

Pitch Book Requirements (Due in hard copy at beginning of class on April 23) Objectives: This assignment addresses a goal of the course, to develop your ability to conceive and design a proposed deal. It exercises the broad range of skills developed in this course. Assignment: Form a team of 4-8 to work on the Pitch Book. Pick the acquiring firm. It must be publicly-traded. Choose the target. It must be publicly-traded or a division of a publicly-traded firm. It is recommended that you pick a publicly-traded target firm with whom there might be some solid strategic rationale to combine. Think seriously about the motives and economics of combination, and try to offer a hypothetical marriage that makes business sense. Your strategic rationale for this deal should be summarized clearly in your presentation, and should reflect careful thinking. You are free to choose any firm, though if you have a 6

choice, you should avoid unnecessarily complex combinations. To spark ideas, you might consult lists of excellent firms and under performers. By February 21, please send an email to me indicating the proposed buyer and target firm in your proposed deal, and a brief discussion about why you will be recommending this target. Discuss why your firm (the acquirer) needs to make an acquisition and why the proposed target is a good fit. The proposed acquisition must be a purely hypothetical transaction. If you send the email after February 21, you will receive a grade deduction. Prepare the Pitch Book as if you were the VP of Corporate Development and the addressee is your CEO. As of the date of your proposal, your idea has been held secret by your team, unknown to the target firm. Your aim should be to convince the CEO to go forward with the proposed transaction, committing time and capital to consummate the deal. See pages 883-885 in the Bruner text for guidance in preparing a Concept Proposal to senior management of the Buyer (i.e., referred to as the Pitch Book). In Exhibit 35.1 on page 884, the contents of a hypothetical Pitch Book are set forth. It is highly recommended that you follow the outline given in Exhibit 35.1