# Mergers and Acquisitions Course Guide: [Your programme, term and section] > A course guide for the second-year MBA elective in mergers and acquisitions (M&A): why companies buy other companies, > how deals create or destroy value, how to value a target and its synergies, how to choose between cash and stock, how > earnings per share and credit metrics move, how deals are accounted for and reviewed by competition authorities, how > boards govern a deal and how integration delivers the value that was paid for. It builds on the core finance course, > so read mba/mba-corporate-finance-guide, mba/mba-dcf-valuation-card, mba/mba-capm-wacc-card, mba/mba-growth-strategy-card > (build, borrow or buy and the synergy trap) and section 5 of mba/mba-banking-technical-prep (the quick > accretion and dilution test) first; this guide links to them instead of re-teaching them. It is for students taking > the elective, candidates preparing for investment banking, corporate development, private equity or strategy > consulting, and study groups that want a shared plan. It gives the competencies, prerequisites, a 13-session roadmap, > a key concepts map, the accounting and merger-control facts as dated facts, an original mini-case on a fictional > company (Northfield Outdoor Co.) with exhibits, discussion questions and a teaching note, a grading rubric, an exam > plan, common struggles, a reading list and a self-test with an answer key. Source basis: the primary research on the > market for corporate control from Manne (1965) to Moeller, Schlingemann and Stulz (2005), written up in original > words. Session order and grading are typical of leading international programmes; your syllabus decides. Replace > every [bracketed] value and every row marked *Example*. This is a learning aid, not investment, legal, tax or > accounting advice. ## Document control | Field | Value | |---|---| | Programme, term and section | [Programme name, term, section] | | Learner | [Your name] | | Faculty and teaching assistants | [Names, office hours] | | Syllabus version used | [Date of syllabus] | | Learning team | [Team name and members] | | Career track this elective supports | [Investment banking / corporate development / private equity / consulting] | | Exam or final project date | YYYY-MM-DD | | Reviewed by | [Learning team member, tutor or mentor] | | Version | [0.1] | | Last updated | YYYY-MM-DD | ## Contents - [What the course is for](#what-the-course-is-for) - [Prerequisites](#prerequisites) - [The course in one page](#the-course-in-one-page) - [The deal process](#the-deal-process) - [Accounting and merger-control facts (dated)](#accounting-and-merger-control-facts-dated) - [Session roadmap](#session-roadmap) - [Key concepts map](#key-concepts-map) - [Mini-case: Northfield Outdoor Co. and Target F](#mini-case-northfield-outdoor-co-and-target-f) - [Teaching note](#teaching-note) - [Typical assignments and how they are graded](#typical-assignments-and-how-they-are-graded) - [Exam preparation plan](#exam-preparation-plan) - [Common struggles](#common-struggles) - [Reading list](#reading-list) - [Self-test questions](#self-test-questions) - [My notes and next steps](#my-notes-and-next-steps) - [Sources and further reading](#sources-and-further-reading) - [Answer key](#answer-key) - [Revision history](#revision-history) ## What the course is for An acquisition is the largest and least reversible capital allocation decision most boards make. The core course taught you to value a project; this elective applies the same logic to buying a whole company, where three features change the problem. First, the buyer pays a **control premium** above the target's market value, so the deal creates value for the buyer's shareholders only if the synergies it captures are worth more than that premium plus the deal costs. Second, the **form of payment** (cash, stock or a mix) decides who bears the risk that synergies do not arrive, changes earnings per share and leverage, and signals what managers believe about their own shares. Third, value is created or lost after closing, in **integration**, by people who were often not in the deal room. The evidence frames the course. Targets' shareholders capture large premiums; acquirers' shareholders earn on average about zero at announcement, with wide dispersion and large losses in some of the biggest deals (Jensen and Ruback 1983; Andrade, Mitchell and Stafford 2001; Moeller, Schlingemann and Stulz 2005). Your job in the elective is to learn which deals sit in the profitable tail and why. The competencies the course builds, mapped to the competency list used across this library (see mba/mba-core-curriculum-map). The AACSB Global Standards for Business Education, ratified by AACSB members on 20 April 2026, leave each school to define its own learning goals, so check your programme's list (as of October 2026, see aacsb.edu): | Competency area | What you should be able to do by the end of the course | |---|---| | Analytical and quantitative reasoning | Value a target standalone and with synergies; compute the premium, the walk-away price, accretion and dilution, pro forma leverage and goodwill | | Ethical decision making | Recognise conflicts of interest (management buy-outs, advisers paid on completion, empire building) and the board's duties in a sale | | Communication | Write a one-page board recommendation with the price range, the payment form, the synergy case and the key risk | | Leadership and teamwork | Run a diligence workstream, challenge a synergy estimate without destroying the team, plan the first 100 days | | Global perspective | Recognise cross-border issues: merger control in several jurisdictions, currency, culture, accounting differences | | Technology, data and AI | Build an auditable merger model, document data sources, check AI-drafted analyses against the model | ## Prerequisites | Skill | Check yourself | Where to fix it | |---|---|---| | DCF valuation, terminal value, enterprise to equity bridge | Value a firm with FCFF of USD 33m next year, WACC 9%, growth 2.5% | mba/mba-dcf-valuation-card | | Cost of capital, unlevering and relevering beta | Explain why the target's WACC, not the acquirer's, discounts the target's cash flows | mba/mba-capm-wacc-card | | Three statements and how they link | Explain how an intangible asset step-up changes next year's net income and cash flow | mba/mba-three-statements-card | | Capital structure, signalling | Explain why issuing equity can lower a share price (Myers and Majluf 1984) | mba/mba-capital-structure-card | | Quick accretion and dilution test | Say whether an all-stock deal is dilutive when the buyer's P/E is below the P/E paid | mba/mba-banking-technical-prep (section 5) | | Comparables and multiples | Compute EV/EBITDA and explain why precedent multiples exceed trading multiples | finance/comparable-companies-analysis | | Corporate strategy logic | State the better-off test and the build, borrow or buy choice | mba/mba-growth-strategy-card | ## The course in one page **Why firms merge.** Acquisitions can move assets to better managers: Manne (1965) described a **market for corporate control** in which a falling share price invites a bidder who can run the firm better. Synergies come from cost savings, revenue growth, tax and financing effects. Bad motives are as common: managers who overrate their own skill (the **hubris hypothesis**, Roll 1986), and managers of cash-rich firms with few good projects who spend free cash flow on acquisitions rather than returning it (Jensen 1986). Shleifer and Vishny (2003) add market timing: managers of overvalued firms use their stock as currency. **Value to the acquirer.** With $V_T$ the target's standalone value, $S$ the present value of net synergies, $P$ the price paid for the equity and $F$ the deal costs: $$ NPV_{A} = (V_T + S) - P - F = S - \text{Premium} - F, \qquad \text{Premium} = P - V_T $$ The target's shareholders receive the premium; the acquirer keeps whatever synergy value is left. The **walk-away price** is $V_T + S - F$: paying more transfers more than all the synergies to the seller. Bradley, Desai and Kim (1988) found that tender offers create combined gains but that competition among bidders pushes most of them to target shareholders. Grossman and Hart (1980) explain why a bidder must share gains: each small shareholder can free-ride, refusing to tender unless the price already reflects the improvement. **Payment and risk sharing.** In a cash deal the acquirer's shareholders bear all synergy risk; in a stock deal the target's shareholders become co-owners and share it in proportion to their stake (Rappaport and Sirower 1999). Stock is also a signal: managers who believe their shares are overvalued prefer to pay with them (Myers and Majluf 1984), and bidders' share prices fall more on stock-financed announcements than on cash bids (Travlos 1987). The type of target matters too: bidders tend to gain when they buy private firms or subsidiaries and lose when they buy listed targets with stock (Fuller, Netter and Stegemoller 2002). See mba/mba-deal-structuring-card for earn-outs, collars, fixed and floating exchange ratios and contingent value rights. **Earnings per share.** A deal is accretive if pro forma EPS exceeds the buyer's standalone EPS. Accretion is not value creation: cheap after-tax debt makes most cash deals accretive while raising risk. Use accretion as a communication and financing constraint, not as the decision rule (mba/mba-accretion-dilution-card). **Synergy valuation.** Value cost synergies, revenue synergies, dis-synergies and costs to achieve separately, with phase-in, tax and a realistic probability, and compare their present value with the premium (Sirower 1997; mba/mba-synergy-valuation-card). Healy, Palepu and Ruback (1992) found that the largest US mergers of 1979 to 1984 improved operating cash-flow returns relative to their industries, mainly through better asset productivity, which is a reminder that synergies are real when they are specific. **Integration.** Haspeslagh and Jemison (1991) classify integration by the need for strategic interdependence and the need for organisational autonomy: **absorption** (high interdependence, low autonomy), **preservation** (low, high), **symbiosis** (high, high) and a **holding** approach (low, low). Choosing the wrong approach destroys the capabilities that justified the price. The practical plan sits in finance/m-and-a-integration-100-day-plan. ## The deal process ```mermaid flowchart TD A["Corporate strategy: build, borrow or buy"] --> B["Screen targets against criteria"] B --> C["Approach: bilateral talks or sale process"] C --> D["Preliminary valuation: standalone, synergies, walk-away price"] D --> E{"Is the walk-away price above the likely price?"} E -- No --> X["Walk away or rethink the deal"] E -- Yes --> F["Non-binding offer and exclusivity"] F --> G["Due diligence: financial, quality of earnings, legal, tax, commercial, people"] G --> H["Refine synergies and structure: payment form, protections"] H --> I{"Board approves final terms?"} I -- No --> X I -- Yes --> J["Sign: merger agreement, financing, announcement"] J --> K["Approvals: shareholders, merger control, other regulators"] K --> L["Close: purchase price allocation, Day 1"] L --> M["Integrate: 100-day plan, synergy tracking"] M --> N["Post-deal review: synergies and value against the case"] ``` The two decisions marked as diamonds are where discipline matters. Write the walk-away price down before the first offer and update it only when diligence produces new facts, not when the auction gets competitive. Diligence templates: finance/due-diligence-request-list and finance/quality-of-earnings-scope; board materials: business/board-pack and finance/investment-committee-memo; post-deal: finance/impairment-test-memo. ## Accounting and merger-control facts (dated) | Topic | Dated fact (as of October 2026) | Official page | |---|---|---| | Business combinations under IFRS | IFRS 3 *Business Combinations* requires the acquisition method: identify the acquirer, measure identifiable assets and liabilities at fair value, recognise goodwill as the excess of consideration over the fair value of net assets; acquisition-related costs (advisory, legal, valuation) are expensed as incurred (paragraph 53), except the costs of issuing debt or equity, which follow IAS 32 and IFRS 9 | ifrs.org, IFRS 3 | | Goodwill after the deal | Under IFRS, goodwill is not amortised; it is tested for impairment at least annually in cash-generating units under IAS 36 *Impairment of Assets* | ifrs.org, IAS 36 | | IASB project on disclosures and goodwill | The IASB published the exposure draft *Business Combinations: Disclosures, Goodwill and Impairment* in March 2024 (proposed amendments to IFRS 3 and IAS 36, including disclosure of subsequent performance of business combinations). As of October 2026 the project page shows the IASB still redeliberating (latest update: meeting of 23 September 2026), next milestone "decide project direction", with no final amendment issued and no effective date set | ifrs.org/projects/work-plan/goodwill-and-impairment | | US GAAP | ASC 805 applies the acquisition method and also expenses acquisition-related costs; under ASC 350 public companies test goodwill for impairment rather than amortising it, while private companies may elect an accounting alternative (ASU 2014-02) that amortises goodwill on a straight-line basis over ten years or less. Check the FASB Codification for current text | fasb.org | | US premerger notification (HSR) | The FTC's adjusted thresholds effective 17 February 2026: size-of-transaction USD 133.9 million (original USD 50 million); transactions above USD 535.5 million are reportable regardless of the size-of-person test; size-of-person thresholds USD 26.8 million and USD 267.8 million. Thresholds are revised every year; exemptions apply | ftc.gov, current thresholds | | EU Merger Regulation | A concentration has an EU dimension if combined worldwide turnover exceeds EUR 5,000 million and at least two firms each have EU-wide turnover above EUR 250 million, or under the alternative test (EUR 2,500 million worldwide, more than EUR 100 million combined in each of at least three Member States with more than EUR 25 million for each of at least two firms there, and more than EUR 100 million EU-wide for each of at least two firms); not if each firm has more than two-thirds of its EU turnover in one and the same Member State | competition-policy.ec.europa.eu | Two points to remember beyond the table. Merger control is a question of **jurisdiction and timing** (which authorities, how long, which remedies) as much as of substance, so the timetable in the merger agreement depends on it. And accounting choices do not change cash flows: a large goodwill balance or an amortisation charge changes reported earnings, not the value created, but impairments later tell the market that the price was too high. ## Session roadmap | Session | Topic | Card to read | Case or exercise | Deliverable | |---|---|---|---|---| | 1 *(Example)* | Why firms merge; the evidence on who gains | This guide: course in one page | Announcement-return data exercise | Reflection note | | 2 *(Example)* | Corporate strategy and the acquisition decision | mba/mba-corporate-strategy-card, mba/mba-growth-strategy-card | Build, borrow or buy debate | Team position paper | | 3 *(Example)* | Standalone valuation: DCF, trading and precedent multiples | mba/mba-dcf-valuation-card, finance/comparable-companies-analysis | Football-field valuation of a listed target | Valuation exhibit | | 4 *(Example)* | Synergies: cost, revenue, dis-synergies, costs to achieve | mba/mba-synergy-valuation-card | Synergy case with a management estimate to challenge | Synergy model | | 5 *(Example)* | Price, premium and the walk-away price | mba/mba-synergy-valuation-card, mba/mba-negotiation-guide | Bidding simulation | Bid memo | | 6 *(Example)* | Cash or stock: risk sharing and signalling | mba/mba-deal-structuring-card, mba/mba-capital-structure-card | Payment-form case | Problem set 1 | | 7 *(Example)* | EPS accretion and dilution, credit metrics | mba/mba-accretion-dilution-card | Merger model build in Excel | Merger model | | 8 *(Example)* | Integrating the analysis | This guide: mini-case | Northfield Outdoor Co. and Target F | Individual case write-up | | 9 *(Example)* | Deal structure: earn-outs, collars, protections | mba/mba-deal-structuring-card | Private-target negotiation | Term comparison | | 10 *(Example)* | Leveraged buy-outs as the financial-buyer benchmark | mba/mba-paper-lbo, mba/mba-lbo-model-card | Sponsor versus strategic bidder | Problem set 2 | | 11 *(Example)* | Governance: boards, fairness opinions, conflicts, activism | mba/mba-corporate-governance-card, mba/mba-ethics-guide | Board meeting role play | Board minutes | | 12 *(Example)* | Accounting, merger control and cross-border deals | This guide: dated facts section | Purchase price allocation and filing map | Problem set 3 | | 13 *(Example)* | Integration and post-deal review | finance/m-and-a-integration-100-day-plan | Integration case | Final project or exam | ## Key concepts map | Concept | One-line meaning | Card | |---|---|---| | Standalone value | What the target is worth to its current owners under its own plan | mba/mba-dcf-valuation-card | | Control premium | Price paid minus the target's unaffected market value | This guide, mba/mba-synergy-valuation-card | | Synergies and costs to achieve | Extra cash flows the combination creates, net of the cost of creating them | mba/mba-synergy-valuation-card | | Walk-away price | Standalone value plus net synergies minus deal costs | mba/mba-synergy-valuation-card | | Required performance improvement | The annual synergy the premium already assumes (Sirower 1997) | mba/mba-synergy-valuation-card | | Exchange ratio, fixed and floating | Shares of the acquirer given per target share | mba/mba-deal-structuring-card | | Accretion and dilution | Change in pro forma EPS against standalone EPS | mba/mba-accretion-dilution-card, mba/mba-banking-technical-prep | | Purchase price allocation and goodwill | Fair values of acquired net assets; the excess is goodwill | This guide, mba/mba-accretion-dilution-card | | Leverage and rating | Pro forma net debt to EBITDA against covenants and rating thresholds | mba/mba-accretion-dilution-card, mba/mba-capital-structure-card | | LBO floor | The price a financial sponsor can pay and still earn its target return | mba/mba-paper-lbo, mba/mba-lbo-model-card | | Board duties and fairness opinions | How the board shows a careful, informed decision free of conflicts | mba/mba-corporate-governance-card | | Integration approach | Absorption, preservation, symbiosis or holding (Haspeslagh and Jemison 1991) | finance/m-and-a-integration-100-day-plan | ## Mini-case: Northfield Outdoor Co. and Target F **Situation.** Northfield Outdoor Co. is a listed mid-size outdoor-gear retailer and brand with stores in several countries and a growing e-commerce business. For five years it has sold technical hiking footwear made by Target F, a smaller listed company that designs and makes footwear and sells it through specialist retailers and its own website. Footwear is the fastest-growing category in Northfield's stores, and Target F's products are among its best sellers. Lena Abdi, Northfield's head of corporate development, has been asked by the chief executive, Marcus Teoh, to prepare a recommendation for the board on acquiring Target F. Target F's founder still owns 18% of the shares and has said in private that she would consider a sale "to the right owner, at the right price", but that she worries about her designers being absorbed into a retailer's buying department. Two rival buyers are rumoured to be interested: a global sports-brand group and a private equity fund. The chief executive's view is clear. "Footwear is our future. If we wait, the sports group buys them and we lose our best supplier. Offer what it takes." The chief financial officer, Daniel Okoro, is more cautious. He reminds the team that Northfield's bank facilities include a covenant of 3.0 times net debt to EBITDA, and that analysts follow Northfield's earnings per share closely: "If this deal is dilutive next year, the share price will tell us what the market thinks before we have integrated anything." Lena's team has prepared a synergy estimate with the operations and commercial teams (Exhibit 3). The largest items are cost savings: Northfield's distribution centres can absorb Target F's warehousing, and the two companies buy similar materials and freight. The commercial team also expects cross-selling: Target F's footwear in all Northfield stores and Northfield's apparel on Target F's website. Lena notes that the commercial estimate is "a plan, not a contract", and that the founder's designers are the asset most at risk. The financial advisers have suggested an offer at a 30% premium to Target F's unaffected share price, which would place the price inside the range of recent precedent transactions in branded footwear (Exhibit 2). They have also outlined three ways to pay: all cash funded mainly with new debt, all Northfield stock, or a mix of half cash and half stock (Exhibit 4). The founder has said she would prefer some Northfield shares, "to share the upside I am creating". Finally, the general counsel has asked whether the deal needs merger-control filings. Both companies sell in Europe and North America, and Northfield's revenue is about USD 1.8bn. Lena must recommend to the board, next month, whether to bid, at what price range, how to pay, and how to integrate Target F. **Exhibit 1. Standalone data (USD m except per share; fictional; year 1 is the coming year).** | *Example* item | Northfield Outdoor Co. | Target F | |---|---|---| | Revenue | 1,800.0 | 400.0 | | EBITDA | 240.0 | 64.0 | | Net income, year 1 | 120.0 | 36.0 | | Net income growth, year 1 to year 2 | 4% | 4% | | Shares outstanding (m) | 60.0 | 20.0 | | Unaffected share price | 30.00 | 24.00 | | Net debt | 300.0 | 30.0 | | Cash on hand available for the deal | 50.0 | | | Book value of equity | | 210.0 | | Target F free cash flow to the firm next year (management plan) | | 33.0 | Tax rate 25% for both. Target F's WACC 9.0%, long-run growth 2.5%. **Exhibit 2. Market and precedent data (fictional *Example* values).** | *Example* item | Value | |---|---| | Branded footwear trading multiples (EV/EBITDA) | 7.5x to 8.5x | | Precedent transactions in branded footwear, last five years (EV/EBITDA) | 9.0x to 11.0x | | Typical control premium in the sector | 25% to 40% | | Advisers' suggested offer | 30% premium to the unaffected price | **Exhibit 3. Synergy estimate (pre-tax, USD m; fictional).** | *Example* item | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | Notes | |---|---|---|---|---|---|---| | Cost synergies | 8.00 | 16.00 | 16.40 | 16.81 | 17.23 | Distribution and purchasing; 50% in year 1, full in year 2, then +2.5% a year | | Revenue synergies, contribution | 0.00 | 5.25 | 10.50 | 10.76 | 11.03 | USD 30m extra revenue at full run-rate, 35% contribution margin | | Costs to achieve | -18.00 | -6.00 | 0.00 | 0.00 | 0.00 | Systems, severance, relocation | Operations is confident in the cost synergies. Lena assigns the revenue synergies a 50% probability. Both continue after year 5, growing 2.5% a year. Deal costs (advisory, legal, financing) are USD 12.0m. **Exhibit 4. Financing and accounting information (fictional).** | *Example* item | Value | |---|---| | New acquisition debt | Pre-tax interest 6.5% | | Interest forgone on cash on hand | 3.0% pre-tax | | New Northfield shares | Issued at 30.00 (ignore issue costs and any price reaction) | | Identifiable intangible assets not on Target F's balance sheet (brand, designs, customer relationships) | Fair value 120.0, amortised over 10 years | | Other assets and liabilities | Fair value equal to book value | | Bank covenant | Net debt to EBITDA at most 3.0x | | Deal costs | Paid from cash on hand in every option | **Discussion questions.** 1. What is Target F worth standalone? How does the advisers' offer compare with the market, the DCF and the precedents? 2. What are the synergies worth, and what is the NPV of the deal to Northfield's shareholders at the suggested offer? What is the walk-away price per share, with and without revenue synergies? 3. Compute the purchase price allocation: fair value of net assets, deferred tax and goodwill. What will the deal do to reported earnings each year, and what happens if the synergies fail? 4. Compare all cash, all stock and half and half: EPS accretion or dilution in years 1 and 2, pro forma leverage against the covenant, ownership and the value gain or loss to Northfield's shareholders with and without synergies. Which would you recommend? 5. Using the dated facts in this guide, which merger-control questions should the general counsel ask? Do not conclude on a filing: list the questions and the data needed. 6. How should Northfield integrate Target F, and what would you tell the chief executive about "offer what it takes"? ## Teaching note **Q1. Standalone value.** At the unaffected price Target F's equity is worth USD 480.0m (`=20*24`) and its enterprise value USD 510.0m (`=480+30`), 7.97x EBITDA, inside the trading range. The DCF agrees: enterprise value = 33.0 / (9.0% - 2.5%) = USD 507.7m (`=33/(9%-2.5%)`), equity USD 477.7m, or USD 23.88 per share. The market price is a fair estimate of standalone value. The offer of USD 31.20 per share (`=24*(1+30%)`) values the equity at USD 624.0m and the enterprise at USD 654.0m, 10.22x EBITDA (`=654/64`) and 17.33x earnings; the premium is USD 144.0m. Precedents at 9x to 11x EBITDA imply USD 27.30 to 33.70 per share (`=(9*64-30)/20` and `=(11*64-30)/20`). Precedents tell you what other buyers paid, including their synergies; they are not evidence that Northfield's synergies justify the same price. **Q2. Synergies, NPV and walk-away price.** Discount after-tax synergies at Target F's WACC (the risk of the cash flows), with a growing terminal value after year 5. With after-tax cost synergies in C12:G12: `=NPV(9%,C12:G12)+G12*(1+2.5%)/(9%-2.5%)/(1+9%)^5`. | *Example* component (USD m) | Present value | |---|---| | Cost synergies | 174.88 | | Revenue synergies at 100% | 105.29 | | Revenue synergies at 50% probability | 52.64 | | Costs to achieve (after tax) | -16.17 | | **Net synergies (expected)** | **211.35** | NPV to Northfield = 211.35 - 144.0 - 12.0 = **USD 55.35m**. With cost synergies only, the NPV is USD 2.70m, barely positive. The walk-away equity price is 480.0 + 211.35 - 12.0 = USD 679.35m, or **USD 33.97 per share**; on cost synergies alone, **USD 31.34 per share**. The suggested offer of USD 31.20 is therefore just below the cost-only walk-away price: almost all of the cost synergy value is already paid to Target F's shareholders, and Northfield's gain depends on revenue synergies that are uncertain. That is the central insight of the case. **Q3. Purchase price allocation.** Fair value of net assets = book 210.0 + intangibles 120.0 - deferred tax liability on the step-up 30.0 (`=120*25%`) = USD 300.0m. Goodwill = 624.0 - 300.0 = **USD 324.0m**, more than half the price. Intangibles are amortised at USD 12.0m a year (USD 9.0m after tax), which lowers reported EPS but not cash flow. Goodwill is not amortised under IFRS; it is tested for impairment at least annually (IAS 36). If the synergies fail, an impairment charge would come later, a visible admission that the price was too high. The advisory and legal part of the USD 12.0m deal costs is expensed, not added to goodwill (IFRS 3 paragraph 53); the financing part is not expensed at once but deducted from the new debt (amortised through interest, IFRS 9) or, for share issue costs, from equity (IAS 32). **Q4. Payment form.** Assumptions: deal costs from cash on hand, cash consideration from remaining cash and then new debt at 6.5%, stock at 30.00, intangible amortisation included, cost synergies included (USD 8.0m in year 1 and USD 16.0m in year 2), revenue synergies and one-off costs to achieve excluded, as analysts' adjusted EPS usually does. Standalone EPS is USD 2.00 in year 1 and USD 2.08 in year 2. | *Example* option | New debt | New shares (m) | EPS year 1 | Year 1 | EPS year 2 | Year 2 | Net debt / EBITDA | |---|---|---|---|---|---|---|---| | All cash | 586.0 | 0.0 | 2.0551 | +2.76% | 2.2591 | +8.61% | 3.02x | | All stock | 0.0 | 20.8 | 1.8902 | -5.49% | 2.0417 | -1.84% | 1.07x | | Half and half | 274.0 | 10.4 | 1.9676 | -1.62% | 2.1414 | +2.95% | 2.04x | Excel for the all-cash year 2 EPS (inputs in named cells): `=(NI_N*1.04+NI_T*1.04-(50*3%+586*6.5%)*(1-25%)-12*(1-25%)+16*(1-25%))/60`. Leverage uses pro forma net debt (300 + 30 + cash paid + 12) over combined EBITDA plus run-rate cost synergies (USD 320m): all cash gives 966 / 320 = 3.02x, above the 3.0x covenant before any trading downturn. Value to Northfield's shareholders (combined market value plus expected net synergies minus deal costs, shared by ownership): the stock deal gives Target F's holders 20.8 / 80.8 = 25.74% of the combined company (exchange ratio 1.04 Northfield shares per Target F share, `=31.2/30`); half and half gives them 14.77%. | *Example* option | Gain with expected synergies (USD m) | Gain if synergies are zero (USD m) | |---|---|---| | All cash | 55.35 | -156.00 | | Half and half | 47.17 | -132.95 | | All stock | 41.10 | -115.84 | ```vega-lite { "$schema": "https://vega.github.io/schema/vega-lite/v5.json", "description": "Northfield Outdoor Co. (fictional): value gain to Northfield shareholders by payment form, with expected synergies and with zero synergies, USD m", "width": "container", "height": 260, "data": { "values": [ {"option": "All cash", "scenario": "Expected synergies", "gain": 55.35}, {"option": "Half and half", "scenario": "Expected synergies", "gain": 47.17}, {"option": "All stock", "scenario": "Expected synergies", "gain": 41.10}, {"option": "All cash", "scenario": "Zero synergies", "gain": -156.00}, {"option": "Half and half", "scenario": "Zero synergies", "gain": -132.95}, {"option": "All stock", "scenario": "Zero synergies", "gain": -115.84} ] }, "mark": "bar", "encoding": { "x": {"field": "option", "type": "nominal", "title": "Payment form", "sort": ["All cash", "Half and half", "All stock"]}, "xOffset": {"field": "scenario"}, "y": {"field": "gain", "type": "quantitative", "title": "Gain to Northfield shareholders (USD m)"}, "color": {"field": "scenario", "type": "nominal", "title": "Scenario"} } } ``` Reading the chart: cash keeps the most upside and takes the most downside; stock shares both with Target F's holders. With a thin cost-only margin, uncertain revenue synergies, a covenant that all cash would breach, and a founder who wants shares, **half and half** is the balanced answer: accretive from year 2, leverage of 2.04x with headroom, and the founder's stake keeps her designers' interests aligned. Year 1 dilution of 1.62% must be explained to investors with the synergy plan, not avoided by changing the structure. A strong answer also notes that issuing stock when Northfield's own P/E (15.0x) is below the P/E paid (17.33x) is what makes stock dilutive, and that the market may read a stock offer as a signal about Northfield's valuation (Myers and Majluf 1984; Travlos 1987). **Q5. Merger control questions.** Combined revenue is about USD 2.2bn, so the EU worldwide turnover tests (EUR 5,000 million, or EUR 2,500 million under the alternative test) look unlikely to be met, but turnover must be computed under the EU rules and converted to euros, and national filings in Member States may still apply. In the US, the deal value of USD 624m is above the USD 535.5m threshold effective 17 February 2026, so if the HSR Act applies to the transaction a filing would be expected regardless of the size of the parties. The general counsel's questions: where does each company have sales and assets; which national regimes apply; are there overlaps (both sell footwear in Northfield's stores) that need substantive review; what timetable and conditions belong in the merger agreement. The answers come from counsel, not from this guide. **Q6. Integration and the chief executive.** Target F's value sits in its designers and brand, while the cost synergies sit in distribution and purchasing. That calls for **symbiosis** (Haspeslagh and Jemison 1991): integrate the back end quickly, preserve the design studio's autonomy, and retain key designers with equity and clear decision rights. "Offer what it takes" is the hubris trap (Roll 1986; Sirower 1997): above USD 31.34 per share Northfield pays away more than its cost synergies, and above USD 33.97 more than all expected synergies. If the sports group bids higher, letting it win is the value-maximising outcome; Northfield can protect its footwear supply with a long-term supply and distribution contract (the "borrow" option in mba/mba-growth-strategy-card). **Recommendation in one paragraph.** Bid for Target F at up to about USD 31.20 per share (30% premium), paid half in cash and half in Northfield shares, with a firm walk-away at USD 31.34 unless diligence raises the cost synergies. The deal creates about USD 47m for Northfield's shareholders on expected synergies, keeps leverage near 2.0x, is accretive from year 2 and gives the founder a stake in the upside. Its value depends on revenue synergies, so integrate the back office fast, protect the design studio, and track synergies quarterly against the case. ## Typical assignments and how they are graded Common assessment forms: team case write-ups (20% to 30%), a merger model or valuation project (20% to 30%), class participation and simulations such as bidding or board role plays (15% to 25%), and a final exam or deal-analysis project (25% to 40%). Your syllabus decides the weights; record them here: [weights]. | Criterion | Excellent (4) | Adequate (2 to 3) | Weak (0 to 1) | |---|---|---|---| | Recommendation | Bid or walk away, price range, walk-away price and payment form in the first paragraph | Decision stated but price logic unclear | No clear decision, or "pay what it takes" | | Standalone value | DCF and multiples reconciled, unaffected price identified | One method only | Precedent multiple used as standalone value | | Synergies | Itemised, phased, taxed, costs to achieve and dis-synergies included, revenue synergies haircut | Run-rate only, no phase-in or costs | Synergies asserted without numbers | | Price and premium | Premium compared with net synergies; walk-away price derived | Premium computed but not compared | Premium ignored | | Payment form | EPS, leverage, ownership, risk sharing and signalling weighed together | EPS only | Accretion used as proof of value | | Governance and process | Board duties, conflicts, merger control and integration addressed | Mentioned without applying | Absent | | Exhibits and model | Clear, labelled, checkable, formulas visible | Readable but hard to audit | Hard-coded numbers | Use mba/mba-case-write-up for structure and mba/mba-case-prep-sheet before each case discussion. ## Exam preparation plan | Week before exam | Focus | Method | |---|---|---| | 4 | Evidence and motives, standalone valuation | Summarise each classic paper in two sentences from memory; value one listed target | | 3 | Synergies, premium, walk-away price | Rebuild Exhibit 3 and the synergy table from a blank sheet in 45 minutes | | 2 | Payment form, accretion, leverage, accounting | Rebuild the payment-form table; compute goodwill for three practice deals | | 1 | Structure, governance, merger control, integration | Interleave questions from every topic; take one past exam under time | | Final 2 days | Formula sheet and error log | Review mba/mba-formula-sheet, your error log in mba/mba-error-log, and sleep | Retrieval practice and spacing beat re-reading (Dunlosky et al. 2013). Turn the key concepts map into flashcards with mba/mba-concept-flashcards. ## Common struggles 1. **Using the deal price as the standalone value.** The unaffected price, before rumours, is the base for the premium. 2. **Discounting synergies at the acquirer's WACC** when the cash flows carry the target's or the combined business's risk, or adding a premium to the rate and a probability haircut at the same time. 3. **Treating run-rate synergies as year 1 synergies.** Phase-in and costs to achieve move most of the value later. 4. **Equating accretion with value creation.** Cheap debt makes cash deals accretive; check value and leverage. 5. **Forgetting dis-synergies:** lost customers who will not buy from a competitor's owner, key people who leave. 6. **Double counting:** a target already priced with takeover speculation, or synergies already in the target's plan. 7. **Ignoring who bears risk:** the payment form is a risk-sharing decision, not only a financing one. 8. **Treating merger control as paperwork:** jurisdiction, timing and remedies can change the deal's value. ## Reading list - Classic works: Manne (1965); Grossman and Hart (1980); Jensen and Ruback (1983); Jensen (1986); Roll (1986); Travlos (1987); Bradley, Desai and Kim (1988); Haspeslagh and Jemison (1991); Healy, Palepu and Ruback (1992); Sirower (1997); Rappaport and Sirower (1999); Andrade, Mitchell and Stafford (2001); Fuller, Netter and Stegemoller (2002); Shleifer and Vishny (2003); Moeller, Schlingemann and Stulz (2005). Full references are under Sources. - Textbooks (by name only): Bruner, R. F., *Applied Mergers and Acquisitions*; DePamphilis, D. M., *Mergers, Acquisitions, and Other Restructuring Activities*; Koller, T., Goedhart, M., and Wessels, D., *Valuation*; Rosenbaum, J., and Pearl, J., *Investment Banking: Valuation, LBOs, M&A, and IPOs*. - Open resource: OpenStax, *Principles of Finance* (2022), free online at https://openstax.org, for the valuation and cost of capital background (check the licence on the book page). ## Self-test questions 1. A target has a market value of USD 500m. The buyer offers a 35% premium, expects net synergies with a present value of USD 220m and pays USD 15m of deal costs. What is the NPV to the buyer, and what is the walk-away price? 2. The offer is USD 45.00 per target share, paid in acquirer shares trading at USD 36.00. What is the exchange ratio? 3. A buyer pays USD 800m for a company whose identifiable net assets have a fair value of USD 520m. What is goodwill, and how is it treated after the deal under IFRS? 4. Why do targets' shareholders capture most of the gains in contested deals? Name two explanations from the readings. 5. Who bears the risk that synergies fail in a cash deal, and in a stock deal? Why might a target prefer stock? 6. What does Roll's hubris hypothesis predict about combined gains in acquisitions? 7. A cash deal is accretive. Name two reasons it might still destroy value. 8. Name the four integration approaches of Haspeslagh and Jemison and the two dimensions that define them. 9. Why does a bidder's share price fall more, on average, when it announces a stock-financed bid? 10. In the Northfield case, why is the advisers' offer close to the cost-only walk-away price a warning sign? ## My notes and next steps | Item | My entry | |---|---| | Weakest topic after week 4 | [ ] | | Questions for office hours | [ ] | | Cases completed and grades | [ ] | | Mistakes logged in mba/mba-error-log | [Date and short description] | | Next review date | YYYY-MM-DD | | Electives that follow (see mba/mba-electives-roadmap) | [Private equity, corporate strategy, governance] | ## Sources and further reading - Manne, H. G. (1965). Mergers and the market for corporate control. *Journal of Political Economy*, 73(2), 110-120. - Grossman, S. J., and Hart, O. D. (1980). Takeover bids, the free-rider problem, and the theory of the corporation. *The Bell Journal of Economics*, 11(1), 42-64. - Jensen, M. C., and Ruback, R. S. (1983). The market for corporate control: the scientific evidence. *Journal of Financial Economics*, 11(1-4), 5-50. - Myers, S. C., and Majluf, N. S. (1984). Corporate financing and investment decisions when firms have information that investors do not have. *Journal of Financial Economics*, 13(2), 187-221. - Jensen, M. C. (1986). Agency costs of free cash flow, corporate finance, and takeovers. *American Economic Review*, 76(2), 323-329. - Roll, R. (1986). The hubris hypothesis of corporate takeovers. *The Journal of Business*, 59(2), 197-216. - Travlos, N. G. (1987). Corporate takeover bids, methods of payment, and bidding firms' stock returns. *The Journal of Finance*, 42(4), 943-963. - Bradley, M., Desai, A., and Kim, E. H. (1988). Synergistic gains from corporate acquisitions and their division between the stockholders of target and acquiring firms. *Journal of Financial Economics*, 21(1), 3-40. - Haspeslagh, P. C., and Jemison, D. B. (1991). *Managing Acquisitions: Creating Value Through Corporate Renewal*. Free Press. - Healy, P. M., Palepu, K. G., and Ruback, R. S. (1992). Does corporate performance improve after mergers? *Journal of Financial Economics*, 31(2), 135-175. - Sirower, M. L. (1997). *The Synergy Trap: How Companies Lose the Acquisition Game*. Free Press. - Rappaport, A., and Sirower, M. L. (1999). Stock or cash? The trade-offs for buyers and sellers in mergers and acquisitions. *Harvard Business Review*, 77(6). - Andrade, G., Mitchell, M., and Stafford, E. (2001). New evidence and perspectives on mergers. *Journal of Economic Perspectives*, 15(2), 103-120. - Fuller, K., Netter, J., and Stegemoller, M. (2002). What do returns to acquiring firms tell us? Evidence from firms that make many acquisitions. *The Journal of Finance*, 57(4), 1763-1793. - Shleifer, A., and Vishny, R. W. (2003). Stock market driven acquisitions. *Journal of Financial Economics*, 70(3), 295-311. - Moeller, S. B., Schlingemann, F. P., and Stulz, R. M. (2005). Wealth destruction on a massive scale? A study of acquiring-firm returns in the recent merger wave. *The Journal of Finance*, 60(2), 757-782. - Dunlosky, J., Rawson, K. A., Marsh, E. J., Nathan, M. J., and Willingham, D. T. (2013). Improving students' learning with effective learning techniques. *Psychological Science in the Public Interest*, 14(1), 4-58. - IFRS Foundation. IFRS 3 *Business Combinations* and IAS 36 *Impairment of Assets*; project page *Business Combinations: Disclosures, Goodwill and Impairment*, ifrs.org (checked 2026-10-28). - US Federal Trade Commission. Current HSR thresholds, effective 17 February 2026, ftc.gov (checked 2026-10-28). - European Commission, DG Competition. Merger procedures and EU dimension thresholds, competition-policy.ec.europa.eu (checked 2026-10-28). - AACSB International (2026). Global Standards for Business Education, ratified 20 April 2026, aacsb.edu; context for the competency map. ## Answer key 1. Premium = 35% x 500 = USD 175m. NPV = 220 - 175 - 15 = **USD 30m** (`=220-500*35%-15`). Walk-away price = 500 + 220 - 15 = **USD 705m** (`=500+220-15`), a premium of 41%. 2. 45.00 / 36.00 = **1.25** acquirer shares per target share (`=45/36`). 3. Goodwill = 800 - 520 = **USD 280m**. Under IFRS it is not amortised; it is tested for impairment at least annually in the cash-generating units that benefit (IAS 36). Advisory and legal deal costs are expensed; debt and equity issue costs are not (IFRS 3 paragraph 53). 4. Competition among bidders bids the price up to the synergy value (Bradley, Desai and Kim 1988); free-riding target shareholders refuse to tender below the post-takeover value (Grossman and Hart 1980). Hubris also leads bidders to overpay (Roll 1986). 5. Cash: the acquirer's shareholders bear it all. Stock: it is shared in proportion to ownership after the deal. A target may prefer stock to share the upside, to defer tax in some jurisdictions (check with an adviser), or because it believes in the combined strategy; it should then value the acquirer's shares as carefully as its own. 6. Combined gains are zero or negative on average: the bid premium is a transfer from overconfident bidders to target shareholders, plus deal costs. 7. Accretion compares the after-tax cost of debt with the target's earnings yield; it ignores the premium relative to synergies, the extra financial risk (higher cost of equity, rating pressure, covenants) and integration risk. 8. Absorption, preservation, symbiosis and holding, defined by the need for strategic interdependence and the need for organisational autonomy. 9. Investors infer that managers who pay with stock may believe their shares are overvalued (Myers and Majluf 1984); Travlos (1987) found bidders' returns significantly negative for stock offers and close to normal for cash offers. 10. At USD 31.20 the price already pays away almost all of the cost synergy value (cost-only walk-away USD 31.34); any gain to Northfield depends on uncertain revenue synergies, and a bidding war would push the price above value. ## Revision history | Version | Date | Author | Change summary | |---|---|---|---| | 0.1 | YYYY-MM-DD | [Your name] | Guide set up from the template, syllabus loaded | | 0.2 | YYYY-MM-DD | [Your name] | *Example:* Mini-case worked, teaching note compared, exam plan started | ## Standard and licence note Structure aligned with the mergers and acquisitions elective common to leading international MBA programmes, with the competency areas mapped to learning goals of the kind accredited schools set under the AACSB Global Standards for Business Education (2026), summarised in original words. Accounting and merger-control facts are paraphrased from the official IFRS Foundation, US Federal Trade Commission and European Commission pages as checked on 2026-10-28. The text, the Northfield Outdoor Co. mini-case, its exhibits, its teaching note and all questions are original; no published case or textbook text is copied or paraphrased, and all companies and people are fictional. The template is independent and not affiliated with or endorsed by any business school, standard setter, regulator or publisher. Check your own syllabus and the current official versions of any standard or threshold before you rely on it. Template licence: MIT.