1. Chapter 33 Principles PrinciplesofCorporateFinance Ninth Edition Corporate Restructuring Slides by Matthew Will Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved McGraw Hill/Irwin

2. 33- 2 Topics Covered  Leveraged Buyouts  Fusion and Fission in Corporate Finance  Private Equity  Bankruptcy

3. 33- 3 Leveraged Buy-Outs Unique Features of LBOs Large portion of buy-out financed by debt Shares of the LBO no longer trade on the open market

4. 33- 4 Leveraged Buy-Outs –Junk bond market –Leverage and taxes –Other stakeholders –Leverage and incentives –Leverage restructurings –LBOs and Leverage restructurings Potential Sources of Value in LBOs

5. 33- 5 Leveraged Buy Outs 10 Largest 1980s LBO’s + recent examples

6. 33- 6 Definitions  Corporate control -- the power to make investment and financing decisions.  Corporate governance -- the role of the Board of Directors, shareholder voting, proxy fights, etc. and to actions taken by shareholders to influence corporate decisions.  Financial architecture -- the financial organization of the business.

7. 33- 7 Leveraged Buyouts  The difference between leveraged buyouts and ordinary acquisitions 1. A large fraction of the purchase price is debt financed. 2. The LBO goes private, and its share is no longer trade on the open market.

8. 33- 8 Leveraged Buyouts  The three main characteristics of LBOs 1. High debt 2.Incentives 3.Private ownership

9. 33- 9 AT&T Breakup Saga

10. 33- 10 Spin-offs, etc.  Spin off -- debut independent company created by detaching part of a parent company's assets and operations.  Carve-outs-- similar to spin offs, except that shares in the new company are not given to existing shareholders but sold in a public offering.  Privatization -- the sale of a government- owned company to private investors.

11. 33- 11 Privatization  Motives for Privatization 1.Increased efficiency 2.Share ownership 3.Revenue for the government

12. 33- 12 Blackstone’s Portfolio 2007

13. 33- 13 KKR Partners’ Portfolio 2004 KKR Partner holdings

14. 33- 14 Private Equity Partnership Investment PhasePayout Phase General Partner put up 1% of capital General Partner get carried interest in 20% of profits Limited partners put in 99% of capital Limited partners get investment back, then 80% of profits Investment in diversified portfolio of companies Sale or IPO of companies Partnership Company 1 Company 2 Company N Mgmt fees

15. 33- 15 Conglomerates The largest conglomerates of 1979, ranked by sales compared with US industrial firms.

16. 33- 16 Private vs. Public

17. 33- 17 Bankruptcy The Largest Bankruptcies

18. 33- 18 Web Resources www.abiworld.org www.bankrupt.com www.bankruptcydata.com www.law.cornell.edu/uscode/11 www.uscourts.gov/library/bankbasic.pdf Click to access web sites Internet connection required