Mergers and Acquisitions - Interco Case Study


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Interco Incorporated was the subject of a hostile takeover by the Rales Brothers. Owning a number of valuable brands, it had significant breakup value. The board of directors approved a defensive recapitalization after the Delaware Chancery Court threw out Interco’s poison pill. The defensive recapitalization consisted of nearly $2 billion in senior bank debt financed by over 60 banks, and $1 billion in subordinated debt issued as a special dividend.

The company was not able to sell assets in an M&A transaction at the values projected, and a year after the recapitalization, the Company filed for Chapter 11 bankruptcy. A subordinated debt group, lead by Wilbur Ross, had filed a lawsuit against the banks, and tension within the bank group was high, and a bankruptcy examiner had been appointed.

A group of foreign banks held about $350 million of the $1 billion in senior bank debt. They were uncomfortable with the prospect of taking equity as part of the settlement of their pre-petition claims. One of our members represented the foreign bank group and used their cumulative 35% voting power to obtain a seat at the steering committee, given that 2/3rds in amount and a majority in number of each class had to approve the plan, and no plan could be approved without this voting block. Due to unique banking regulations in their countries, this group wanted a cash-only transaction. However, the plan called for part of the consideration to be paid in stock.

Working with the rest of the syndicate members, we created an auction for the stock that would be issued post-petition if the plan of reorganization was voted on and approved. In essence, we created an option for an asset that didn’t yet exist, one of the innovations in mergers and acquisitions and in reorganization. To motivate lenders to make a decision prior to a critical date, we constructed an early-bird special bonus of 10 cents a share if the option was elected before that date.

The final outcome resulted in Apollo Management − lead by Leon Black − acquiring the option for the stock from the foreign bank group which received an all-cash deal, with no loss of principal. Interco was the first time in history that a sale of stock – prior to a plan of reorganization was voted on – was ever attempted, and is a first in mergers and acquisitions, and in reorganization

For more see:  Mergers and Acquisitions

Mergers and acquisitions: massive information integration in restructuring and reorganization

– No detail is too small when financial distress appears. The complexity of the Interco case requiree massive information integration, and an innovation in mergers and acquisitions.

Workouts, restructurings and reorganizations can be successfully completed

– We will do the heavy lifting in mergers and acquisitions and leave management to do the job of running the company.