Mergers, Acquisitions, and Corporate Restructurings, 7th Edition

CHAPTER FIFTEENValuation

THE IMPORTANCE OF A systematic valuation process became more apparent for corporate America during the fourth merger wave, when many companies found themselves the targets of friendly or unfriendly offers. Even companies that had not been targets had to determine their proper value in the event that such a bid might materialize. To exercise due diligence, the board of directors must fully and properly evaluate an offer and compare this price with its own internal valuation of the firm. The need to perform this evaluation as diligently as possible was emphasized in the 1980 bid for the TransUnion Corporation by Jay Pritzker and the Marmon Corporation.

In September 1980, Jerome Van Gorkom, chairman and chief executive officer of TransUnion, suggested to Jay Pritzker that Pritzker make a $55-a-share merger bid for TransUnion, which would be merged with the Marmon Group, a company controlled by Pritzker. Van Gorkom called a board of directors meeting on September 20, 1980, on a one-day notice. Most of the directors had not been advised of the purpose of the meeting. The meeting featured a 20-minute presentation on the Pritzker bid and the terms of the offer. The offer allowed TransUnion to accept competing bids for 90 days. Some directors thought that the $55 offer would be considered only the beginning of the range of the value of the company. After a two-hour discussion, the directors agreed to the terms of the offer, and a merger agreement was executed. ...