Exam 11: Structuring the Deal:

Which of the following are commonly used to close the gap between what the seller wants and what the buyer is willing to pay?

Determining Deal Structuring Components BigCo has decided to acquire Upstart Corporation, a leading supplier of a new technology believed to be crucial to the successful implementation of BigCo’s business strategy. Upstart is a relatively recent start-up firm, consisting of about 200 employees averaging about 24 years of age. HiTech has a reputation for developing highly practical solutions to complex technical problems and getting the resulting products to market very rapidly. HiTech employees are accustomed to a very informal work environment with highly flexible hours and compensation schemes. Decision-making tends to be fast and casual, without the rigorous review process often found in larger firms. This culture is quite different from BigCo’s more highly structured and disciplined environment. Moreover, BigCo’s decision making tends to be highly centralized. While Upstart’s stock is publicly traded, its six co-founders and senior managers jointly own about 60 percent of the outstanding stock. In the four years since the firm went public, Upstart stock has appreciated from $5 per share to its current price of $100 per share. Although they desire to sell the firm, the co-founders are interested in remaining with the firm in important management positions after the transaction has closed. They also expect to continue to have substantial input in both daily operating as well as strategic decisions. Upstart competes in an industry that is only tangentially related to BigCo’s core business. Because BigCo’s senior management believes they are somewhat unfamiliar with the competitive dynamics of Upstart’s industry, BigCo has decided to create a new corporation, New Horizons Inc., which is jointly owed by BigCo and HiTech Corporation, a firm whose core technical competencies are more related to Upstart’s than those of BigCo. Both BigCo and HiTech are interested in preserving Upstart’s highly innovative culture. Therefore, they agreed during negotiations to operate Upstart as an independent operating unit of New Horizons. During negotiations, both parties agreed to divest one of Upstart’s product lines not considered critical to New Horizon’s long-term strategy immediately following closing. New Horizons issued stock through an initial public offering. While the co-founders are interested in exchanging their stock for New Horizon’s shares, the remaining Upstart shareholders are leery about the long-term growth potential of New Horizons and demand cash in exchange for their shares. Consequently, New Horizons agreed to exchange its stock for the co-founders’ shares and to purchase the remaining shares for cash. Once the tender offer was completed, New Horizons owned 100 percent of Upstart’s outstanding shares -What was the form of acquisition? How does this form of acquisition protect the acquiring company's rights to HiTech's proprietary technology?

Whether cash is the predominant form of payment will depend on a variety of factors. These include the acquirer's current leverage, potential near-term earnings per share dilution of issuing new shares, the seller's preference for cash or acquirer stock, and the extent to which the acquirer wishes to maintain control over the combined firms.

A bidder may choose to use cash rather than to issue voting shares if the voting control of its dominant shareholder is threatened as a result of the issuance of voting stock to acquire the target firm.

Acquisition Vehicle and Post Closing Organization In the merger, AirTouch became a wholly owned subsidiary of Vodafone. Vodafone issued common shares valued at $52.4 billion based on the closing Vodafone ADS on April 20, 1999. In addition, Vodafone paid AirTouch shareholders $5.5 billion in cash. On completion of the merger, Vodafone changed its name to Vodafone AirTouch Public Limited Company. Vodafone created a wholly owned subsidiary, Appollo Merger Incorporated, as the acquisition vehicle. Using a reverse triangular merger, Appollo was merged into AirTouch. AirTouch constituted the surviving legal entity. AirTouch shareholders received Vodafone voting stock and cash for their AirTouch shares. Both the AirTouch and Appollo shares were canceled. After the merger, AirTouch shareholders owned slightly less than 50% of the equity of the new company, Vodafone AirTouch. By using the reverse merger to convey ownership of the AirTouch shares, Vodafone was able to ensure that all FCC licenses and AirTouch franchise rights were conveyed legally to Vodafone. However, Vodafone was unable to avoid seeking shareholder approval using this method. Vodafone ADS’s traded on the New York Stock Exchange (NYSE). Because the amount of new shares being issued exceeded 20% of Vodafone’s outstanding voting stock, the NYSE required that Vodafone solicit its shareholders for approval of the proposed merger. Following this transaction, the highly aggressive Vodafone went on to consummate the largest merger in history in 2000 by combining with Germany’s telecommunications powerhouse, Mannesmann, for $180 billion. Including assumed debt, the total purchase price paid by Vodafone AirTouch for Mannesmann soared to $198 billion. Vodafone AirTouch was well on its way to establishing itself as a global cellular phone powerhouse. -Did the AirTouch board make the right decision? Why or why not?

Staged transactions may be used to structure an earn-out, to enable the target to complete the development of a technology or process, to await regulatory approval, to eliminate the need to obtain shareholder approval, and to minimize cultural conflicts with the target.

Sanofi Acquires Genzyme in a Test of Wills Contingent value rights help bridge price differences between buyers and sellers when the target’s future earnings performance is dependent on the realization of a specific event. They are most appropriate when the target firm is a large publicly traded firm with numerous shareholders. Facing a patent expiration precipice in 2015, big pharmaceutical companies have been scrambling to find new sources of revenue to offset probable revenue losses as many of their most popular drugs lose patent protection. Generic drug companies are expected to make replacement drugs and sell them at a much lower price. Focusing on the biotechnology market, French-based drug company Sanofi-Aventis SA (Sanofi) announced on February 17, 2011, the takeover of U.S.-based Genzyme Corp. (Genzyme) for $74 per share, or $20.1 billion in cash, plus a contingent value right (CVR). The CVR could add as much as $14 a share or another $3.8 billion, to the purchase price if Genzyme is able to achieve certain performance targets. According to the terms of the agreement, Genzyme will retain its name and operate as a separate unit focusing on rare diseases, an area in which Genzyme has excelled. The purchase price represented a 48% premium over Genzyme’s share price of $50 per share immediately preceding the announcement. The acquisition represented the end of a nine-month effort that began on May 23, 2010, when Sanofi CEO Chris Viehbacher first approached Genzyme’s Henri Termeer, the firm’s founder and CEO. Sanofi expressed interest in Genzyme at a time when debt was cheap and when Genzyme’s share price was depressed, having fallen from a 2008 peak of $83.25 to $47.16 in June 2010. Genzyme’s depressed share price reflected manufacturing problems that had lowered sales of its best-selling products. Genzyme continued to recover from the manufacturing challenges that had temporarily shut down operations at its main site in 2009. The plant is the sole source of Genzyme’s top-selling products, Gaucher’s disease treatment Cerezyme and Fabry disease drug Fabrazyme. Both were in short supply throughout 2010 due to the plant’s shutdown. By yearend, the supply shortages were less acute. Sanofi was convinced that other potential bidders were too occupied with integrating recent deals to enter into a bidding war. In an effort to get Genzyme to engage in discussions and to permit Sanofi to perform due diligence, Sanofi submitted a formal bid of $69 per share on July 29, 2010. However, Sanofi continued to ignore the unsolicited offer. The offer was 38% above Genzyme’s price on July 1, 2010, when investors began to speculate that Genzyme was “in play.” Sanofi was betting that the Genzyme shareholders would accept the offer rather than risk seeing their shares fall to $50. The shares, however, traded sharply higher at $70.49 per share, signaling that investors were expecting Sanofi to have to increase its bid. Viehbacher said he might increase the bid if Genzyme would be willing to disclose more information about the firm’s ongoing manufacturing problems and the promising new market potential for its multiple sclerosis drug. In a letter made public on August 29, 2010, Sanofi indicated that it had been trying to engage Genzyme in acquisition talks for months and that its formal bid had been rejected by Genzyme without any further discussion on August 11, 2010. The letter concludes with a thinly disguised threat that “all alternatives to complete the transaction” would be considered and that “Sanofi is confident that Genzyme shareholders will support the proposal.” In responding to the public disclosure of the letter, the Genzyme board said it was not prepared to engage in merger negotiations with Sanofi based on an opportunistic proposal with an unrealistic starting price that dramatically undervalued the company. Termeer said publicly that the firm was worth at least $80 per share. He based this value on the improvement in the firm’s manufacturing operations and the revenue potential of Lemtrada, Genzyme’s experimental treatment for multiple sclerosis, which once approved for sale by the FDA was projected by Genzyme to generate billions of dollars annually. Despite Genzyme’s refusal to participate in takeover discussions, Sanofi declined to raise its initial offer in view of the absence of other bidders. Sanofi finally initiated an all-cash hostile tender offer for all of the outstanding Genzyme shares at $69 per share on October 4, 2010. Set to expire initially on December 16, 2010, the tender offer was later extended to January 21, 2011, when the two parties started to discuss a contingent value right (CVR) as a means of bridging their disparate views on the value of Genzyme. Initially, Genzyme projected peak annual sales of $3.5 billion for Lemtrada and $700 million for Sanofi. At the end of January, the parties announced that they had signed a nondisclosure agreement to give Sanofi access to Genzyme’s financial statements. The CVR helped to allay fears that Sanofi would overpay and that the drug Lemtrada would not be approved by the FDA. Under the terms of the CVR, Genzyme shareholders would receive $1 per share if Genzyme were able to meet certain production targets in 2011 for Cerezyme and Fabrazyme, whose output had been sharply curtailed by viral contamination at its plant in 2009. Each right would yield an additional $1 if Lemtrada wins FDA approval. Additional payments will be made if Lemtrada hits certain other annual revenue targets. The CVR, which runs until the end of 2020, entitles holders to a series of payments that could cumulatively be worth up to $14 per share if Lemtrada reaches $2.8 billion in annual sales. The Genzyme transaction was structured as a tender offer to be followed immediately with a back-end short-form merger. The short-form merger enables an acquirer, without a shareholder vote, to squeeze out any minority shareholders not tendering their shares during the tender offer period. To execute the short-form merger, the purchase agreement included a “top-up” option granted by the Genzyme board to Sanofi. The “top-up” option would be triggered when Sanofi acquired 75% of Genzyme’s outstanding shares through its tender offer. The 75% threshold could have been lower had Genzyme had more authorized but unissued shares to make up the difference between the 90% requirement for the short-form merger and the number of shares accumulated as a result of the tender offer. The deal also involved the so-called dual-track model of simultaneously filing a proxy statement for a shareholders’ meeting and vote on the merger while the tender offer is occurring to ensure that the deal closes as soon as possible. -How might both the target and bidding firm benefit from the top-up option?

What are the advantages and disadvantages of a purchase of stock from the perspective of the buyer and seller?

The acquisition vehicle refers to the legal structure created to acquire the target company.

Sanofi Acquires Genzyme in a Test of Wills Contingent value rights help bridge price differences between buyers and sellers when the target’s future earnings performance is dependent on the realization of a specific event. They are most appropriate when the target firm is a large publicly traded firm with numerous shareholders. Facing a patent expiration precipice in 2015, big pharmaceutical companies have been scrambling to find new sources of revenue to offset probable revenue losses as many of their most popular drugs lose patent protection. Generic drug companies are expected to make replacement drugs and sell them at a much lower price. Focusing on the biotechnology market, French-based drug company Sanofi-Aventis SA (Sanofi) announced on February 17, 2011, the takeover of U.S.-based Genzyme Corp. (Genzyme) for $74 per share, or $20.1 billion in cash, plus a contingent value right (CVR). The CVR could add as much as $14 a share or another $3.8 billion, to the purchase price if Genzyme is able to achieve certain performance targets. According to the terms of the agreement, Genzyme will retain its name and operate as a separate unit focusing on rare diseases, an area in which Genzyme has excelled. The purchase price represented a 48% premium over Genzyme’s share price of $50 per share immediately preceding the announcement. The acquisition represented the end of a nine-month effort that began on May 23, 2010, when Sanofi CEO Chris Viehbacher first approached Genzyme’s Henri Termeer, the firm’s founder and CEO. Sanofi expressed interest in Genzyme at a time when debt was cheap and when Genzyme’s share price was depressed, having fallen from a 2008 peak of $83.25 to $47.16 in June 2010. Genzyme’s depressed share price reflected manufacturing problems that had lowered sales of its best-selling products. Genzyme continued to recover from the manufacturing challenges that had temporarily shut down operations at its main site in 2009. The plant is the sole source of Genzyme’s top-selling products, Gaucher’s disease treatment Cerezyme and Fabry disease drug Fabrazyme. Both were in short supply throughout 2010 due to the plant’s shutdown. By yearend, the supply shortages were less acute. Sanofi was convinced that other potential bidders were too occupied with integrating recent deals to enter into a bidding war. In an effort to get Genzyme to engage in discussions and to permit Sanofi to perform due diligence, Sanofi submitted a formal bid of $69 per share on July 29, 2010. However, Sanofi continued to ignore the unsolicited offer. The offer was 38% above Genzyme’s price on July 1, 2010, when investors began to speculate that Genzyme was “in play.” Sanofi was betting that the Genzyme shareholders would accept the offer rather than risk seeing their shares fall to $50. The shares, however, traded sharply higher at $70.49 per share, signaling that investors were expecting Sanofi to have to increase its bid. Viehbacher said he might increase the bid if Genzyme would be willing to disclose more information about the firm’s ongoing manufacturing problems and the promising new market potential for its multiple sclerosis drug. In a letter made public on August 29, 2010, Sanofi indicated that it had been trying to engage Genzyme in acquisition talks for months and that its formal bid had been rejected by Genzyme without any further discussion on August 11, 2010. The letter concludes with a thinly disguised threat that “all alternatives to complete the transaction” would be considered and that “Sanofi is confident that Genzyme shareholders will support the proposal.” In responding to the public disclosure of the letter, the Genzyme board said it was not prepared to engage in merger negotiations with Sanofi based on an opportunistic proposal with an unrealistic starting price that dramatically undervalued the company. Termeer said publicly that the firm was worth at least $80 per share. He based this value on the improvement in the firm’s manufacturing operations and the revenue potential of Lemtrada, Genzyme’s experimental treatment for multiple sclerosis, which once approved for sale by the FDA was projected by Genzyme to generate billions of dollars annually. Despite Genzyme’s refusal to participate in takeover discussions, Sanofi declined to raise its initial offer in view of the absence of other bidders. Sanofi finally initiated an all-cash hostile tender offer for all of the outstanding Genzyme shares at $69 per share on October 4, 2010. Set to expire initially on December 16, 2010, the tender offer was later extended to January 21, 2011, when the two parties started to discuss a contingent value right (CVR) as a means of bridging their disparate views on the value of Genzyme. Initially, Genzyme projected peak annual sales of $3.5 billion for Lemtrada and $700 million for Sanofi. At the end of January, the parties announced that they had signed a nondisclosure agreement to give Sanofi access to Genzyme’s financial statements. The CVR helped to allay fears that Sanofi would overpay and that the drug Lemtrada would not be approved by the FDA. Under the terms of the CVR, Genzyme shareholders would receive $1 per share if Genzyme were able to meet certain production targets in 2011 for Cerezyme and Fabrazyme, whose output had been sharply curtailed by viral contamination at its plant in 2009. Each right would yield an additional $1 if Lemtrada wins FDA approval. Additional payments will be made if Lemtrada hits certain other annual revenue targets. The CVR, which runs until the end of 2020, entitles holders to a series of payments that could cumulatively be worth up to $14 per share if Lemtrada reaches $2.8 billion in annual sales. The Genzyme transaction was structured as a tender offer to be followed immediately with a back-end short-form merger. The short-form merger enables an acquirer, without a shareholder vote, to squeeze out any minority shareholders not tendering their shares during the tender offer period. To execute the short-form merger, the purchase agreement included a “top-up” option granted by the Genzyme board to Sanofi. The “top-up” option would be triggered when Sanofi acquired 75% of Genzyme’s outstanding shares through its tender offer. The 75% threshold could have been lower had Genzyme had more authorized but unissued shares to make up the difference between the 90% requirement for the short-form merger and the number of shares accumulated as a result of the tender offer. The deal also involved the so-called dual-track model of simultaneously filing a proxy statement for a shareholders’ meeting and vote on the merger while the tender offer is occurring to ensure that the deal closes as soon as possible. -How might the existence of a CVR limit Sanofi's ability to realize certain types of synergies? Be specific.

Despite disturbing discoveries during due diligence, Mattel acquired The Learning Company (TLC), a leading developer of software for toys, in a stock-for-stock transaction valued at $3.5 billion on May 13, 1999. Mattel had determined that TLC's receivables were overstated because product returns from distributors were not deducted from receivables and its allowance for bad debt was inadequate. A $50 million licensing deal also had been prematurely put on the balance sheet. Finally, TLC's brands were becoming outdated. TLC had substantially exaggerated the amount of money put into research and development for new software products. Nevertheless, driven by the appeal of rapidly becoming a big player in the children's software market, Mattel closed on the transaction aware that TLC's cash flows were overstated. Despite being aware of extensive problems, Mattel proceeded to acquire The Learning Company. Why? What could Mattel to better protect its interests? Be specific.

The form of acquisition refers to which of the following:

Because they can be potentially so lucrative to sellers, earn-outs are sometimes used to close the gap between what the seller wants and what the buyer might be willing to pay.

In what way might the use of the T-Mobile/MetroPCS impact value?

In an earnout agreement, the acquirer must directly control the operations of the target firm to ensure the target firm adheres to the terms of the agreement.

Boston Scientific Overcomes Johnson & Johnson to Acquire Guidant—A Lesson in Bidding Strategy Johnson & Johnson, the behemoth American pharmaceutical company, announced an agreement in December 2004 to acquire Guidant for $76 per share for a combination of cash and stock. Guidant is a leading manufacturer of implantable heart defibrillators and other products used in angioplasty procedures. The defibrillator market has been growing at 20 percent annually, and J&J desired to reenergize its slowing growth rate by diversifying into this rapidly growing market. Soon after the agreement was signed, Guidant's defibrillators became embroiled in a regulatory scandal over failure to inform doctors about rare malfunctions. Guidant suffered a serious erosion of market share when it recalled five models of its defibrillators. The subsequent erosion in the market value of Guidant prompted J&J to renegotiate the deal under a material adverse change clause common in most M&A agreements. J&J was able to get Guidant to accept a lower price of $63 a share in mid-November. However, this new agreement was not without risk. The renegotiated agreement gave Boston Scientific an opportunity to intervene with a more attractive informal offer on December 5, 2005, of $72 per share. The offer price consisted of 50 percent stock and 50 percent cash. Boston Scientific, a leading supplier of heart stents, saw the proposed acquisition as a vital step in the company's strategy of diversifying into the high-growth implantable defibrillator market. Despite the more favorable offer, Guidant’s board decided to reject Boston Scientific's offer in favor of an upwardly revised offer of $71 per share made by J&J on January 11, 2005. The board continued to support J&J's lower bid, despite the furor it caused among big Guidant shareholders. With a market capitalization nine times the size of Boston Scientific, the Guidant board continued to be enamored with J&J's size and industry position relative to Boston Scientific. Boston Scientific realized that it would be able to acquire Guidant only if it made an offer that Guidant could not refuse without risking major shareholder lawsuits. Boston Scientific reasoned that if J&J hoped to match an improved bid, it would have to be at least $77, slightly higher than the $76 J&J had initially offered Guidant in December 2004. With its greater borrowing capacity, Boston Scientific knew that J&J also had the option of converting its combination stock and cash bid to an all-cash offer. Such an offer could be made a few dollars lower than Boston Scientific's bid, since Guidant investors might view such an offer more favorably than one consisting of both stock and cash, whose value could fluctuate between the signing of the agreement and the actual closing. This was indeed a possibility, since the J&J offer did not include a collar arrangement. Boston Scientific decided to boost the new bid to $80 per share, which it believed would deter any further bidding from J&J. J&J had been saying publicly that Guidant was already "fully valued." Boston Scientific reasoned that J&J had created a public relations nightmare for itself. If J&J raised its bid, it would upset J&J shareholders and make it look like an undisciplined buyer. J&J refused to up its offer, saying that such an action would not be in the best interests of its shareholders. Table 1 summarizes the key events timeline. Table 1 Boston Scientific and Johnson \& Johnson Bidding Chronology Date Comments December 15,2004 J\&J reaches agreement to buy Guidant for \ 25.4 billion in stock and cash. November 15,2005 Value of J\&J deal is revised downward to \ 21.5 billion. December 5,2005 Boston Scientific offers \ 25 billion. January 11,2006 Guidant accepts a J\&J counteroffer valued at \ 23.2 billion. January 17,2006 Boston Scientific submits a new bid valued at \ 27 billion. January 25,2006 Guidant accepts Boston Scientific's bid when J\&J fails to raise its offer. A side deal with Abbott Labs made the lofty Boston Scientific offer possible. The firm entered into an agreement with Abbott Laboratories in which Boston Scientific would divest Guidant's stent business while retaining the rights to Guidant's stent technology. In return, Boston Scientific received $6.4 billion in cash on the closing date, consisting of $4.1 billion for the divested assets, a loan of $900 million, and Abbott's purchase of $1.4 billion of Boston Scientific stock. The additional cash helped fund the purchase price. This deal also helped Boston Scientific gain regulatory approval by enabling Abbott Labs to become a competitor in the stent business. Merrill Lynch and Bank of America each would lend $7 billion to fund a portion of the purchase price and provide the combined firms with additional working capital. To complete the transaction, Boston Scientific paid $27 billion, consisting of cash and stock, to Guidant shareholders and another $800 million as a breakup fee to J&J. In addition, the firm is burdened with $14.9 billion in new debt. Within days of Boston Scientific's winning bid, the firm received a warning from the U.S. Food and Drug Administration to delay the introduction of new products until the firm's safety procedures improved. Between December 2004, the date of Guidant's original agreement with J&J, and January 25, 2006, the date of its agreement with Boston Scientific, Guidant's stock rose by 16 percent, reflecting the bidding process. During the same period, J&J's stock dropped by a modest 3 percent, while Boston Scientific's shares plummeted by 32 percent. As a result of product recalls and safety warnings on more than 50,000 Guidant cardiac devices, the firm's sales and profits plummeted. Between the announcement date of its purchase of Guidant in December 2005 and year-end 2006, Boston Scientific lost more than $18 billion in shareholder value. In acquiring Guidant, Boston Scientific increased its total shares outstanding by more than 80 percent and assumed responsibility for $6.5 billion in debt, with no proportionate increase in earnings. In early 2010, Boston Scientific underwent major senior management changes and spun off several business units in an effort to improve profitability. Ongoing defibrillator recalls could shave the firm’s revenue by $0.5 billion during the next two years. In 2010, continuing product-related problems forced the firm to write off $1.8 billion in impaired goodwill associated with the Guidant acquisition. At less than $8 per share throughout most of 2010, Boston Scientific’s share price is about one-fifth of its peak of $35.55 on December 5, 2005, the day the firm announced its bid for Guidant. -What evidence is given that J&J may not have taken Boston Scientific as a serious bidder?

The Deutsche-Telekom board decided against a divestiture of T-Mobile or an initial public offering to pursue a reverse merger. What other alternatives to merging its wholly-owned subsidiary T-Mobile with another firm could Deutsche-Telekom have pursued? Be specific. What are the advantages and disadvantages of the other options?

Blackstone Outmaneuvers Vornado to Buy Equity Office Properties Reflecting the wave of capital flooding into commercial real estate and the growing power of private equity investors, the Blackstone Group (Blackstone) succeeded in acquiring Equity Office Properties (EOP) following a bidding war with Vornado Realty Trust (Vornado). On February 8, 2007, Blackstone Group closed the purchase of EOP for $39 billion, consisting of about $23 billion in cash and $16 billion in assumed debt. EOP was established in 1976 by Sam Zell, a veteran property investor known for his ability to acquire distressed properties. Blackstone, one of the nation's largest private equity buyout firms, entered the commercial real estate market for the first time in 2005. In contrast, Vornado, a publicly traded real estate investment trust, had a long-standing reputation for savvy investing in the commercial real estate market. EOP's management had been under fire from investors for failing to sell properties fast enough and distribute the proceeds to shareholders. EOP signed a definitive agreement to be acquired by Blackstone for $48.50 per share in cash in November 2006, subject to approval by EOP's shareholders. Reflecting the view that EOP's breakup value exceeded $48.50 per share, Vornado bid $52 per share, 60 percent in cash and the remainder in Vornado stock. Blackstone countered with a bid of $54 per share, if EOP would raise the breakup fee to $500 million from $200 million. Ostensibly designed to compensate Blackstone for expenses incurred in its takeover attempt, the breakup fee also raised the cost of acquiring EOP by another bidder, which as the new owner would actually pay the fee. Within a week, Vornado responded with a bid valued at $56 per share. While higher, EOP continued to favor Blackstone's offer since the value was more certain than Vornado's bid. It could take as long as three to four months for Vornado to get shareholder approval. The risks were that the value of Vornado's stock could decline and shareholders could nix the deal. Reluctant to raise its offer price, Vornado agreed to increase the cash portion of the purchase price and pay shareholders the cash more quickly than had been envisioned in its initial offer. However, Vornado did not offer to pay EOP shareholders a fee if Vornado's shareholders did not approve the deal. The next day, Blackstone increased its bid to $55.25 and eventually to $55.50 at Zell's behest in exchange for an increase in the breakup fee to $720 million. Vornado's failure to counter gave Blackstone the win. On the news that Blackstone had won, Vornado's stock jumped by 5.8 percent and EOP's fell by 1 percent to just below Blackstone's final offer price. -What could Vornado have done to assuage EOP's concerns about the certainty of the value of the stock portion of its offer?