1、Megers&AcquisitionsThree Areas of Study1.Determining if a Merger creates value(then developing an offer price)2.Evaluating M&A offers in the market place(your case analysis assignment)3.M&A Strategies(biggest area of“talk”)Megers&AcquisitionsThree Areas of Study1.Determining if a Merger creates valu
2、e(then developing an offer price)2.Evaluating M&A offers in the market place(your case analysis assignment)3.M&A Strategies(biggest area of“talk”)Today-Cover bothPart 1&3 via lecturePart 2 via example 1997 and 1998 MergersSelling CompanyAcquiring CompanyPayment,billions of dollarsNYNEXBell Atlantic2
3、1.0McDonnell DouglasBoeing13.4Digital EquipmentCompaq Computer9.1SchweizerischerUnion Bank of Swiz.23.0Energy Group PCCTexas Utilities11.0Amoco Corp.British Petroleum48.2Sun AmericaAmerican Intl.18.0BankAmerica Corp.Nationsbank Corp.61.6ChryslerDaimler-Benz38.3Bankers Trust Corp.Deutsche Bank AG9.7N
4、etscapeAmerica Online4.2CiticorpTravelers Group Inc.83.0Sensible Reasons for MergersEconomies of ScaleA larger firm may be able to reduce its per unit cost by using excess capacity or spreading fixed costs across more units.$Sensible Reasons for MergersEconomies of Vertical Integration Control over
5、suppliers“may”reduce costs.Over integration can cause the opposite effect.Sensible Reasons for MergersEconomies of Vertical Integration Control over suppliers“may”reduce costs.Over integration can cause the opposite effect.Pre-integration(less efficient)CompanySSSSSSSSensible Reasons for MergersEcon
6、omies of Vertical Integration Control over suppliers“may”reduce costs.Over integration can cause the opposite effect.Pre-integration(less efficient)CompanySSSSSSSPost-integration(more efficient)CompanySSensible Reasons for MergersCombining Complementary ResourcesMerging may results in each firm fill
7、ing in the“missing pieces”of their firm with pieces from the other firm.Firm AFirm BSensible Reasons for MergersCombining Complementary ResourcesMerging may results in each firm filling in the“missing pieces”of their firm with pieces from the other firm.Firm AFirm BSensible Reasons for MergersMerger
8、s as a Use for Surplus FundsIf your firm is in a mature industry with few,if any,positive NPV projects available,acquisition may be the best use of your funds.Dubious Reasons for MergersDiversification Investors should not pay a premium for diversification since they can do it themselves.M&AQ:Does M
9、&A create Value?A:if PVAB PVA +PVBQ:If M&A creates value,Why?A:Synergies -Admin -Dup services -lower COCM&AQ:Does M&A create Value?A:if PVAB PVA +PVBQ:If M&A creates value,Why?A:SynergiesTricks -Admin-excuse to change D/E -Dup services-diversification -lower COCM&AQ:How Much Should A Firm Pay in a M
10、&A?M&AQ:How Much Should A Firm Pay in a M&A?A:Theory Gain=PVAB-(PVA +PVB)A must pay B part of the gainM&AQ:How Much Should A Firm Pay in a M&A?A:Theory Gain=PVAB-(PVA +PVB)A must pay B part of the gainA:Reality A usually pays B all of the gain,plus more.Why?M&AQ:How Much Should A Firm Pay in a M&A?A
11、:Theory Gain=PVAB-(PVA +PVB)A must pay B part of the gainA:Reality A usually pays B all of the gain,plus more.Why?Premium Paid by A=(Cash-MVB)+(MVB-PVB)M&AType of Takeovers Hostile Friendly LBO Going Private Greenmail White KnightTakeover DefensesWhite Knight-Friendly potential acquirer sought by a
12、target company threatened by an unwelcome suitor.Shark Repellent-Amendments to a company charter made to forestall takeover attempts.Poison Pill-Measure taken by a target firm to avoid acquisition;for example,the right for existing shareholders to buy additional shares at an attractive price if a bi
13、dder acquires a large holding.M&AWho Usually Benefits from M&A?Shareholders of BLawyers&BrokersExecs in AWho Usually Losses in M&A?Sharehpolders of A(overhead)Execs in BEmployeesM&A Analysis Briefly describe the financial&stretegic history of the company Determine pre-announcement value Describe M&A
14、 offer Determine merged value(examine synergies)Compare values,offer,&market prices Predict success of M&A Recommend a strategy for investors and shareholders Provide a summary analysisDisney/Cap Cities DealHistory-News,Annual Report,10k,etc.(Library&My Web page)(use spreadsheets to present financia
15、l facts)(include appendix with actual copies of info)(reference your sources)(present both original&typed summary data)(remember to annualize data)Announcement of Offer Disney offers to acquire Cap Cities/ABC.Disney will exchange each share of Cap Cities for one share of Disney plus$65 cash.Disney w
16、ill issue$10bil in new debt to finance the deal.Disney/Cap Cities DealFact Sheetbil 1.38bil 0.81bil 1.10($)Earnings.Net bil 0.75bil 0.43bil 0.59($).Taxesbil 2.13bil 1.24bil 1.69($)Inc.Operatingbil 1.05bil 0.04bil 0.19($)Service.Debt bil 3.18bil 1.28bil 1.88EBITbil 44.60bil 39.50bil 14.80bil 29.80 MV
17、)($.Equity bil 3.10bil 13.10bil 0.50bil 2.60 MV)($.Debt bil 47.70bil 52.60bil 15.30bil 32.40($).AssetsSep Comb?%14.%20.RateGrowth EPSmil 674mil 154mil 520Shares#251922ratio PE58.63116.2558.63($)Pricesh .8/196.1357.38($)Pricesh .7/31*2.335.102.60$nt).EPS(curreFirm NewABCCCDisneyForecasted N.E.14%grow
18、th rateForecasted N.E.EPSx#New Shares*DisneyMarketRd7.25%8.0%EPS$2.50$2.33 EPSre-g DisneyCC/ABCNew Firmra22.97%(M&M)rd7.25%(given by market)re24.53%(given by perpetuity formula)Sh Pr=solve for reDisney/Cap Cities Deal rA=rd(1-Tc)(D)+re(E)(V)(V)rd=given DisneyCC/ABCNew Firmra22.97%18.92%rd7.25%7.25%r
19、e24.53%19.31%EPSre-gSh Pr=solve for reDisney/Cap Cities Deal rA=rd(1-Tc)(D)+re(E)(V)(V)rd=given DisneyCC/ABCNew Firmra22.97%18.92%rd7.25%7.25%re24.53%19.31%EPSre-gSh Pr=solve for reDisney/Cap Cities Deal rA=rd(1-Tc)(D)+re(E)(V)(V)rd=given DisneyCC/ABCNew Firmra22.97%18.92%14.80%rd7.25%7.25%8.00%re24
20、.53%19.31%17.97%MarketTheory VL32.40 bil15.30 bil52.60 bilNOIUg20%14%rEU VUDisney/Cap Cities DealDerive data for the unlevered firm&Calculate the Theoretical New Firm ValuesGOALVL=NOIu rEU-g+(Tax rate)debtDisney/Cap Cities Deal NOIu =EPSU x#of sharesorNOIu =(EPSL x#of sh)+(debt)(rD)(1-Tax Rate)Solve
21、 for rEUVUDisney/Cap Cities DealNOIu =(EPSL x#of sh)+(debt)(rD)(1-Tax Rate)DisneyNOIu =(2.60 x.520)+(2.6)(.0725)(1-.34)=$1.47 bilCC/ABCNOIu =(5.10 x.154)+(.5)(.0725)(1-.34)=$.81 bilNew FirmNOIu =(2.33x.674)+(13.1)(.08)(1-.34)=$2.26 bilVL=NOIu rEU-g+(Tax rate)debtDisney/Cap Cities DealDisneyVL=1.47 r
22、EU-.20+(.34)2.6Solve for rEUrEU=24.68%VU=1.47 .2468-.20=$31.41 bilVL=NOIu rEU-g+(Tax rate)debtDisney/Cap Cities DealCC/ABCVL=0.81 rEU-.14+(.34)0.5Solve for rEUrEU=19.35%VU=0.81 .1935-.14=$15.14 bilVL=NOIu rEU-g+(Tax rate)debtDisney/Cap Cities DealNew Firm(market)VL=2.26 rEU-.1787+(.34)13.1Solve for
23、rEUrEU=22.58%VU=2.26 .2258-.1787=$47.98 bil MarketTheory VL32.40 bil15.30 bil52.60 bilNOIU1.47 bil0.81 bil2.26 bil 2.26 bilg20%14%17.87%-Avg based on NOIUrEU 24.68%19.35%22.58%VU31.41 bil15.14 bil47.98 bilDisney/Cap Cities DealNew Firm(Theory)rEU=Weighted Avg of Disney&CC/ABC rEUrEU=24.68 x (31.41 )
24、+19.35 x (15.14)(31.41+15.14)(31.41+15.14)rEU=22.92%Disney/Cap Cities DealNew Firm(Theory)rEU=Weighted Avg of Disney&CC/ABC rEUrEU=24.68 x (31.41 )+19.35 x (15.14)(31.41+15.14)(31.41+15.14)rEU=22.92%g=Weighted Avg of Disney&CC/ABC gg=20 x (31.41 )+14 x (15.14)(31.41+15.14)(31.41+15.14)g=18.02%Disney
25、/Cap Cities Deal MarketTheory VL32.40 bil15.30 bil52.60 bilNOIU1.47 bil0.81 bil2.26 bil 2.26 bilg20%14%17.87%18.02%rEU 24.68%19.35%22.58%22.92%VU31.41 bil15.14 bil47.98 bilDisney/Cap Cities DealNew Firm(Theory)Disney/Cap Cities DealVL=NOIu rEU-g+(Tax rate)debtVL=2.26.2292-.1802+(.34)13.1VU=46.12 bil
26、VL=$50.58 bilDisney/Cap Cities Deal MarketTheory VL32.40 bil15.30 bil52.60 bil50.58 bilNOIU1.47 bil0.81 bil2.26 bil 2.26 bilg20%14%17.87%18.02%rEU 24.68%19.35%22.58%22.92%VU31.41 bil15.14 bil47.98 bil46.12 bilDisney/Cap Cities DealNew Firm(Theory)VL=50.58Debt Value=13.1Equity value =50.58-13.1 =$37.
27、48 bil Price per Share=37.48/.674 =$55.60Disney/Cap Cities Deal DisneyCC/ABCNew FirmMarket(pre)$29.8$14.8Market(post)M&M(pre)$29.8$14.8 M&M(post)Disney/Cap Cities Deal DisneyCC/ABCNew FirmMarket(pre)$29.8$14.8Market(post)$39.51M&M(pre)$29.8$14.8M&M(post)$37.48 Disney/Cap Cities Deal DisneyCC/ABCNew
28、FirmMarket(pre)$57.63$96.13Market(post)$58.63M&M(pre)$57.63$96.13 M&M(post)$55.60 Predicted Success of OfferCap Cities Market Price=116 1/4 Cap Cities Offer=123 5/8=(58 5/8+65)Offer will succeed Disney/Cap Cities DealPredicted Success of OfferCap Cities Market Price=116 1/4 Cap Cities Offer=123 5/8=
29、(58 5/8+65)Offer will succeed Cap Cities Market Price=116 1/4(Theory)Value of Offer=120.60=(55.60+65)Offer should succeedDisney/Cap Cities DealAnalysis Summary The market is accurately valuing the offer to Cap Cities/ABC at around 116(123 is too high)While both firms were properly valued prior to th
30、e offer,Disney is now overvalued Cap Cities stockholders should take the offer and cash out at the inflated market value Disney stock holders should sell at the inflated price The market is over reacting to Disneys offer by pushing up Disneys stock price.The primary cause is probably an inflated opinion of Disneys growth opportunitiesDisney/Cap Cities Deal
