This action might not be possible to undo. Are you sure you want to continue?
Case Study: Google Acquisition Plan
Google Business and Acquisition Plan
1.0 Introduction Google is a global technology leader focused on improving the ways people connect with information. Google maintains the largest, most comprehensive index of web sites and other content and make this information freely available to anyone with an internet connection. Google’s automated search technology helps people obtain nearly-instant access to relevant information from our vast online index. 2.0 Revenue Source Google’s revenue is generated almost entirely from advertising. Google’s advertising revenue is generated each time an individual clicks on a Google web ad (“AdWords” program). In order to increase the availability of Google search engine and expand the scope of its web advertisements, Google have created “AdSense.” In this program, web publishers can place the Google search box and targeted ads on their website in exchange for a percentage of the AdWords advertising revenue. The AdSense program has been responsible for a large portion of Google’s growth and accounted for 44% of advertising revenues in 2010 3.0 Competitors Google face formidable competition in every aspect of its business, particularly from other companies that seek to connect people with information on the web and provide them with relevant advertising. Currently Google consider its primary competitors to be Microsoft and Yahoo. Google held 45% of the US search market, Yahoo 28% and Microsoft 12%. They are formidable opponents as both companies have had a presence in the web longer than Google and both have tremendous financial and technical resources. 4.0 SWOT Analysis Google strength is its strong brand, high quality product, financial resources and high caliber employees. Google’s primary weakness is its lack of diversification. The usage of internet is expanding and Google having first mover advantage is looking at it as an opportunity. The convergence of internet and video related media is of particular interest to Google. However, in recent times the competition is becoming fierce posing a threat before Google. 5.0 Mission/Vision Google mission is to organize the world’s information and make it universally accessible and useful. Google will do its best to provide the most relevant and useful search results possible, independent of financial incentives. Its search results will be objective and it will not accept payment for inclusion or ranking in them.
it will make it clear to its users. Keyhole Corp (a digital and satellite mapping company) in 2003. AdWords was developed to allow advertisers to target a specific group of prospected customers.0 Google Acquisition Objectives Google’s objectives in pursuing an acquisition are as follows: First-mover advantages in convergence of media and technology Product differentiation Product diversification.0 Business Strategy Google’s business strategy is based on its mission to organize all of the world’s information and make it useful and universally accessible. If any element on a search result page is influenced by payment to Google. Picasa. As Google continues to grow and looks to diversify its product line. Google AdWords product is its mechanism for differentiating Google from other internet advertising competitors. Past acquisitions have included Pyra Labs in 2003. (a digital photo management company) in 2004. overcoming weaknesses (e. 7. Google will never stop working to improve its user experience.It will do its best to provide the most relevant and useful advertising. It is beneficial to advertisers because it is an efficient way to target customers and advertisers only pay when their advertisements are viewed. The company created its search engine and the majority of its other products through this strategy. it has become practical to incorporate acquisitions into its implementation strategy. The formula utilizes page rank and hypertext matching technologies to determine the importance of a web site by analyzing the link structure of the web. reliance on one technology) Increased advertising revenue Expansion into new media markets Expansion into new distribution channels 9. Google primary business strategy is product differentiation. and Urchin software (a web analytics firm) in March 2005. Google’s search engine uses a unique formula to retrieve pertinent information based on the user’s request. its search technology and other important areas of information organization 6.g.0 Timetable . Advertisements should not be an annoying interruption.0 Implementation Plan Google has historically used acquisition as a method to accomplish its strategic objectives. Inc. 8. The formula gives Google users a more thorough and detailed search then other search engines.
100% of the target should be acquired. Eric Schmidt / David C. A friendly acquisition is necessary to ensure that Google does not overpay for the target and that implementation goes smoothly. Management requires that the newly combined firms be able to earn Google’s cost of capital (11. George Reyes Dr. after the initial contact is made through Google’s investment bank intermediary. Tom Rogers. Management is willing to share between 15% and 30% of the projected synergies with the target firm’s shareholders.0 Search Plan Primary Search Plan Google’s primary search criteria are: . R&D and other intellectual property. Eric Schmidt. Drummond David C.6%). Therefore. Drummond Negotiation Signing of confidentiality agreement Signing of term sheet with no-shop provision Refining valuation Deal structuring Due diligence Financial plan Decision-making: proceed/walk-away Integration plan Closing 3 weeks 2 weeks 2 weeks 9 weeks 7 weeks 8 weeks 9 weeks 1 week 6 weeks 3 weeks 10. Due to Google’s abundant financial resources. Vice-President of Corporate Development. Drummond David C. 11.0 Management Preferences Management would prefer not to be involved in hostile takeover attempts. management prefers an all stock/cash transaction. Shona Brown CFO. will contact TiVo’s CEO. Drummond David C. Drummond Senior Vice President of Business Operations. patents. Management requires total control over all technologies. Drummond David C. Dr. Drummond David C. Drummond David C. David C.Activities First contact Duration 1 week Manager Google’s Chairman and CEO.
are converging and an increasing number of viewers are interested in technologies which bring them together. A merger with TiVo allows Google to position itself not just a search engine company. and entertainment. similar to AOL’s goal to distinguish itself as the leader in online entertainment with their merger with Time Warner.The target must be in the Entertainment/ Media Distribution industry. The target should have intellectual property assets in new entertainment technologies that will help Google to introduce products that take advantage of opportunities related to media and technology convergence.top boxes). One of its primary weaknesses is our lack of product diversification. engaging content and special offers in a more compelling way. CA headquarters (west coast. chosen for its large market share. television. Google can use TiVo’s expertise to enter people’s homes through new mediums. Search Strategy The initial search generated the following list of potential candidates: TiVo.0 Target Selection TiVo has been selected as the acquisition target. Also. preferably in California). Google’s profits are generated primarily from advertising and TiVo offers technology that allows advertisers to deliver relevant. Cox Digital Cable. The target’s value should not exceed $20 billion. The target should be located near Google’s Mountain View. Cisco (owner of Scientific Atlantic. and numerous partnerships and licenses. it would allow us to differentiate ourselves from our primary competitors (Yahoo and Microsoft). Internet and television. Google is number one in internet search and it would be easy to transfer those competencies to the entertainment field. The acquisition of TiVo would provide Google the vehicle to expand into new media markets. and Echo Star Communications. The target should be a publicly traded company. reducing dependence on a single technology. Secondary Criteria Google secondary criteria include: The target must have significant brand equity and market share. a manufacturer of set. Acquiring TiVo will allow them to position themselves as number one in several fields of information – internet. Google is the leader in the internet industry and TiVo is the leader in interactive television. The acquisition will also serve as a diversification opportunity for Google. recognized brand name. Comcast Cable. 12. By acquiring TiVo. the two largest forms of media. Google has the opportunity to capitalize on significant first-mover advantages and establish itself as the .
An acquisition of TiVo would allow it to increase its connection with consumers. The financial performances as well as projections of Google are presented below. Other companies. Consumers would be exposed to the Google brand every time they turn on their television or access the internet. . have tried to combine internet and TV but have failed. such as Microsoft’s WebTV.leader in interactive media. and other relevant information Google has been under increasing pressure to maintain growth rates. This is most likely due the fact that they are internet companies expanding into an industry of which they have little knowledge. entering consumer’s homes through television. By using TiVo’s expertise Google can branch into a new market with minimal risk. Google will benefit from TiVo’s knowledge of producing premium set-top boxes. and its brand awareness and recognition.
Google Financial Performance and Projections .
613 1.711 1.752 0 1.173 664 144 1.910 1.442 2.333 81 2.403 4.180 681 908 52 (19) 1.915 213 1.314 .923 40 1.121 473 648 1.Profit and Loss Statement 2008 Income Statement ($mil) Net Sales Less: Variable Cost of Sales Depreciation Total Cost of Sales Gross Profit Less: Sales Expense G&A Expense Amortization of Intangibles Other expense (income).779 2.565 983 163 2.933 3.982 728 1.698 2.159 422 737 1.147 422 725 2.310 786 863 41 5 1.622 558 153 405 55 350 Balance Sheet 2008 Balance Sheet Current Assets Cash Other Operating Assets Total Current Assets Investments Gross Fixed Assets Less: Accum.914 4.845 2.041 130 2.242 166 2.415 2.490 2.836 (433) 1.097 4.670 2.415 75 2.599 583 132 451 62 390 2011 4. Depr.605 1.314 1.502 1.596 2.852 (0) 1.613 247 1.695 615 111 504 131 373 2010 4.519 1.414 2. & Amort.389 2.315 100 2.819 4.205 1.317 984 141 2.364 761 780 32 1 1.182 685 868 52 (5) 1.058 (1) 1.462 0 939 337 602 852 3.674 232 1.963 4.574 790 90 700 201 500 2009 4.286 103 2.674 1.767 2.171 4. net Total Sales and G&A Expense Operating Profits (EBIT) Plus: Interest Income Less: Interest Expense Net Profits Before Taxes Less: Taxes Net Profits After Taxes 4. Net Fixed Assets Other Assets Total Assets Current Liabilities Long-Term Debt Existing Debt New Debt Other Liabilities Total Liabilities Common Stock Retained Earnings Shareholders' Equity Total Liabilities & Shareholders' Equity 2009 2010 2011 695 1.915 1.
0% 17.0% 16. The elimination of underperforming product lines will allow the company to spend sales dollars more effectively. Other Assets is expected to reduce over the years Based on historical ratio of fixed costs to sales To ensure sufficient liquidity a minimum cash balance of 4.5% 26.0% 4.3% Selling Expenses / Sales (%) 16% 17% 15% 15% 14.0% 5.5% Depreciation & Amortization / Gross Fixed Assets % 11% 9% 7% 7% 8.0% 25. The interest rate on future debt will be estimated at the interest rate on Moody's A rated debt as of December 2000.0% Interest Rate on New Debt (%) 14% 11% 13% 12% 8.5% 14.5% 30.0% 30.5% 14.0% 4.0% 25.3% 8.5% 51.5% G&A Expenses / Sales (%) Interest on Cash & Marketable Securities 16% 0% 18% 0% 19% 0% 19% 0% 19.0% 50.5% over the next four years will be achieved through (a) reduction of excess mafg.0% 4.0% 4. Tax rate in the initial years is low because of the gain in the carry forward of Net Operating Losses made during earlier years To ensure sufficient Current Assets to fund operations a minimum level of 35% for Other Current Operating Assets is included in the forecast.0% 35.0% 20.3% 8.0% 37. elimination of product lines that did not meet required levels of profitability (d) improvement in supply chain Depreciation as percent of Gross Fixed Assets has been estimated at the average ratio over the historical period.0% 35.0% 5.0% 22.5% 14.0% 30.0% 25.0% 4.0% 35.5% 51.0% .3% 8.5% 30.0% 35.0% 18.5% is included in the forecast.5% 50. Current liabilities is expected to reduce over the years Net Sales Growth Rate -2% -2% 2% 4. capacity (b) termination of a number of licensing and contractual agreements that is not delivering c.0% 25.0% Cost of Sales (Variable) / Sales % 48% 49% 51% 52% 52.5% 28.0% 18.0% 20.0% 25.3% 8.3% 8.0% 25.4% 5.5% 14.3% Marginal Tax Rate 29% 26% 14% 14% 18.0% 4.0% 4.0% 4.3% 8.Trend and Projections Forecast Assumptions 2008 Historical Trend 2009 2010 2011 2012 2013 Projections 2014 2015 2016 Comments Although the historical growth rate is around 2% the Acquirer company feels that with refocus the growth can be increased to 4% Bringing down the Cost of Sales to 50.5% 25.0% 35.0% 25.0% Other Current Operations Assets / Sales (%) Other Assets / Sales (%) Gross Fixed Assets / Sales (%) Minimum Cash Balance / Sales (%) Current Liabilities / Sales (%) 37% 18% 20% 15% 25% 39% 39% 25% 5% 28% 35% 46% 25% 5% 34% 33% 41% 24% 5% 32% 35.3% 8.5% 5.2% 5.0% 4.3% 8. G&A expenses is expected to reduce as a result of a number of efficiency initiatives (a) Closing down of underperforming product lines and retrenchment (b) efficiency improvement in supply chain Acquirer expects to earn an interest of 5% over short term investments The interest on Current Debt is calculated based on the existing interest rates on the debt.
00% 426. However.50% 8.50% 221.3 89% 4.03 400 37. if it is a private firm.131 50 1.50% 7.09 226.939 189.00 .50% 7.50% 7.1% $ 14. the levered beta may be 1.87 306.13 Other Financial Information Key Valuation Indicators P/E P/S LT Debt/Equity ROI .3% Acquirer 17.84 5.00% firm. Stock Price as of 31/3//2011 Current stock price Industry Average 14.6% 17.55 $ 16.24% If the firm is a public company.5 50% 12.7 1.021 84.5 year avg.35 640 62.10 97.50% 7.14 589 46. an 50% Industry Long Term Debt/Equity is 50% 37% 1.021 640 589 400 7.5 1.Debt Schedule Debt Schedule Existing Debt Opening Debt Wieghted Interest Rate Principal Repayment Closing Balance Interest Expense Total Payments (Principal + Interest) Cost of Debt Market Value of Long Term Debt 2012 2013 2014 2015 2016 1.35 8.242 1.40 estimated directly.22 350 28.7% 8.13 78.03 Risk-free Rate Acquirer's Unlevered Beta Acquirer's Target D/(D+E) Ratio Acquirer's Target Tax Rate Acquirer's Levered Beta Market Risk Premium Acquirer's Cost of Debt 5.29 443.849 50. ROE .33% 1176.5 year avg.33% Moody's A rated bond The analyst in this instance believes the estimated equity does not adequately account for risk that is specific to the 2.0% is added to the cost of equity Additional Risk Premium Sustainable Cash Flow Growth Rate after Forecasted Period Total Shares Outstanding 4.477 380. Therefore 2.
Part B Tivo the Target .
More recent TiVo DVRs can be connected to a computer local area network. The lower priority program will be recorded if it is aired later. Though they originally intended to create a home network device. based on what TiVo users with similar viewing habits watch.1. Information is updated daily from Tribune Media Services. An episode is considered "First Run" if aired within two weeks of that episode's initial air date. America's Got Talent and Dancing with the Stars. whether programs are new or repeats. in that both allow a television viewer to record programming for viewing at a later time. For example." allowing the viewer to pause live television and rewind and replay up to a half hour of recently viewed television. or All Episodes. 3. directors. then another TiVo user who watched just the American Idol might get a recommendation for the other two shows. genres. it was redesigned as a device that records digitized video onto a hard disk. receiving program information including description. Inc.0 Tivo DVR A TiVo DVR serves a function similar to a videocassette recorder. allowing the TiVo device to download information and even video programs. that automatically records programs — not only those the user specifically requests. Users can rate programs from three "thumbs up" to three "thumbs down. TiVo DVRs with two tuners record the top two priority programs." TiVo user ratings are combined to create a recommendation. TiVo pioneered recording programs based on household viewing habits. which uses removable magnetic tape cartridges. if a user likes American Idol. First Run and Repeats. Unlike a videocassette recorder (VCR). When user's requests for multiple programs are conflicting. music and movies from the Internet. a TiVo DVR stores television programs on an internal hard drive that can only be removed by disassembling the device? What distinguishes TiVo from other DVRs is the sophisticated software written by TiVo Inc. this is called TiVo Suggestions. the lower priority program in the Season Pass Manager is either not recorded or clipped where times overlap. but also other material in which the user is likely to be interested. 2.0 Functions TiVo polls its network. They began the first public trials of the TiVo device and service in late 1998 in the San Francisco Bay Area. TiVo DVRs also implement a patented feature TiVo calls "trick play.0 Introduction TiVo was developed by Jim Barton and Mike Ramsay through a corporation they named "Teleworld" which was later renamed to TiVo. regular and guest actors. Users can select individual programs to record or a "Season Pass" to record an entire season (or more). There are options to record First Run Only. and whether broadcast is in High Definition (HD). .
In the summer of 2008 TiVo announced the availability of YouTube videos on TiVo.com and Netflix Watch Instantly. Some users take advantage of this by waiting 10 to 15 minutes after a program starts (or is replayed from a recording). transfer recordings between TiVo units (Multi-Room Viewing (MRV)) or to/from a home computer (TiVoToGo transfers). A different model applies in Australia where the TiVo media device is bought for a one-off fee. Unlike VCRs. 4. which is something that VCRs cannot do. broadband connected to TiVo boxes can access digital photos from Picasa Web Albums or Photobucket. Shows already in progress can be entirely recorded if less than 30 minutes have been shown. the oldest programs are deleted to make space for the newer ones. For satellite enabled TiVo DVRS the lifetime subscription remains as long as the account is active and does not follow a specific piece . offering users access to thousands of movie titles and television shows right from the comfort of their couch. Fandango movie listings (including ticket purchases). The recording capacity of a TiVo HD DVR can be expanded with an external hard drive. by the end of the recording viewers are caught up with live television. A program can be watched from the beginning even if it's in the middle of being recorded. play music and view photos over the network. When the space is full. so that they can fast forward through commercials. TiVo can record and play at the same time. and music through Live365. Jaman. Another popular feature is access to Rhapsody music through TiVo. allowing users to schedule recordings on TiVo's website (via TiVo Central Online). TiVo also teamed up with One True Media to give subscribers a private channel for sharing photos and video with family and friends. allowing users to listen to virtually any song from their living room. which can add 65 additional hours of HD recording space or up to 600 hours of standard definition video recording capacity. This allows users to rewind or pause anything that has been shown in the last thirty minutes — useful when viewing is interrupted. There are multiple types of Product Lifetime Service. They can also access weather. When not recording specific user requests.0 Subscription The information that a TiVo DVR downloads regarding television schedules. Unlike most DVRs. including integration with Amazon Video on Demand. In this way. the current channel is recorded for up to 30 minutes. as well as software updates and any other relevant information is available through a monthly service subscription in the United States. TiVo DVRs are easily connected to home networks.A limited amount of space is available to store programs. traffic. TiVo has added a number of broadband features. Dual-tuner models record two channels. Additionally. and access third-party applications written for TiVo's Home Media Engine (HME) API. without further subscription costs. programs that users flag to not be deleted are kept and TiVo Suggestions are always lowest priority.
their owner at the time. The other significant players in this segment have tied up with web based . the 5500. All units (except satellite but including DVD units) are able to have "Product Lifetime Subscription" to the TiVo service which covers the life of the TiVo DV. TiVo decided to avoid automatic implementation fearing such a move might provoke backlash from the television industry.of hardware. Despite having gained 234. dropped both features in the final ReplayTV model. allowing high-speed Internet access and other features.000 subscribers in the last quarter of 2011. As of January 2012. TiVo makes no warranties or representations as to the expected lifetime of the TiVo DVR (aside from the manufacturer's Limited Warranty). The Product Lifetime Subscription accompanies the TiVo DVR in case of ownership transfer. A Tivo can be used without a service agreement. However. or at least limited. Other distributors' competing DVR sets include Comcast and Verizon. which is very similar to full lifetime. had adopted a commercial-skip feature. but it will act more like a VCR in that you can only do manual recordings. soon the competition sets in and Tivo could not attain the growth it has forecasted.36 million in January 2010. In the past TiVo has offered multiple "Trade Up" programs where you could transfer the Product Lifetime Subscription from an old unit to a newer model with a fee. Verizon uses boxes fitted for FiOS. This is down from a peak of 4.3 million subscribers.0 Competitors While its former main competitor. 6. DNNA. ReplayTV was sued over this feature as well as the ability to share shows over the Internet. And the Tivo can't be connected to the Tivo service for time or software updates or changes or Tivo will shut down the recording function. Tivo does not have enough resources in terms of finance and skill to upgrade itself into a web based company. The market dynamics have changed in recent times with change in technology and needs of the customer. although both distribute third-party hardware from manufacturers such as Motorola and the former Scientific Atlanta unit of Cisco Systems with this functionality built-in. except only three days of the program guide is viewable and search and Internet capabilities are not available. 5. and these lawsuits contributed to the bankruptcy of SONICblue. Toshiba and Pioneer Tivo DVD recording equipped units include a "Basic Lifetime Subscription". not the life of the subscriber.0 Strategic Directions Tivo has the first mover advantage and started with a lot of optimism. The convergence of internet and media has changed the way the contents were delivered. Their new owner. ReplayTV. This satellite lifetime subscription cannot be transferred to another person. TiVo has approximately 2. Tivo management feels that they need to adapt to the changing market to continue to be in the race.
The financial performance and the projections is presented below. .companies or in the process of merging with them. The Board is considering the acquisition proposal from Google. for acquisition. Tivo got an initial offer from Google Inc.
Tivo Financial Performance and Projections .
Depr. net 2) Total Sales and G&A Expense Operating Profits (EBIT) Plus: Interest Income Less: Interest Expense Net Profits Before Taxes Less: Taxes Net Profits After Taxes 42 25 1 26 16 6.60 0 12 4 0 3 1 2.8 2009 85 49 3 52 33 13 11 1 25 9 0 8 2 6 2010 184 103 5 108 76 28 24 (4) 47 29 2 30 8 22 2011 252 141 9 150 102 38 43 (15) 66 37 4 40 12 29 Balance Sheet 2008 Balance Sheet Current Assets Cash Other Operating Assets Total Current Assets Investments Gross Fixed Assets Less: Accum. & Amort.30 5. Net Fixed Assets Other Assets Total Assets Current Liabilities Long-Term Debt Existing Debt New Debt Other Liabilities Total Liabilities Common Stock Retained Earnings Shareholders' Equity Total Liabilities & Shareholders' Equity Historical Financials 2009 2010 2011 3 12 15 0 4 1 3 26 44 12 6 0 18 22 4 26 44 12 16 29 0 6 2 4 26 59 15 6 0 21 27 11 38 59 97 61 158 (0) 17 5 12 64 233 44 0 1 45 155 32 188 233 43 86 129 0 30 11 19 101 249 42 1 1 45 144 61 205 249 .Profit and Loss Statement 2008 Income Statement ($mil) Net Sales Less: Variable Cost of Sales Depreciation Total Cost of Sales Gross Profit Less: Sales Expense G&A Expense Amortization of Intangibles Other expense (income).
5% 5.0% 25.0% 15.2% 31.0% 5.0% 12.7% 59.1% Target expects to earn an interest of 5% over short term invesments The interest on Current Debt is calculated based on the existing interest rates on the debt.0% Interest Rate on New Debt (%) Marginal Tax Rate 7% 19% 7% 23% 0% 27% 0% 29% 7.0% 30.5% Depreciation & Amortization / Gross Fixed Assets % Selling Expenses / Sales (%) 28% 15% 46% 15% 27% 15% 31% 15% 10.0% 20.5% 5.0% 30.0% 10.0% 12.0% 7.2% 30.0% 15.0% 30.2% 59. Selling expenses will remain flat as a percentage of sales within our model.2% 29.0% 19.1 .2% 30.5% 7.5% 59.0% 8. Expected to reduce the Cost of Sales by a little margin Depreciation of Gross Fixed Assets has been set at 10% to assume a 10 year depreciation cycle which is standard for most long-lived assets in this industry.0% 10.0% G&A Expenses / Sales (%) Interest on Cash & Marketable Securities 13% 0% 13% 0% 13% 2% 17% 9% 14.0% 12.5% 7.0% 14.9 15% 17% 8.0% 25.0% 12.0% 10.Historical Trend and Projections Forecast Assumptions 2008 Historical 2009 2010 2011 2012 2013 Projections 2014 2015 2016 Comments During last few years the Target has acquired few companies because of which the growth was high. The Target has experienced some growth in G&A expenses due to acquisition related overhead.0% 19.0% 15.0% 25. The interest rate on future debt will be estimated at the interest rate on Moody's A rated debt as of December 2000.0% 14.0% 14.0% 14.0% 30.0% 30.0% 5.0% 5.2% 29.9 17% 17% 19.0% 7.5 53% 24% 13.1 6.0% 12.0% Cost of Sales (Variable) / Sales % 59% 57% 56% 56% 60.0% 25.0% Minimum Cash Balance / Sales (%) Current Liabilities / Sales (%) Common Shares Outstanding (Mil) 6% 28% 6.1 6. Other Current Operations assets are assumed to be maintained at about the average rate of the past years at 30%.0% 19.0% 19.0% 15.1 6.0% Other Current Operations Assets / Sales (%) Other Assets / Sales (%) Gross Fixed Assets / Sales (%) 30% 61% 9% 19% 30% 8% 33% 35% 9% 34% 40% 12% 30.5% 59. Other Assets is expected to reduce over the years Based on historical ratio of fixed costs to sales To ensure sufficient liquidity a minimum cash balance of 6% is included in the forecast.0% 25.0% 5. In a stable environment we expect overhead to normalize and reduce to 14.0% 15.1 6.1 6.0% 10. conservative approach Net Sales Growth Rate 103% 115% 37% 15.0% 35. The tax rate is assumed to increase slightly during the forecast period.0% 25.0% 19. Initially the growth rate is assumed to be high which is expected to go down to industry growth rate in 5 years Target cost of sales is higher than the Acquirer.0% 15.0% 20.0% 10. It is higher than Acquirer's requirement Although the current liabilities have reduced in recent years it is kept at 25%.
75% 0.49 7.3% Target 6.21 2016 - Other Financial Information Key Valuation Indicators P/E P/S LT Debt/Equity ROI .5 1. ROE .5 year avg. an Industry Long Term Debt/Equity is 50% Target's Unlevered Beta Target's Target D/(D+E) Ratio Target's Target Tax Rate Target's Levered Beta Market Risk Premium Target's Cost of Debt 1.46 2014 0.21% $ 1.06 0.24% If the firm is a public company.5 year avg.1% 16.21% Moody's AA rated bond Sustainable Cash Flow Growth Rate Total Shares Outstanding 4.600 7.21 2013 1.00% 19.75% 0.51 5.400 7.75% 0. Stock Price as of 31/3//2011 Current stock price Industry Average 14.10 . the levered beta may be estimated directly. if it is a private firm.5 50% 12.7 1% 15.03 0.13 $ 14.000 7. However.4 0 0.2 0.51 0% 31% 1.25 Risk-free Rate 5.01 0.1 0.6% 17.75% 0.4 1 0.2% $ 9.50% 7.09 0.Debt Schedule Debt Schedule Existing Debt Opening Debt Wieghted Interest Rate Principal Repayment Closing Balance Interest Expense Total Payments (Principal + Interest) Cost of Debt Market Value of Long Term Debt 2012 1.43 2015 0.4 1 0.200 7.
Part C Expected Synergy from the Deal .
it has planned to retrench some of the employees working in Marketing and Finance division so as to reduce some of the redundancies that would result after acquisition. and its brand awareness and recognition. On a conservative note. Consumers would be exposed to the Google brand every time they turn on their television or access the internet. Google is currently heavily dependent on third parties to supply key elements of its internet infrastructure including bandwidth providers. Google have a very strong IT. Google is planning to offer some additional pay to these core employees so as to retain them. The details of expected synergy and cost reductions are presented below. Google is very keen on retaining the core employees (electronics division working on the product) of Tivo as it does not have the required expertise and skill to manage the products of Tivo. Apart from the expected increase in revenue Google plans to close down the Head Office and few other Zonal and Branch Offices of Tivo bring some reduction in redundancies and cost.1. therefore. It plans to terminate some of these contracts after acquisition and depend on the in house abilities of Tivo. Marketing and Finance division. .0 Expected Gains from Restructuring and Control Google could see a cross selling opportunity by acquiring Tivo. Tivo’s acquisition will help Google increase its revenue by at least 2% every year. An acquisition of TiVo would allow it to increase its connection with consumers. data centers etc. Therefore. Acquisition of Tivo will help Google in reducing a part of its dependencies on third part outsourcing.
00 50% G&A/25% Sales/25% COS .1 Month's pay for back office positions .000 2012 0.00 2015 12.50 2013 1.00 2013 9.Elimination of 15 back office positions at $35.04 0.Rent .90 2016 0.90 2014 0. The category of expenses is also presented in the Table.90 Expense Category 50% COS/50% Sales Expense G&A 50% COS/50% Sales Expense 2 As a result of the closure of the Tivo's Head Office Office the following additional expenses will be incurred in 2012: .00 2015 1.25 0.750 225.The expected synergy and its value are estimated in the following Tables.Average 3 months' pay for professional positions 62.000 525.53 0.53 0.00 2016 1.00 2014 12.000 each .50 Expense Category 100% COS 4) Termination of rental contracts: Zonal Headquarter 2012 0. 1 The total annual savings of the closing of the Tivo's Head Office office will be: .45 2012 2013 0.000 0.06 0.26 0.00 2016 12.500 43.3 Months Rent .90 2015 0.25 0.000 900.53 0.23 2013 2014 2015 2016 Expense Category 50% COS / 50% Sales Expense Integration Expense Integration Expense 3 Termination of 3rd Party Equipment Outsourcing agreements 2012 3.25 0.13 0.25 0.00 2014 1.Elimination of 10 professional positions at 90.000 each (In millions) 250.53 0.
00 2015 3.20 0.50 2013 3.80 1.40 0.80 1.000.50 0.50 50% COS/ 50% Sales 100% Sales 100% Sales 5 Retrenchment of Employees .40 0.37 2013 2014 2015 2016 Integration Expense 2012 7) Retention bonuses for key employees Additional Google Ad revenues from Tivo Customers (assuming that Tivo customers contribute 2% toward future revenue growth of Google revenue from ads) 0.50 0.75 employees with average pay of $40.00 2016 3.40 0.50 0.80 1. including benefits.02 105. 2012 1.26 113.13 101.00 75% G&A/25%COS 2012 6 Severance pay as a result of terminations 0.40 0.06 109.50 2013 2014 2015 2016 Integration Expense 8) 2% 97.75 0.40 0.Branch Office Marketing Office Warehouse Space 0.00 2014 3.63 .80 1.
Part D Structuring and Financing the Deal .
patents. They also want that their employees should be well compensated. After thorough examination the following needs of both Google and Tivo are: Google Needs Gogle has been under increasing pressure to maintain growth rates.0 Deal Structure Acquisition Vehicle and Post closing Organization TiVo was one of two companies to first offer DVR products. Google requires total control over all technologies. Google would maintain the TiVo name after completion of the acquisition. For that. Since TiVo would . Retrenchment should be as minimum as possible with adequate compensation Obtain as much as premium possible from the Acquirer After in-depth discussion it is believed than an effective deal structure that satisfies the needs of both Google and Tivo can be formulated. 2. Acquisition of Tivo will help Google grow. vertically integrated organization. Convergence of Internet and Media has become the order of the day. TiVo has invested a large amount of resources to build a strong brand name and brand image. however they don’t have enough resources to expand. Identifying those needs through careful analysis and discussion facilitates the success of an acquisition because common ground and trust is established between the parties. Acquisition of Tivo will help Google grow. The management wants to continue with the business provided funds are available. Purchase entire corporation of Tivo not only assets As this is relatively a new business for Google retain key members of Tivo management team and key employees Share not more than 30% of the synergy expected with the Target Tivo Needs Tivo management is passionate about the business. In the changing market dynamics they need technology related to web based integration Key management wants to retain high positions. Acquisition of Tivo will help Google tap the Media market. R&D and other intellectual property.1.0 Need of the Parties Involved It is crucial to identify the needs of both Google and Tivo. For this reason. 100% of the target needs to be acquired. Google has been under increasing pressure to maintain growth rates. maximize shareholder value by growing into a large. Google would integrate TiVo into its operations by using a corporate structure acquisition vehicle.
Google’s financial success has allowed it to fund new projects and acquisitions through retained earnings. Form of Acquisition and Payment The form of acquisition would be for Google to purchase all of TiVo’s outstanding stock. Google has not used external funding to finance past acquisitions. This transaction would give TiVo shareholders the ability to defer taxes until the converted shares have been sold. a Texas jury as already sided with TiVo in the patent dispute and the case is currently in an appeals process where Google feel TiVo will win. Purchasing the entire company through TiVo’s stock also presents risk as it would be assuming the cost TiVo is incurring with the litigation it currently has with EchoStar. With the projected future growth of Google. the post closing organization would be the same as the acquisition vehicle. This would allow Google to gain control of all aspects of the company. In addition. In addition there is the possibility of discovering unknown liabilities after the acquisition is completed. In addition. There is a possibility of stock dilution but the expectation is that it will be small due to current amount of Google’s shares outstanding. the TiVo acquisition costs would not have a negative effect on Google’s financial stability. cash position and expected future earnings. Tax Considerations Implementing a Type B stock-for-stock reorganization transaction would be beneficial to the current shareholders of TiVo due to the transaction’s tax deferred status. However. Purchasing the assets only would be more risky as it creates the possibility that Google will fail to purchase key intellectual property or any other relevant assets provided by TiVo. net income and revenue will grow at a high rate presenting the opportunity to acquire a company for strategic reasons without significant negative effects on profitability. 3. . Google is an extremely successful company. Google stock has the potential for significant future capital gain. The most appropriate form of payment for TiVo is a stock-for-stock transaction. but this could change in the future. Considering Google’s current market capitalization.be integrated into Google at the time of acquisition. Google believes that TiVo is in a good position to win this litigation and defend its valuable patents. but Google expects that it’s due diligence process will allow it to measure the possibility of this risk and it can account for this during the negotiation process.0 Financing of the Deal The TiVo acquisition would have no affect on the creditworthiness of Google.
Part E Integration Plan .
0 Integration Plan Employee Retention An important aspect of the acquisition will be the ability to retain the key TiVo employees.1. Google would have to create employee contracts with the key managers and employees that would include the length of stay and total compensation. all employees in hardware research and development will not be retained. The main reason for the acquisition is Google’s belief that TiVo will provide additional applications to increase its advertisement revenue. All TiVo employees in software research and development will be integrated into Google’s research and development department. Google must have a retention plan in place before the acquisition is completed. All executives excluding the Chief Technology Officer and Chief Operating Officer will not be offered positions at Google. finance. . The combined team would develop an integration plan to absorb TiVo’s operations into Google’s. hence. It would be detrimental to Google if TiVo’s key employees left after the acquisition. In order to prevent this from happening. TiVo has approximately 400 employees. TiVo’s future viability is based on its ability to create innovative new products and market existing products effectively. the integration plan including completion date. The CEO of Google and TiVo should explain the key aspects of the acquisition. but it will incorporate some of TiVo’s products into its own services. and should strive to meet the expectations of employees. This requires skilled managers and employees. However. Approximately 34% of all employees in the customer service. so addressing all of the employees should not be a difficult task. the acquisition will result in the elimination of a significant amount of positions. After the acquisition. Management Team An integration team consisting of Google managers would meet with the key TiVo managers and employees. Excluding the research and development department. Google will want to review TiVo’s processes and technological capabilities in order to create new products. the TiVo employees will want as much information as possible regarding the transaction. The details should include the employee retention plan. Google will continue to offer TiVo’s current service. Google will pursue different exit strategies for TiVo’s hardware business. TiVo Employees When the acquisition proposal is announced.
as Google incorporates TiVo’s services with its own. TiVo Customers and Suppliers TiVo customers will need to be provided with assurances that their service will not be disrupted in any way. Broadcom and Remote Solutions. Product Development Team: Structure team so that Google and TiVo employees play an active part in creating a new product/technology that integrates Google and TiVo’s strengths. Public Relations with Customers and Suppliers: Focus on customers. Make sure that the team understands that their goal is creating a product that combines search capabilities with entertainment. In the short-term TiVo will offer the same service it has provided in the past. and suppliers through regularly scheduled meetings throughout the implementation process. Broadcom supplies the microprocessors and Remote Solutions provides the remote controls. Key Integration Activities: Communication Program: CEO Dr. The employees that are not retained will be given severance pay based on each employee’s job position and length of service. such as a spin off or divestiture. management will reevaluate the viability of the hardware production unit. Eric Schmidt to address key issues with employees. TiVo purchases the components from a variety of vendors. TiVo’s DVR hardware is produced by third-party manufacturers. legal and marketing and sales departments will be retained. These components are sent to the platform manufacturers and assemblers located in China and Mexico. The CTO and COO executives will be retained as they understand TiVo technology and operations.human resources. Staffing Reorganization: Eliminate the majority of TiVo management positions. Currently. TiVo has contracts with companies to manufacture and assemble the DVR. These suppliers and manufacturers should be notified of the acquisition and how it will not disrupt the current production of DVR’s. The decision will depend on interest in the business by potential suitors. Exit strategies that will minimize the effect on the hardware line of business will be considered. customers. but the three key suppliers are Amtek. In the future. In the long-term customers will be provided with new and innovative products and services. stay in contact to make sure their needs are always satisfied. . TiVo should instruct customers about the short-term and long-term implications of the acquisition. Amtek provides the chassis for the DVR’s. Restructure Advertising Contracts: Allow existing Google advertisers the option to advertise their products through television as well as internet.
New product would incorporate Google and TiVo’s strengths to converge media and technology. The potential realized savings from closing the TiVo headquarters is approximately $3. Website Redesign: Redesign Google’s Website to reflect its acquisition of TiVo.Headquarters Consolidation: Move TiVo employees to Google’s Headquarters. will allow for significant cost savings.” The new product would link watch consumers watch with Google AdWords. The new product would keep the TiVo name but have Google based software upgrades.4 miles. The distance between TiVo’s headquarter and Google’s headquarters is a mere 8. Create a website for the new product. The test name for the upgrades is currently the “Google Package. Redo TiVo website to showcase new product.668. Exit Hardware Production: Outsourcing to another hardware manufacturer. New Subscriber Campaign: Create hype about new product release to gain additional Google/TiVo subscribers. such as Scientific Atlantic. .000. New Product Release: Release to occur in early May.
This action might not be possible to undo. Are you sure you want to continue?
We've moved you to where you read on your other device.
Get the full title to continue reading from where you left off, or restart the preview.