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Semester 2 2019
Final Take-Home Examination
Faculty of Business and Economics

EXAM CODES: BFF5580
TITLE OF PAPER: Mergers and Acquisitions
EXAM DURATION: During Term for submission on 6PM Monday 4 November 2019

This take home examination involves you undertaking work progressively during the
semester at the end of which you will prepare and submit a summative assessment. The
assessment consists of two components, a student prepared video (MP$) and a report
(Word) that is to be prepared on an individual basis, that is to be submitted in Moodle on
Monday 4 November by 6.00PM.
You will be allocated a company on an individual basis which you will analyse as the
prospective target for a takeover. You will separately choose another company with your
group that will be the acquiring company. Marks will be given on the quality and content of
the presentation (50 Marks) as well as the report (50 Marks) to the extent they address the
issues addressed as required.
The work carried out and submitted as part of this exam must be your own research or that
of your group. This means you must not elicit advice or obtain assistance on any aspect of
questions on this assessment from anyone else. Any sources you use must be publicly
accessible, referenced and must not be confidential or in breach of any privacy or copyright.
You need to cite any sources used following the Q manual. Any evidence of uncited work of
others or plagiarism or copying by you may void this exam resulting in zero (0) credit out of
100 marks.
The following are the resources you may use, properly cited:

Text Books or published research Yes No
Video Recording Software, Microsoft Office Yes No
Internet Websites Yes No
Analyst Reports (Available Publicly) Yes No
Articles & Academic Journals Yes No
Company Reports (Publicly Available) Yes No
Library Industry Databases Yes No
Commercial in Confidence Or Private Documents Yes No

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MBA5905 Corporate Finance Take Home Exam

Background
You group is part of a consulting firm team that has been chosen by at an acquiring company (A)
that is keen to make an acquisition of a target company (T) listed on the Australian stock exchange
and you are responsible for evaluating a potential merger target. There is no information on the
criteria for selection of the firm other than that they are Australian companies listed on the
Australian Stock Exchange of which you have been assigned one as have other members of your
team. The CEO does not know the company and is relying on you to provide some analysis,
valuation and recommendation of company T as a potential acquisition.
You will need to acquire financial data which you will use to conduct your analysis but you may
need to enhance or update this data by you won research. You will also do some further research
on industry and economic outlook as well as obtaining additional data, to help you with your
analysis, valuation and recommendations. You need to prepare a video presentation and brief report
in a story board format back to the CEO addressing the following issues mentioned below.
Required
You will be allocated a target company T but In addition to this you will need to choose the
acquiring company A which will be common to your group. The acquisition will be done from
the perspective of the acquiring company A which you will use to consider your individually
assigned target company T. That means you will have a personal target company unique to each
student but your group will share common acquiring company which your group is working for
in an advisory capacity.
From the perspective of your consulting groups acquiring company A (acquirer) you will
evaluate your individual company T (target) as an acquisition. Analyse the a potential
acquisition addressing the following in your presentation video and a written report.
Submission Requirement
The submission of your assignment will be in two parts I), a report prepared in accordance with
the outline below, depicting the process you have gone through in arriving at your views and the
structure of your video and II) a video that will be a presentation of your report.
I) Prepare a report from the perspective of the acquiring company in a succinct form of no
more than 8 pages excluding appendices which should be no more than 2 pages. Lengthy
essay type answers are not required but write in the style of a business report in 12-point
font. Your report should be accompanied by a separate submission sheet.The report
should be prepared addressing the following issues:

1. Acquiring firm’s business, Industry, Market and outlook. (1/2 page)

Describe the acquiring firm’s business briefly, recent performance, the economic and market
environment and outlook for the firm A. Your analysis should include attributes of the firm and its
capacity to undertake an acquisition to make the appropriate evaluation of the prospects of a
successful merger and the context of with respect to strategic fit. Critically evaluate and comment
on the key factors that will make potential target companies attractive, including any supporting
data or analysis
2. Target firm’s business, Industry, Market and Economic outlook (1/2 page).
Describe the target firm business briefly, the economic and market environment and outlook for
the firms in question. Data or assumptions on expected market growth rates or any economic
growth assumptions key to your analysis may be included. Critically evaluate and comment on
the key factors that make the companies attractive.

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3. Cost of capital and discount rate (1/2 page)
Determine the cost of capital and discount rate appropriate to this potential acquisition. Ascertain
the weighted average cost of capital for the firms. You should determine the beta of your firm by
carrying out your own raw beta estimate or you may use a beta from other sources but justify your
choice.
4. Valuation Method (s) and main assumptions (1/2 page)
Briefly describe the valuation method chosen, namely the fundamental and relative valuation
methods used. You should include an explanation of the stage type model used (eg. Single stage,
2 stage etc). justify the choice of model and any significant assumptions you use.
5. Target firm fundamental and relative valuations (2 pages)
From the data you have been given as well as your research and analysis, determine the forecast or
expected cash flow or dividends necessary to value the target company. Carry out a fundamental
(Discounted Cash Flow) valuation of the share price of your chosen companies and present the
results in a summary table for the firm including the control premium you believe is necessary.
Conduct a relative valuation of your firms also. Your valuations need to include a sensitivity
analysis.
If you believe there are synergies but are having difficulty quantifying, then you can assume a 10-
25% improvement in the target company operating income as a result of the merger. Clearly
indicate your valuation range with and without synergies and discuss this valuation range
contrasting it to the market price .
6. Target firm business and suitability as an acquisition target. (1 page)
Analyse and advise on the suitability of the target company and its fit with the acquiring company.
Characterise the potential acquisition and the type of merger this would be with the potential
benefits of the merger to the acquiring company A. Make a clear recommendation whether the
acquirer should proceed with the acquisition or If not why not. You must provide a solid
justification based on your analysis not simply make a recommendation.
7. Deal Structure (1 page)
Regardless of your views, assuming the acquisition is pursued make a recommendation with
respect to the type of deal you would recommend, namely cash or equity or some variation. You
should also make a recommendation on the financing for the deal. Your recommendations must
not be in general terms but with reference to your understanding of the acquirer.
8. Regulatory issues (1 page)
Provide an explanation of the regulatory issues that need to be addressed by the acquiring company
including any approvals that may be necessary. Will this be subject to consideration by the
takeovers panel or the foreign investment review board. Are there any other issues such as political
reaction to the takeover.
9. Target Company reaction (1/2 page)
Comment whether this is likely to be a hostile takeover or whether it is likely to be received
positively by shareholders and why. Indicate if you believe this is likely to be a hostile takeover
with reasons why. Assuming hostile reaction what do you expect the company to do.
10. Market reaction (1/2 page)
The acquiring company made an announcement at the start of the process that it was investigating
an acquisition. It will now make an announcement based on your recommendation as a result of

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MBA5905 Corporate Finance Take Home Exam

your presentation and report. Provide your view of the markets reaction to the merger with respect
to each of the two firms, namely the acquiring firm and the target firm.

II) Video
You will prepare a video that will be a live recording of you doing a Pecha Kucha style
presentation. Your face must be live recorded and visible in the video in the top left corner of the
screen. You are only permitted 20 slides plus a header slide. The presentation must not exceed
7 minutes in total and each slide is to be spoken to for no more than 20 seconds. An empty
slide template will be provided. The video must be in MP4 format and less than 500mb or
will not load.

General guidance
The work carried out and submitted as part of this assignment must be your own work with respect
to the target firm but you may share the effort in the case of the acquiring firm. You may study as
a group but submit your report and video individually as you are responsible for analysing your
personally assigned company. Which means you must not copy from anyone else and cite all work
referenced. Any sources you use must be publicly accessible, referenced and must not be private
or confidential or in breach of any privacy or copyright.

Due Date

Monday 6PM 4 November 2019, in Moodle.

Assessment and Marks

The assessment is a group activity worth 50% of the total assessment.


END OF EXAMINATION

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