Valuation 1798

Professor: Magdalena Barreiro, Ph.d

Assignment 8: Valuation of M&A

Problem 1

You have the following information for companies A (acquiring) and T (Target):

Valuation and strategy at year

2023 A T
Intermediate Value (millions) $580 $495
FCF by year 2030 (in millions) $890 $725
Intermediate growth rate 7% 4%
WACC 10% 8.50%
LTG rate 5% 3%
$
Total Long term liabilities (millions) $100 150
Outstanding shares (millions) 400 400
EPS $3 $4

With these data estimate the following:

a. Market cap and price per share for A

b. Market cap and price per share for T
c. Total Present value of possible merger between A and T assuming no synergies
d. New Shares to be issued by A to buy T and the exchange ratio
e. Total new shares of the joint company
f. New EPS of the merged company
g. PE ratio for A before and after the merger
h. From your point of view did the merger add value for A? Analyze all aspects

Problem 2

Assuming the previous merger could have generated synergies for $2,000 million,

a. what would have been the maximum exchange ratio to create value assuming the merger was
paid with a stock swap?
b. What would have been the maximum cash payment should the merger would have been paid in
cash?

Problem 3

Now assume that the price offered by A for T (including synergies) was of $24.25 per share. Answer:

What was the premium paid by A for T?

1. What was the NPV of the merger?