Intuit Corporation

1. August 30, 1993, Intuit CEO, Scott Cook, faced a critical decision. What was it? 2. What was his worry about the acquisition? 3. Intuit’s market value was in excess of $350 mil and ChipSoft’s was $225 mill. What was the cost of the merger? • • • Approximately $260 mil After tax loss of over $150 mil for Intuit for the first 3 yrs. Penalty paid to Legal Knowledge Systems of $13 mil for not acquiring them.

4. What are Intuit’s products? 5. What are ChipSoft’s products? 6. Who is MECA Software? And how do they fit the acquisition picture? 7. Who is Legal Knowledge Systems, Inc. LKS? How do they fit into the picture? 8. What are the agreements between LKS and Intuit? 9. What was Intuit’s first offer to ChipSoft? And what new offer did Scott Cook feel would complete the deal? 10. What 2 major problems persist? 11. What type of tax and accounting merger arrangement is expected from this deal?

Liabilities will occur and a tax benefit of increased depreciation deductions will result. h) market value of other obligations: describe additional costs such as golden parachutes, cost of termination of another contract, etc. Determine amount. In order to determine the SYNERGY we must find the economic benefit (GAIN) of the merger, or VAB – VA – VB = GAIN. So you can estimate the FCF for: (1) VAB to find the GAIN or alternatively, if all the GAIN can be attributed to Firm B, then VAB=VB* so (2) VB* where the GAIN = VB* - VB. Here is an example of the quantitative plan resulting from ChipSoft acquisition by Intuit. Please DO NOT use these numbers for your case report. Forecasts all in millions. Yr 0 1993 Sales growth Sales $70 (1.35)EBIT (10%sales) NWC $53.4 5% sales +/-∆NWC CF from NWC Cap Expend Free CF Terminal Value @ g= 10% Discount @12% PV of CF Yr 1 1994 38% $96.6 $6.28 4.83 Yr 2 1995 38% $133.3 8.67 6.67 Yr 3 1996 40% $186.6 $12.13 9.33 Yr 4 1997 40% $261.3 $16.98 13.07 Yr 5 1998 40% $365.8 $23.78 18.29

-$48.57 +$48.57 0 $54.85

+1.84 -1.48 0 $6.83

+2.66 -2.66 0 $9.46

+3.74 -3.74 0 $13.25

+5.22 -5.22 0 $18.55 $1020 0.567 $588.86

1.000

0.893 $48.98

0.797 $5.44

0.712 $6.74

0.636 $8.43

Assume earnings growth rate is 10% (DO NOT USE). Kw is 12% (USE THIS). It gives a Terminal Value of $1020m. PV of Yrs 1-5 FCF plus PV of Terminal Value = $658m

VB* = VFIRM* - VDEBT = $606m - $0 m = $658m GAIN = VB* - VB = $658m - $163m = $495m VAB = VA + VB + GAIN = $357m + $163m + $495m = $1015m COST = (.39xVAB) – VB - $13m = (.39x$1015m) -$163m - $13m= $220m NPV(merger) = GAIN – COST = $495m - $220m = $275 m

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