1. The document contains 6 problems related to mergers and acquisitions. The problems involve calculating synergy value, constructing post-merger balance sheets, comparing cash vs stock offers, calculating net present value of merger alternatives, and determining optimal acquisition offers.
2. The problems require calculating costs, premiums, and net present values of acquisition alternatives based on financial information like market values, growth rates, and discount rates.
3. The solutions involve determining the most value-maximizing acquisition method and offer for the acquiring companies based on financial analyses of the merger synergies and alternatives.
1. The document contains 6 problems related to mergers and acquisitions. The problems involve calculating synergy value, constructing post-merger balance sheets, comparing cash vs stock offers, calculating net present value of merger alternatives, and determining optimal acquisition offers.
2. The problems require calculating costs, premiums, and net present values of acquisition alternatives based on financial information like market values, growth rates, and discount rates.
3. The solutions involve determining the most value-maximizing acquisition method and offer for the acquiring companies based on financial analyses of the merger synergies and alternatives.
1. The document contains 6 problems related to mergers and acquisitions. The problems involve calculating synergy value, constructing post-merger balance sheets, comparing cash vs stock offers, calculating net present value of merger alternatives, and determining optimal acquisition offers.
2. The problems require calculating costs, premiums, and net present values of acquisition alternatives based on financial information like market values, growth rates, and discount rates.
3. The solutions involve determining the most value-maximizing acquisition method and offer for the acquiring companies based on financial analyses of the merger synergies and alternatives.
1. The document contains 6 problems related to mergers and acquisitions. The problems involve calculating synergy value, constructing post-merger balance sheets, comparing cash vs stock offers, calculating net present value of merger alternatives, and determining optimal acquisition offers.
2. The problems require calculating costs, premiums, and net present values of acquisition alternatives based on financial information like market values, growth rates, and discount rates.
3. The solutions involve determining the most value-maximizing acquisition method and offer for the acquiring companies based on financial analyses of the merger synergies and alternatives.
1. Calculating Synergy Holmes, Inc., has offered $295 million cash for all of the common stock in Watson Corporation. Based on recent market information, Watson is worth $278 million as an independent operation. If the merger makes economic sense for Holmes, what is the minimum estimated value of the synergistic benefits from the merger? 2. Balance Sheets for Mergers Assume that the following balance sheets are stated at book value. Suppose that Jurion Co. purchases James, Inc. Then suppose the fair market value of James’s fixed assets is $23,000 versus the $13,300 book value shown. Jurion pays $30,400 for James and raises the needed funds through an issue of long- term debt. Construct the postmerger balance sheet under the purchase method of accounting.
3. Cash versus Stock Payment Penn Corp. is analyzing the possible acquisition of Teller Company. Both firms have no debt. Penn believes the acquisition will increase its total aftertax annual cash flow by $1.3 million indefinitely. The current market value of Teller is $27 million, and that of Penn is $62 million. The appropriate discount rate for the incremental cash flows is 11 percent. Penn is trying to decide whether it should offer 35 percent of its stock or $37 million in cash to Teller’s shareholders.
a. What is the cost of each alternative?
b. What is the NPV of each alternative? c. Which alternative should Penn choose?
4. Merger NPV Fly-By-Night Couriers is analyzing the possible acquisition of Flash- in- the-Pan Restaurants. Neither firm has debt. The forecasts of Fly-By-Night show that the purchase would increase its annual aftertax cash flow by $425,000 indefinitely. The current market value of Flash-in-the-Pan is $7.3 million. The current market value of Fly- By-Night is $24 million. The appropriate discount rate for the incremental cash flows is 8 percent. Fly-By-Night is trying to decide whether it would offer 30 percent of its stock or $11.4 million in cash to Flash-in-the-Pan. a. What is the synergy from the merger? b. What is the premium of each alternative? c. What is the NPV to Fly-By-Night of each alternative? d. What alternative should Fly-By-Night use?
5. Merger NPV Harrods PLC has a market value of £360 million and 30 million shares outstanding. Selfridge Department Store has a market value of £144 million and 18 million shares outstanding. Harrods is contemplating acquiring Selfridge. Harrods’s CFO concludes that the combined firm with synergy will be worth £540 million, and Selfridge can be acquired at a premium of £15 million.
a. If Harrods offers 11 million shares of its stock in exchange for the 18 million shares of Selfridge, what will the stock price of Harrods be after the acquisition? b. What exchange ratio between the two stocks would make the value of the stock offer equivalent to a cash offer of £159 million?
6. Calculating NPV Plant, Inc., is considering making an offer to purchase Palmer Corp. Plant’s vice president of finance has collected the following information:
Plant also knows that securities analysts expect the earnings and dividends of Palmer to grow at a constant rate of 4 percent each year. Plant management believes that the acquisition of Palmer will provide the firm with some economies of scale that will increase this growth rate to 6 percent per year.
a. What is the synergy from the Merger.
b. If Plant were to offer $20 in cash for each share of Palmer, what would the NPV of the acquisition be? c. What is the most Plant should be willing to pay in cash per share for the stock of Palmer? d. If Plant were to offer 225,000 of its shares in exchange for the outstanding stock of Palmer, what would the NPV be? e. Should the acquisition be attempted? If so, should it be as in (c) or as in (e)? f. Plant’s outside financial consultants think that the 6 percent growth rate is too optimistic and a 5 percent rate is more realistic. How does this change your previous answers?
