Professional Documents
Culture Documents
Mergers and Acquisitions: Presenter's Name Presenter's Title DD Month Yyyy
Mergers and Acquisitions: Presenter's Name Presenter's Title DD Month Yyyy
November
July 2012 2012
U.S.
Airways AMR and Details of the
proposes U.S. Airways U.S. Airways proposes merger are
AMR creditors begin merger, with its
merger to worked out.
encourage AMR merger shareholders owning
bankrupt Merger filed
to merge with discussions. 30% of the new
AMR. with the FTC
another airline, company.
instead of under Hart-
emerging from September Scott-Rodino
April 2012
bankruptcy alone. 2012 Act.
February
2013
Company
Company
A
X
Company Company
C X
Company
Company
B
Y
Company One
Company One Company Two Post-Acquisition
Earnings $100 million $50 million $150 million
Number of shares 100 million 50 million 125 million
Earnings per share $1 $1 $1.20
P/E 20 10 20
Price per share $20 $10 $24
Market value of stock $2,000 million $500 million $3,000 million
Copyright 2013 CFA Institute 8
EXAMPLE: BOOTSTRAPPING EARNINGS
Assumptions:
Exchange ratio: One share of Company One for two shares of Company Two
Market applies weighted average P/E to the post-merger company.
Company One
Company One Company Two Post-Acquisition
Earnings $100 million $50 million $150 million
Number of shares 100 million 50 million 125 million
Earnings per share $1 $1 $1.20
P/E 20 10 16.67
Price per share $20 $10 $20
Market value of stock $2,000 million $500 million $2,500 million
Copyright 2013 CFA Institute 9
MOTIVES AND THE INDUSTRYS LIFE CYCLE
The motives for a merger are influenced, in part, by the industrys stage in its
life cycle.
Factors include
- Need for capital.
- Need for resources.
- Degree of competition and the number of competitors.
- Growth opportunities (organic vs. external).
- Opportunities for synergy.
Attitude of Hostile
Management Friendly
Bear hug
Tender offer
Enter into merger discussions.
Proxy fight
Hostile merger: Offer made directly
to the target shareholders
Perform due diligence.
Antitrust Securities
Law Law
Regulation
of Mergers
and
Acquisitions
Calculate NOPLAT
Unlevered net income + Change in deferred taxes
Calculate FCF
NOPLAT + Noncash charges Change in working capital Capital expenditures
From the pro forma income statement From the pro forma income statement
Net income $40 Change in deferred taxes $3
Interest expense $5 Depreciation $10
Interest income $2 Change in working capital $6
Capital expenditures $20
Assumed
Tax rate = 45%
Comparables Estimated
Multiples Stock Value
Earnings $10 million 30 $300 million
Cash flow $12 million 25 $300 million
Book value of equity $50 million 2 $100 million
Sales $100 million 2.5 $250 million
Average = $237.5 million
Estimated takeover price of the XYZ Company = $237.5 million 1.2 = $285 million
Collect
Information on Calculate Estimate
Recent Takeover Multiples for Takeover Value
Transactions of Comparable Based on
Comparable Companies Multiples
Companies
Average of Multiples of
MNO Company Comparable Transactions
Earnings $10 million P/E of comparables 15 times
Cash flow $12 million P/CF of comparables 20 times
Book value of equity $50 million P/BV of comparables 5 times
Sales $100 million P/S of comparables 3 times
Estimate the value of the MNO Company using the comparable transaction
analysis, giving the cash flow multiple 70% and the other methods 10% each.
VA* = VA + VT + S C (10-9)
where
VA* = post-merger value of the combined companies
VA = pre-merger value of the acquirer
C = cash paid to target shareholders
Equity
Carve-Out
Liquidation Spin-Off
Parent
compan
y
Divestiture Split-Off