Chapter-9收购、兼并和重组课后题目

UsingFinancialModelingTechniquestoValueandStructureMergers&AcquisitionsTactisforpeoplenotwittyenoughtobesarcastic.--AnonymousExhibit1:CourseLayout:Mergers,Acquisitions,andOtherRestructuringActivitiesPartIV:DealStructuringandFinancingPartII:M&AProcessPartI:M&AEnvironmentCh.11:PaymentandLegalConsiderationsCh.7:DiscountedCashFlowValuationCh.9:FinancialModelingTechniquesCh.6:M&APostclosingIntegrationCh.4:BusinessandAcquisitionPlansCh.5:SearchthroughClosingActivitiesPartV:AlternativeBusinessandRestructuringStrategiesCh.12:Accounting&TaxConsiderationsCh.15:BusinessAlliancesCh.16:Divestitures,Spin-Offs,Split-Offs,andEquityCarve-OutsCh.17:BankruptcyandLiquidationCh.2:RegulatoryConsiderationsCh.1:MotivationsforM&APartIII:M&AValuationandModelingCh.3:TakeoverTactics,Defenses,andCorporateGovernanceCh.13:FinancingtheDealCh.8:RelativeValuationMethodologiesCh.18:Cross-BorderTransactionsCh.14:ValuingHighlyLeveragedTransactionsCh.10:PrivateCompanyValuationLearningObjectivesPrimarylearningobjective:ProvidestudentswithabasicunderstandingofhowtousefinancialmodelstovalueandstructureM&AsSecondarylearningobjectives:ProvidestudentswithaknowledgeofHowtoestimatethevalueofsynergy;CommonlyusedrelationshipsinbuildingM&Avaluationmodels;andHowtousemodelstoestimatethepurchasepricerange,initialofferprice(andotherkeydealcharacteristics)1foratargetfirm,andtoevaluatethefeasibilityoffinancingtheproposedofferprice.1Otherkeydealcharacteristicsincludeformofpayment,formofacquisition,andtaxconsiderations.FinancialModelsHelpAnswerKeyValuation,Financing,andDealStructuringQuestionsValuationHowmuchisthetargetcompanyworthwithouttheeffectsofsynergy?Whatisthevalueofexpectedsynergy?Whatisthemaximumpricetheacquirershouldpayforthetargetfirm?FinancingCantheproposedpurchasepricebefinanced?Whatcombinationofpotentialsourcesoffunds,bothinternallygeneratedandexternalsources,providesthelowestcostoffundsfortheacquirer,subjecttoexistingloancovenants?DealStructuringWhatistheimpactontheacquirer’sfinancialperformanceifthedealisstructuredasataxableratherthananontaxabletransaction?Whatistheimpactonfinancialperformanceandvaluationiftheacquireriswillingtoassumecertaintargetliabilities?M&AModelBuildingProcessStep1:ValueacquirerandtargetasstandalonefirmsStep2:ValueacquirerandtargetfirmsincludingsynergyStep3:DetermineinitialofferpricefortargetfirmStep4:Determinethecombinedfirms’abilityto financethetransactionStep1:ValueAcquirer&Target

asStandaloneFirmsUsethe5-forcesmodeltounderstanddeterminantsofprofitsandcashflow,i.e.,bargainingstrengthofCustomers(size,number,pricesensitivity)Currentcompetitors(marketshare,differentiation)Potentialentrants(entrybarriers,relativecosts)Substitutes(availability,prices,switchingcosts)Suppliers,incl.labor,lenders,etc.(size,number,uniqueness)relativetoindustryparticipants.Normalize3-5yearsofhistoricalfinancialinformationProjectnormalizedcashflowbasedonexpectedmarketgrowthandchangesinprofits/cashflowdeterminants.Applyingthe5-ForcesModeltoProjectAcquirerandTargetFirmFinancialPerformanceHowhavethefollowingfactorsaffectedrevenuegrowthandprofitmarginsintheacquirerandtargetfirms’industryhistorically?Customers(size,number,pricesensitivity)Currentcompetitors(marketshare,differentiation)Potentialentrants(entrybarriers,relativecosts)Substitutes(availability,prices,switchingcosts)Suppliers(size,number,uniqueness)Howwillthesefactorschange(ifatall)toimpactfuturerevenuegrowthandprofitmarginsofthesefirms?Customers(size,number,pricesensitivity)Currentcompetitors(marketshare,differentiation)Potentialentrants(entrybarriers,relativecosts)Substitutes(availability,prices,switchingcosts)Suppliers(size,number,uniqueness)Keyquestions:Howmightchangesinthebargainingpowerofcustomersandsuppliersrelativetotheacquirerandtargetfirmsimpactproductpricing,costs,andprofitmargins?Howmightsubstitutesandnewentrantsaffectproductpricingandprofitmargins?Step2:ValueAcquirer&TargetFirmsIncludingSynergyEstimateSourcesanddestroyersofvalueImplementationcostsincurredtorealizesynergyConsolidateacquirerandtargetprojectedfinancialsincludingtheeffectsofsynergyEstimatenetsynergy(consolidatedfirmslessvaluesoftargetandacquirer)Underwhatcircumstanceswouldtheacquisitionmakesense?AdjustingCombinedAcquirer/TargetCompanyProjectionsForEstimatedSynergyYear1Year2Year3Year4Year5NetSales1$200$220$242$266$293Costofsales2$160$176$194$213$234AnticipatedCostSavingsDirectlabor$(2)$(4)$(6)$(8)$(8)Indirectlabor(overhead)$(1)$(2)$(4)$(4)$(4)Purchasedmaterials$(2)$(3)$(5)$(5)$(5)Sellingexpenses$(1)$(3)$(5)$(5)$(5)Total$(6)$(12)$(20)$(22)$(22)Implementationcosts$3$2$1Costofsales(incl.synergy)$157$166$175$191$212Costofsales/Netsales78.5%75.5%72.3%71.8%72.4%1Combinedcompanynetsalesprojectedtogrow10%annuallyduringforecastperiod.2Costofsalesbeforesynergyassumedtobe80%ofnetsalesduringforecastperiod.DiscussionQuestions1.Howwouldyouadjustthecombinedfirm’sincomestatementforcostsavingsduetoimprovedworkerproductivity?(Hint:Determinethelineitemmostdirectlyaffectedbytheimprovementinproductivity.)Howwouldyouadjustthecombinedfirm’sincomestatementforadditionalrevenuegeneratedfromcross-selling(i.e.,Acquirersellingitsproductstothetarget’scustomersandviceversa)?Howwouldyoureflecttheexpensesincurredinimplementingtheworkerproductivityimprovementandcross-sellingprogramsonthecombinedfirm’sincomestatement?Step3:DetermineInitialOfferPrice

forTargetFirmEstimateminimumandmaximumpurchasepricerangeDetermineamountofsynergywillingtosharewithtargetshareholdersDetermineappropriatecompositionofofferpriceCalculatingInitialOfferPrice(PVIOP)PVMIN=PVTorPVMV,whicheverisgreaterforastockpurchase(liquidationvalueofnetacquiredassetsforanassetpurchase)PVMAX=PVMIN+PVNS,wherePVNS=PVSOV–PVDOVPVIOP=PVMIN+αPVNS,where0≤α≤1Offerpricerange=(PVTorMVT)<PVIOP<(PVTorMVT)+PVNSWherePVMIN=PVminimumpurchasepricePVT=PVstandalonevalueoftargetfirmPVMV=MarketvaluetargetfirmPVMAX=PVmaximumpurchasepricePVNS=PVofnetsynergyPVSOV=PVofsourcesofvaluePVDOV=PVofdestroyersofvalue

α=PortionofnetsynergysharedwithtargetcompanyshareholdersOfferpricepershare=PVIOP/Target’sfullydilutedsharesoutstanding1Howis“α”determined?

1Fullydilutedsharesoutstandingincludesbasicsharesplussharesresultingfromexercising“inthemoney”optionsandconversionofconvertibledebtandpreferredstock.CalculatingInitialOfferPrice--ExampleApotentialbidderestimatesthefollowinginformationforatargetfirm:PVMIN$650million(i.e.,standalonevalue)PVNS

50millionPVMAX$700million

α=30%Therefore,PVIOP=$650million+.3x$50million=$665millionOfferPriceRange=$650million<$665million<$700millionNote:Theofferprice,expressedasamultipleofearnings,cashflow,sales,bookvalue,andsoon,shouldbecomparedtosimilarmultiplespaidforrecentcomparabletransactionstodetermineiftheofferpriceisexcessive.CalculatingOfferPricePerShareandTarget’sEquityValueUnderAlternativePaymentScenariosAllStockTransaction:OfferPricePerShare=ShareExchangeRatio1xAcquirer’sSharePrice =OfferPricePerSharexAcquirer’sSharePriceAcquirer’sSharePriceEquityValue=OfferPricePerSharexTarget’sFullyDilutedSharesOutstandingAllCashTransaction:OfferPricePerShare=CashOfferPerTargetShareEquityValue=CashOfferPerTargetSharexTarget’sFullyDilutedSharesOutstandingCashandStockTransaction:OfferPricePerShare=CashOfferPerShare+(ShareExchangeRatioxAcquirer’sSharePrice)EquityValue=[CashOfferPerShare+(ShareExchangeRatioxAcquirer’sSharePrice)]xTarget’sFullyDilutedSharesOutstanding1Whenshareexchangeratios(SERs)arefixed,thevalueofthetransactioncanchangeduetofluctuationsintheacquirer’sshareprice.AssumetheSERis2andtheacquirer’ssharepriceis$50,theofferpricepershareis$100.However,iftheacquirer’ssharepricefallsto$40orincreasesto$60beforeclosing,theofferpriceis$80and$120,respectively.UnderafloatingSER,thedollarvalueoftheofferpricepershareisfixedandthenumberofsharesexchangedvarieswiththevalueoftheacquirer’sshareprice.Acquirersharepricechangesrequirere-estimatingtheSER.Forexample,iftheacquirer’ssharepricefallsto$40,thenumberofnewacquirersharesissuedpertargetsharetopreservethe$100offerpriceis2.5(i.e.,$100/$40);iftheacquirer’ssharepricerisesto$60,thenewSERwouldbe1.6667(i.e.,$100/$60).FixedSERSaremostcommonbecausetheriskofchangesintheofferpriceissharedequallybytheacquirer(i.e.,ifacquirer’ssharepricerises)andthetarget(i.e.,iftheacquirer’ssharepricefalls).

CalculatingtheTarget’sFullyDilutedSharesOutstanding

andAdjustingEquityValue(IfConvertedMethod)AssumptionsaboutTargetCommentBasicSharesOutstanding2,000,000In-the-MoneyOptionsa150,000ExercisePrice=$15/shareConvertibleDebentures(Facevalue=$1000;convertibleinto50sharesofcommonstock;impliedconversionprice=$20(i.e.$1000/50))PreferredStock(Parvalue=$60;convertibleinto3commonshares;impliedconversionprice=$20(i.e.,$60/3))$10,000,000$5,000,000Debenturesoutstanding=$10,000,000/$1,000=10,000Iffullyconverted=10,000x50=500,000commonsharesPreferredsharesoutstanding=$5,000,000/$60=83,333Iffullyconverted=83,333x3=250,000commonsharesOfferPricePerShare$30PurchasepriceofferedforeachtargetshareoutstandingTotalSharesOutstandingb=2,000,000+150,000+500,000+250,000=2,900,000AdjustedTargetEquityValuec=2,900,000x$30-150,000x$15=$87,000,000-$2,250,000=$84,750,000aAnoptionwhoseexercisepriceisbelowthemarketvalueofthefirm’sshareprice.cTotalsharesOutstanding=IssuedShares+Sharesfrom“inthemoney”optionsandconvertiblesecurities.dPurchasepriceadjustedfornewacquirersharesissuedforconvertiblesharesordebtlesscashreceivedfrom“inthemoney”optionholders.KeyPoint:Actualpurchasepriceis$84.8millionratherthan$60million.Step4:DetermineCombinedFirms’AbilitytoFinanceTransactionEstimateimpactofalternativefinancingstructures(e.g.,debt/equityratios)SelectfinancingstructurethatMeetsacquirer’srequiredfinancialreturnsanddesiredfinancialstructure;Meetstarget’sprimaryfinancialandnon-financialneeds(e.g.,nontaxable);Doesnotraiseborrowingcostsorviolateexistingloancovenants;andIssupportablebythecombinedfirms’operatingcashflows.

DeterminingDilution/AccretionbyCalculatingPost-MergerEarningsPerShare(EPS)

Willthetransactionbetransactionbedilutiveoraccretivetotheacquirer’sEPS?AcquirerisconsideringtheacquisitionofTargetinwhichTargetwouldreceive$84.30foreachshareofitscommonstock.Acquirerwishestoassesstheimpactofalternativeformsofpaymentonpost-mergerEPS.Acquirerbelievesthatanysynergiesinthefirstyearfollowingclosingwouldbefullyoffsetbycostsincurredincombiningthetwobusinesses.Selecteddataarepresentedasfollows:Pre-MergerDataAcquirerTargetNetEarnings$281,500,000$62,500,000SharesOutstanding112,000,00018,750,000EPS$2.51$3.33MarketPricePerShare$56.25$62.50CalculatingPost-MergerEPSina

ShareforShareExchange11.Shareexchangeratio=PricepershareofferedforTarget/PricepershareforAcquirer=$84.30/$56.25=1.52.NewsharesissuedbyAcquirer=18,750,000(sharesofTarget)x1.5(shareexchangeratio)=28,125,000Totalsharesoutstandingofthecombinedfirms=112,000,000+28,125,000=140,125,000Post-mergerEPSofthecombinedfirms=($281,500,000+$62,500,000)/140,125,000=$2.46(versus$2.51forAcquirerpriortothemerger)Implication:EPSforthecombinedfirmsisdiluted$.05duringthefirstfullyearfollowingclosing.1Targethasnoconvertiblepreferredstockordebtoutstanding,anditsemployeeshaveno“inthemoney”options..CalculatingPost-MergerEPS

inanAllCashTransactionPurchaseprice=$84.30x18,750,000=$1,580,625,000AssumeAcquirerborrowedtheentirepurchasepriceat8%interestwiththeprincipalrepaidin10yearsAnnualinterestexpense=.08x$1,580,625,000=$126,450,000PostmergerEPSofthecombinedfirms=($281,500,000+$62,500,000-$126,450,000(1-.4))/112,000,000=$2.39(versus$2.51forAcquirerbeforethemerger)Implication:EPSofthecombinedfirmsisdilutedby$.12duringthefirstfullyearfollowingclosingduetotheannualinterestexpense.Thisdilutionis$.07higherthananallstocktransaction.1Assumesthefirm’smarginaltaxrateis40percent.CalculatingPost-MergerEPS

inaCash&StockTransaction:PracticeProblemAssumethepurchasepriceequals1shareofAcquirerstock(i.e.,$56.25)and$28.05(i.e.,$84.30offerprice-$56.25)incashandthatthecashportionofthepurchasepriceisfinancedbytheacquireratan8%annualinterestratewiththeprincipalduein10years.Thefirm’smarginaltaxrateis40%.Whatistheearningspershareofthecombinedbusinessesafterclosing?Pre-MergerDataAcquirerTargetNetEarnings$281,500,000$62,500,000SharesOutstanding112,000,00018,750,000EPS$2.51$3.33MarketPricePerShare$56.25$62.50ModelWorksheetLayout1AssumptionsSectionHistoricalPeriodForecastPeriod1Referstothemodeltemplatecontainedonthecompanionwebsiteaccompanyingthetextbook.UsingM&AModelTemplate1Modelworksheetlayout:Assumptions(toppanel);historicalperioddata(lowerleftpanel);forecastperioddata(lowerrightpanel).DisplayingMicrosoftExcelformularesultsonaworksheet:OnToolsmenu,clickOptions,andthenclicktheViewTab.Todisplayformulasincells,selecttheformulascheckbox;todisplaytheformula’sresults,clearthecheckbox.Inplaceofexistinghistoricaldata,fillinthedataincellsnotcontainingformulas.Donotdeleteexistingformulasin“historicalperiod”unlessyouwishtocustomizethemodel.Donotdeleteorchangeformulasinthe“forecastperiod”cellsunlessyouwishtocustomizethemodel.Toreplaceexistingdata,changetheforecastassumptionsatthetopofthespreadsheet.1Referstothemodeltemplatefoundonthestudentonlinewebsiteaccompanyingthetextbook.ModelBalanceSheetAdjustment

MechanismMethodologySeparatecurrentassetsintooperatingandnon-operatingassets.Operatingassetsincludeminimumoperatingcashbalances1andotheroperatingassets(e.g.,receivables,inventories,andassetssuchasprepaiditems).Currentnon-operatingassetsareinvestments(i.e.,cashgeneratedinexcessofminimumoperatingbalancesinvestedinshort-termmarketablesecurities).Thefirmissuesnewdebtwhenevercashoutflowsexceedcashinflows.Thefirm’sinvestmentsincreasewhenevercashoutflowsarelessthancashinflows.1Minimumcashbalancesdeterminedbyanalyzingthefirm’scashconversioncycle,bycomputingtheaverageratioofcashandmarketablesecuritiestonetrevenueoversomepriorperiodtimesthefirm’scurrentnetrevenue,orbyapplyingtheindustryaverageratioofcashandmarketablesecuritiestonetrevenuetimesthefirm’scurrentnetrevenue.Toillustratethelatter,assumetheaverageratioofcashandmarketablesecuritiesinanindustryis10%andthattheatargetfirmhasannualrevenueof$100millionandcashandmarketablesecuritiesof$15million.Excesscashbalancesareequalto$15million-.1x$100=$5million.ModelBalanceSheetAdjustment

MechanismIllustrationAssetsLiabilitiesCurrentOperatingAssetsCashNeededforOperations(C)OtherCurrentAssets(OCA)TotalCurrentOperatingAssets(TCOA)Short-Term(Non-Oper.)Investments(I)NetFixedAssets(NFA)OtherAssets(OA)TotalAssets(TA)CurrentLiabilities(CL)OtherLiabilities(OL)Long-TermDebt(LTD)ExistingDebt(ED)NewDebt(ND)TotalLiabilities(TL)Shareholders’Equity(SE)CashOutflowsExceedCashInflows:If(TA–I)>(TL–ND)+SE,ΔND>0(i.e.,thefirmmustborrow),otherwiseΔND=0CashOutflowsLessThanCashInflows:If(TA–I)<(TL–ND)+SE,ΔI>0(i.e.,thefirm’snon-operatingcashincreases),otherwiseΔI=0Cas