Company A announced an offer to buy Company B for $22/sh; $17/sh in cash, $5/sh in stock
Question:
•Company A announced an offer to buy Company B for $22/sh; $17/sh in cash, $5/sh in stock (Explain)
•Cash component is about $22 Bn
•Revenue of target is 6.5x the acquiror
•Combined EBITDA is $6.5 Bn
•Free cash flow is $5.4 Bn
•Acquiror announced the sale of a sub/division for $2.3 Bn
•Acquiror is projecting $2 Bn in synergies
•Both companies paid dividends
•Pro Forma leverage is 5x
•Companies moving in different directions in terms of revenue growth•External ratings (Moodys/S&P) differ with the target much better rated
Questions:
1.At 5x leverage are you comfortable with the terms of the merger?
2.The target has 5X the revenue of the acquiror. Is this normal?
3.The acquiror is stating there are $2 Bn in synergies associated with the merger. Are they likely to attain these synergies?4.Is the cash portion of the offer financeable?
5.If you were CEO or CFO of the target would you entertain this offer?
6.Would the fact there is limited overlap between their two businesses effect your decision?
Managerial Economics and Business Strategy
ISBN: 978-0071267441
7th Edition
Authors: Michael R. baye