Genie Inc. is a manufacturer of kitchen appliances. After having been in business for 56 years,...

 

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Genie Inc. is a manufacturer of kitchen appliances. After having been in business for 56 years, the firm is currently experiencing stable growth of 2 to 3% per year. Many Industry experts consider Genle Inc. as a mature company. Genie's current share price is $20, with 2,500,000 shares outstanding; weighted cost of capital (WACC) is 15%. The company's most recent financial statements are shown below: Statement of Comprehensive Income (in $000) Sales $10,000 7,000 Cost of goods sold Operating expenses 1,000 2,000 EBDIT Depreciation 200 EBIT 1,800 Interest expense 1,342 Taxable income 458 Taxes (40%) 183 Net Income $275 Statement of Financial Position (in $000) Cash $ 8000 Accounts payable 1,000 Inventory 583 Notes payable 3,417 Accounts receivable 833 Current assets 9,417 4,417 Long-term debt 10,000 20,000 Equity 15,000 Net fixed assets Total assets $29,417 Total liabilities & equity $29,417 Genie has accumulated cash reserves of $8 million, and its CEO, Mr. Lionel Rich, believes that it is a good time to think about boosting Genie's sales growth by acquiring another company that is younger, with better growth opportunities. Mr. Rich has narrowed down the choice to one potential target: Aladdin Corporation. Aladdin is a relatively young company; it has only been in business for five years. Its main products are a line of extremely popular espresso machines. Its shares are selling at $7.50 per share. It has 1,000,000 shares outstanding, and a WACC of 18%. Aladdin's financial statements are shown below: Current liabilities Statement of Comprehensive Income (in $000) Sales $2,000 Cost of goods sold 1,300 Operating expenses 160 540 EBDIT Depreciation EBIT 40 500 Interest expense 297 Taxable income 203 Taxes 81 Net Income $ 122 Most Recent Statement of Financial Position ($000) Cash $ 200 Accounts payable $ 500 Inventory 108 Notes payable 475 Accounts receivable 167 Current assets 475 975 Long-term debt 2000 7,500 Equity 5,000 Net fixed assets Total assets $7,975 Total llabilities & equity $7,975 Mr. Rich estimates that the synergistic benefits from this acquisition will be $300,000 per year for the foreseeable future. His analysis also indicates that Genle can acquire Aladdin by paying $7.75 million in cash, or by swapping one Genie share for three Aladdin shares. Before Mr. Rich can take his recommendation to Genie's Board of Directors, he needs answers to the following questions: 1. If Genle went ahead with the acquisition of Aladdin, what is the total value of the acquisition? (10 marks) 2. What is the maximum price per share that Genle should be willing to pay for this acquisition? 3. If Genie decided to go ahead with the cash acquisition, what will be its price per share after the acquisition? (5 marks) (15 marks) 4. What are the factors that determine whether the company should use cash acquisition or stock acquisition? (10 marks) 5. Discuss five different defensive tactics that the target company can use to thwart this takeover attempt. (15 marks) (12 marks) 6. What are the possible cash flow benefits from this acquisition? 7. Should the company consider diversification as a benefit of this acquisition? Should Genle go ahead with the acquisition using cash or stock acquisition? (5 marks) 8. (28 marks) Current liabilities T Genie Inc. is a manufacturer of kitchen appliances. After having been in business for 56 years, the firm is currently experiencing stable growth of 2 to 3% per year. Many Industry experts consider Genle Inc. as a mature company. Genie's current share price is $20, with 2,500,000 shares outstanding; weighted cost of capital (WACC) is 15%. The company's most recent financial statements are shown below: Statement of Comprehensive Income (in $000) Sales $10,000 7,000 Cost of goods sold Operating expenses 1,000 2,000 EBDIT Depreciation 200 EBIT 1,800 Interest expense 1,342 Taxable income 458 Taxes (40%) 183 Net Income $275 Statement of Financial Position (in $000) Cash $ 8000 Accounts payable 1,000 Inventory 583 Notes payable 3,417 Accounts receivable 833 Current assets 9,417 4,417 Long-term debt 10,000 20,000 Equity 15,000 Net fixed assets Total assets $29,417 Total liabilities & equity $29,417 Genie has accumulated cash reserves of $8 million, and its CEO, Mr. Lionel Rich, believes that it is a good time to think about boosting Genie's sales growth by acquiring another company that is younger, with better growth opportunities. Mr. Rich has narrowed down the choice to one potential target: Aladdin Corporation. Aladdin is a relatively young company; it has only been in business for five years. Its main products are a line of extremely popular espresso machines. Its shares are selling at $7.50 per share. It has 1,000,000 shares outstanding, and a WACC of 18%. Aladdin's financial statements are shown below: Current liabilities Statement of Comprehensive Income (in $000) Sales $2,000 Cost of goods sold 1,300 Operating expenses 160 540 EBDIT Depreciation EBIT 40 500 Interest expense 297 Taxable income 203 Taxes 81 Net Income $ 122 Most Recent Statement of Financial Position ($000) Cash $ 200 Accounts payable $ 500 Inventory 108 Notes payable 475 Accounts receivable 167 Current assets 475 975 Long-term debt 2000 7,500 Equity 5,000 Net fixed assets Total assets $7,975 Total llabilities & equity $7,975 Mr. Rich estimates that the synergistic benefits from this acquisition will be $300,000 per year for the foreseeable future. His analysis also indicates that Genle can acquire Aladdin by paying $7.75 million in cash, or by swapping one Genie share for three Aladdin shares. Before Mr. Rich can take his recommendation to Genie's Board of Directors, he needs answers to the following questions: 1. If Genle went ahead with the acquisition of Aladdin, what is the total value of the acquisition? (10 marks) 2. What is the maximum price per share that Genle should be willing to pay for this acquisition? 3. If Genie decided to go ahead with the cash acquisition, what will be its price per share after the acquisition? (5 marks) (15 marks) 4. What are the factors that determine whether the company should use cash acquisition or stock acquisition? (10 marks) 5. Discuss five different defensive tactics that the target company can use to thwart this takeover attempt. (15 marks) (12 marks) 6. What are the possible cash flow benefits from this acquisition? 7. Should the company consider diversification as a benefit of this acquisition? Should Genle go ahead with the acquisition using cash or stock acquisition? (5 marks) 8. (28 marks) Current liabilities T

Answer rating: 100% (QA)

1 The value of acquisition is the whole cost incurred via way of means of a commercial enterprise in obtaining a brand new purchaser or buying an asset An accountant will listing a enterprises value o... View the full answer