New Semester
Started
Get
50% OFF
Study Help!
--h --m --s
Claim Now
Question Answers
Textbooks
Find textbooks, questions and answers
Oops, something went wrong!
Change your search query and then try again
S
Books
FREE
Study Help
Expert Questions
Accounting
General Management
Mathematics
Finance
Organizational Behaviour
Law
Physics
Operating System
Management Leadership
Sociology
Programming
Marketing
Database
Computer Network
Economics
Textbooks Solutions
Accounting
Managerial Accounting
Management Leadership
Cost Accounting
Statistics
Business Law
Corporate Finance
Finance
Economics
Auditing
Tutors
Online Tutors
Find a Tutor
Hire a Tutor
Become a Tutor
AI Tutor
AI Study Planner
NEW
Sell Books
Search
Search
Sign In
Register
study help
business
financial reporting financial statement analysis and valuation
Valuation Mergers Buyouts And Restructuring 2nd Edition Enrique R. Arzac - Solutions
a. What is the role of the call provision in the specific case of TVL?
10.19 The core business of TVL Corp. is undergoing a difficult period. TVL bonds have been downgraded to BB rating in order to reflect the higher probability of default the company 24The loan contract would specify that interest for a fraction of a year would be based upon compound interest. That
g. Compute the EBITDA multiple implied by the IPO valuation with respect to the 7/1/05 to 6/30/06 pro-forma numbers. Is the P/E multiple with respect to net income during the same period meaningful?
f. Add the balance of the proceeds from the IPO minus the retirement of the outstanding debt to the cash balance of NetTune as of 6/30/2004 and project the cash balances through 12/31/2005. Assume 1.25% quarterly interest on cash balances.
. What is the allocation of the expected IPO proceeds? Allow 6% for fees and expenses.
d. How much can Gustav expect to pay Colossus in total for NetTune?
c. What is the expected value of Allen Venture Partners’ stake on June 30, 2004 based upon the expected IPO value of NetTune? What is their expected return multiple (that is, how many times their investment multiplies) from January 1, 2003 to June 30, 2004.
b. How much can Martin Gustav expect to be worth at the IPO time
a. What percentage of the equity needs to be sold in the IPO?
All the above looked very appealing to the NetTune crowd. But Gustav still needed$15−$3−$5 = $7 million. Mar¨us (Colossus’ VP) had indicated Colossus might be willing to provide bridge financing for the $7 million, assuming Allen Venture Partners put up $8 million. The note would be senior,
Rather than an alternative standard to MP3, the technology was completely flexible and could be set to allow a variety of standards, including MP3 and the standard recommended by the industry’s Secure Music Initiative. In addition, delivery was compatible with a variety of playback devices
Between him, his NetTune associates, friends, and relatives Gustav hoped to get $2 million cash. This, plus the stock appreciation rights he had in Colossus, plus the severance payments he planned to negotiate for his team, would bring the management’s contribution to the acquisition price to
10.18 It took Mike Strong, the new CEO of Colossus, 5 minutes into Martin Gustav’s presentation to turn to Bob Mar¨us, the Vice President of Corporate Development, and say: “We are not a music store. Get rid of it. . . . Nothing personal Martin.” Martin Gustav had been working for the good
10.17 Valuation of holdbacks: Consider now the case where part of the purchase price is held back by the buyer to be paid if and only if certain conditions are met. For example, refer to Problem 10.9 and suppose that instead including $5 million cash in its offer for VASM, Prentice Works offers $3
10.16 Suppose that Mr. Webster would instead receive a perpetual earnout in the form of class-A shares that would pay dividend based upon the performance of VASM, which would be operated as a semi-independent unit with its own GAAP accounting and independent auditors. Class-A shares would receive
10.15 Open the Financial Options Calculator. Save the copy to use under another name such as“Perpetual.” Add a data table to the call option module of this copy and compute the value of the perpetual options of Section 10.7 over 100 years. Verify that your result agrees with those given there.
10.14 Suppose the earnout of VASM is based upon the 2.5 times the excess of EBITDA over a $6 million yearly threshold for the next 3 years payable at the end of every year. In addition, each yearly payment is capped at $2 million. What is the value of the earnout?
Assume the terms of the earnout are as specified in Problem 10.9. Suppose that the seller of VASM can repurchase his company in case the buyer is unable to pay the earnout at maturity, and that the repurchase price is 90% of the total cash consideration already received from the buyer. In this
10.12 Let the earnout of VASM be payable at the end of the 3rd year based upon the excess of average EBITDA during the previous 3 years over $6 million and be capped at $10 million. Value the earnout for an earnout multiple equal to 3.484 and compare your result to that obtained in Problem 10.11.
10.11 (a) What would the value of the earnout of Problem 10.10 be if it were capped at $10 million? (b) Redesign the earnout such that even with the cap it has the same value as in Problem 10.9.
10.10 Consider the following alternative earnout for VASM’s Mr. Webster. The other components of the consideration stay the same. The earnout would pay 3.484 times the excess of 3rd-year EBITDA over $6 million. The riskless 3-year annual compound interest rate is r = 5%. The 95% confidence range
While Mr. Webster would take into account his salary as president of the subsidiary, as well as the tax consequences of the transaction, you should ignore these matters in answering the above questions.
d. What is the initial enterprise value EBITDA multiple offered by Prentice?
c. How much is Prentice Works offering for the enterprise (net debt plus equity) of VASM?
b. What is the value of the earnout agreement?
a. What is the cost to VASM of the 7.5% $7 million note offered by Prentice Works?
Prentice Works’ corporate tax rate is 40%.
Companies with characteristics similar to VASM have a WACC of about 14%.
Current revenue is $50 million. EBITDA = 0.15Revenue – 1.5 million such that current EBITDA is 6 million.
Mr. Webster believed that he could make VASM’s revenue grow at 10% per year during the following 3 years.
Prentice Works’ outstanding subordinated notes are priced to yield 9% and the riskless rate is 5%.
Problems 217 as its president with a 3-year contract and competitive compensation, at the end of which he would retire.The following additional information is available:
3. An earnout agreement stipulating a payment to take effect at the end of the 3rd year equal to 0.5 times 3rd-year EBITDA.Prentice Works will assume VASM’s present net debt of $14.8 million. Furthermore, VASM would become a wholly owned subsidiary of Prentice, and Mr. Webster would stay 23The
2. A 7.5% annual coupon 5-year subordinated note issued by Prentice Works for $7 million with principal payable at maturity. In addition, it was decided to elect not to amortize OID (original issue discount) for tax purposes, as it was permitted in the present case.23
1. A cash payment for $5 million due at closing.
10.9 VASM is a privately owned manufacturer of light trailers that are sold to rental companies and individuals. Its sole owner, Mr. Benjamin Webster is presently considering a purchase offer from Prentice Works. The offer for the equity of VASM is as follows:
e. Balkan’s EBITDA is expected to increase at 20% per year during the following 3 years, and its fixed costs are small.At this point, you are adding the final touches to the earnout agreement (item 3 of the purchase terms). How high a multiple of 3rd-year EBITDA would be acceptable to TUV-TUV?
d. The WACC of companies similar to Balkan is about 13%.
. TUV-TUV’s outstanding debt is priced to yield 9% and its tax rate is 40%.
. TUV-TUV has expressed willingness to pay for Balkan’s equity (items 1 to 3 of the purchase terms) nine times current EBITDA of $4 million minus assumed net debt.
. TUV-TUV would assume Balkan’s net debt of $15 million.
4. Balkan Audio would become a subsidiary of TUV-TUV with Mr. Sobranie staying as its president with a competitive salary for 3 years, at the end of which he would retire.In addition, you have the following information:
. A lump-sum payment at the end of the 3rd year equal to a multiple of 3rd-year EBITDA.This multiple is still subject to negotiation.
. A 10-year $400,000 annuity.
1. A cash payment of $8 million at closing.
10.8 As the investment banker of TUV-TUV Systems, you are working on TUV-TUV’s purchase of Balkan Audio from the sole owner Mr. Yenidge Sobranie. After several meetings with Mr. Sobranie, you have put together the following preliminary purchase terms: Mr. Sobranie would receive from TUV-TUV
10.7 You have invested $1 million for a 25% equity stake in a new venture. Current sales are$8.1 million and EBITDA is 10% of sales. You expect to recover your investment plus return in 4 years via the sale of the company at an expected exit EBITDA multiple of 8×.No further equity issues are
d. What is the implicit post-money valuation of the equity?
c. What price would you pay for each share now?
b. How many new shares need to be issued?
a. What equity participation (percent ownership) would you demand?
10.5 Refer to Problem 10.4 and your answer. In order to check the viability of your investment you want to estimate the number of subscribers required for supporting your valuation.Assume Hotmail will have no debt and will be valued at a revenue multiple equal to 5×.Start with Internet advertising
10.4 Assume you are Hotmail’s VC pondering whether to invest $300,000 in the first-stage of the venture. At this point in the negotiation, Mr. Bathia is offering 15% of the equity that, after successive rounds of financing, would be diluted to about one-third or 5% by the time the IPO becomes a
10.3 Refer to Section 10.3 and calculate the equity stakes of the entrepreneurs and other employees after the first and the second rounds of financing of Hotmail.
10.2 (a) Consider a 2-year venture requiring $2 million initial investment yielding $5 million(expressed in time-zero present value) with 50% probability or zero with 50% probability.What is its expected net present value of the venture and how much equity would the VC demand? (b) Assume that the
c. Assume the terms of the deal as calculated in (a) or (b) above but that the entrepreneur assigns probabilities p = 0.25 and 1 − p = 0.75 to the low and high realizations of cash flows, respectively. What are the entrepreneur’s expected cash flows for the 3rd year under a common share
b. Consider now a financing arrangement that results in non-proportional sharing of cash flows. Let the VC receive a convertible preferred stock that pays a 15% dividend, has a$1,000 liquidation preference, and is convertible at any time into common stock. What share of the common equity should the
a. What proportion of the equity would the VC demand in a simple common stock capitalization in order to attain an expected IRR = 40%?
10.1 Consider a start-up requiring $1,000 initial funding. Furthermore, let us assume that the VC estimates the venture would yield the following cash flows with probability p = 0.5 and 1 − p = 0.5, respectively.Problems 215 Year 0 1 2 3 Cash flow (1,000)p = 0.5 150 150 1,000 1 − p = 0.5 150
Problems 197 Verizon-MCI Merger Synergy Projections 2006–2009 (million $)2006 2007 2008 2009 Expense synergies∗ 500 750 1,000 1,000 Integration costs 600 550 100 —Decrease (increase) in net expenses∗∗ (100) 200 900 1,000 Increase in Capex 700 800 500 —Increase in tax depreciation 70 206
9.15 Refer to Example 8 in Section 9.6.3. Here, you are asked to verify Verizon’s estimate of the value of synergies to be attained by its merger with MCI. Verizon estimated that the present value of synergies would amount to $7 billion. Synergies were expected to be composed of network and IT
9.14 Refer to Sections 9.11.2 and 9.11.3, and prepare the stand-alone income statements for CDH Group for the years 2003 to 2007 and compute its EPS. The operating forecasting assumptions for CDH are provided on the first panel of Exhibit 9.5; its income statement for 2002 and the projected
9.13 The DCF valuation of Heavy Industries, Inc.’s business plan results in an enterprise value of $100 million. The capital expenditure budget yields negative cash flows during the next 3 years and a net funding requirement of $35 million. Although the company has no net debt and could fund its
c. On the other hand, based upon your own research you have concluded that although the real price of oil would stay fairly constant through 1991, oil prices would increase faster than general inflation after 1991. You estimate that Gulf’s stand-alone real cash flows from oil and gas production
b. The original valuation assumed that Gulf’s $39 per share price reflected the market’s assumption that it would maintain its current policy and that no significant changes would take place in the energy market in the future.
a. The original valuation implied that Chevron could bid up to $85 per share of Gulf.
9.12 Your firm, First Energy Advisors, has been retained to review the valuation of the Gulf Oil Corp. made using the information provided in Problem 9.11. You are in charge of this assignment. You have been asked to pay particular attention to the long-term trends of the energy market. In the
9.11 On August 11, 1983, T. Boone Pickens and a consortium of investors began purchasing shares of Gulf Oil for $39. On February 22, 1984, Pickens announced a partial tender offer at $65 per share. (“A rich oilman conducting piracy on the high seas will hurt all of us,”lamented the chairman of
f. Assume the government informs Volvo that it is going to vote its shares against the proposed merger at the Procordia shareholders meeting. Design a revised proposal that, in your opinion, can be acceptable to both Volvo and Procordia shareholders.
e. Assume you are a member of the advisory commission to the Minister of Industry. Would you recommend the approval of the proposed merger?
d. How do you expect the prices of Volvo and Procordia to respond to the merger announcement?
c. Discuss the exchange terms offered to the holders of Volvo convertibles and the value of the warrants embedded in the new convertibles.
b. How would voting power be distributed among the government, Volvo’s shareholders, and others after the merger, with and without changing the government’s A class Procordia shares into B class?
a. It seems reasonable to assume that the merger of an auto and aerospace manufacturer with a food and pharmaceutical company would generate no material operating synergies.Given this assumption, evaluate the proposed merger from the point of view of both Volvo and Procordia shareholders.
The capital stock of Procordia was made up of A and B class shares. Each A share carried one vote and each B share carried one-tenth of a vote. There were 253.562 million shares outstanding, of which 64.96 percent were A shares and 35.04 percent were B shares.The fully diluted number of shares was
9.10 On January 25, 1992, AB Volvo and Procordia AB surprised the business world by announcing that their boards had agreed to a merger. The merger was proposed by Pehr Gyllenhammer, the chairman of both Volvo and Procordia, and had been approved at meetings of the board of directors of each of the
c. Evaluate the transaction from the point of view of Novell’s shareholders.
with the merger would have amounted to $40 million.
b. What increase in the value of the merged company would have justified the transaction from the point of view of Lotus shareholders? Assume that the fees and expenses associated
a. Calculate the 1989 pro-forma EPS of the merged company assuming the proposed exchange took place.
Problems 193 chief executive, and president. The combination was hailed as redrawing the competitive balance in the personal computed software business by providing a challenge to the growing power of Microsoft. Fiscal year 1989 data for each company were as follows:Lotus Novell Net income
9.9 In May 1990 Lotus Development Corp. proposed a merger with Novell, Inc. via a share exchange in which Lotus would exchange 1.19131 of its shares for every Novell share.Under the announced terms, Raymond Noorda, Novell’s chairman, would become vice chairman of the merged company, while
b. What synergy should the merged firm produce for the shareholders of E-III to break even?
a. Assume no synergy. What are the gains (losses) to each group of shareholders?
9.8 E-III Corp. is investigating the possible acquisition of Reluctant, Inc. The following data are available:E-III Reluctant EPS $2.00 $3.20 Dividend per share 0 $1.60 Number of shares 8,000,000 3,000,000 Stock price $4.00 $8.00 The costs of equity are 17% for E-III and 15% for Reluctant. E-III
b. What value should the acquisition create in order to justify the transaction from the point of view of Gould’s stockholders?
a. Estimate the gain and/or loss to Gould and American Micro’s stockholders under the assumption that the acquisition does not create value. Treat American Micro’s preferred as equivalent to common stock.
9.7 Consider the acquisition by Gould, Inc. of American Microsystems, Inc. in a stock swap valued at about $200 million. American Microsystems, with sales of $129.4 million, was the largest commercial maker of custom semiconductors at the time.Gould said it would issue 1.78 shares of its own common
d. Assume BONY had accumulated a foothold of 2.8% at an average price of $29 a share prior to its bid and revise your estimate of (c).
c. The increase in the value of the combined entity that has to take place in order to justify the acquisition from the point of view of BONY shareholders.
b. The gains (losses) to each group of shareholders under the assumption that the value of the synergies is $300 million.
a. The 1987 pro-forma EPS of the combined entity assuming that the proposed exchange takes place.
9.6 In the fall of 1987 the Bank of New York (BONY) offered to exchange 1.575 shares of BONY common stock, plus $15 in cash per common share of Irving Bank Corporation.Company data for 1987 were as follows:192 Chapter 9 Mergers and Acquisitions Irving BONY Pro-forma net income available to
b. What are the gains (losses) to each group of shareholders?
a. What is the value of equity of the merged company?
9.5 GLD Corp. is investigating the possible acquisition of Stopper Systems, Inc. The following data are available:GLD Stopper Systems EPS $4.00 $2.20 Dividend per share $1.20 $0.60 Number of shares 6,000,000 2,000,000 Stock price $10.00 $5.00 The cost of equity of both GLD and Stopper Systems is
9.4 Refer to Section 9.5 and prepare the consolidated balance sheet for the case of negative goodwill. That is, assume the purchase of XYZ was done at $22 a share for a total consideration of $1,100 million and the fair value of XYZ’s net assets is as shown in Exhibit 9.1.
9.3 Refer to Problem 9.1. Assume the target is a subsidiary of a corporate seller such that the target is able to distribute proceeds tax-free to the parent. Consider the case in which the transaction is a stock purchase, but it is possible to treat it as an asset purchase for the purpose of
9.2 Refer to Problem 9.1. Assume the target has $80 of accumulated NOLs that would expire in 7 years and the tax-exempt interest rate is 3%. Calculate the net proceeds to the seller shareholders and the tax consequences to the buyer in a stock purchase and an asset purchase.
9.1 Assume the buyer acquires a debt-free target for $70 cash, the target’s tax basis in the assets is $20, the target shareholders’ basis in the stock is $35, and the fair market value of the stock was $55 prior to the acquisition. Let the corporate tax rate be 40%, the personal tax rate on
Showing 500 - 600
of 1960
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
Last
Step by Step Answers
Get 50% OFF
Claim Now
