2. You have been asked to estimate the value of synergy in the merger of StraightCom,...

 

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2. You have been asked to estimate the value of synergy in the merger of StraightCom, a mov streaming firm, and Movie Sorcery, an entertainment company and have been provided with the following information on the two companies: Revenues NOPAT next year WACC Return on capital Net Debt Number of shares (millions) StraightCom Movie Sorcery $750.00 $60.00 12.00% 10.00% $100.00 125 $250.00 $30.00 9.00% a. Estimate the value per share of StraightCom, prior to the merger. 12.00% $50.00 50 Both firms are in stable growth, growing 3% a year in perpetuity. Remember from the study guide, the reinvestment rate is the growth rate divided by the Return on Capital and that the FCFF is the NOPAT x (1-the reinvestment rate). b. Estimate the value per share of Movie Sorcery, prior to the merger. c. Now assume that combining the two firms will be able to cut annual operating expenses by $22 million (on an after-tax basis), though it will take three years for these costs savings to show up. Estimate the value of synergy in this merger. (Remember that you can capitalize this cost savings and provide a present value and the WACC is the weighted WACC from the two firms weighted by their Enterprise Values) d. Assume that both companies were fairly priced before the acquisition and that StraightCom pays a 25% premium over market price to buy Movie Sorcery. Estimate the value per share for StraightCom after the acquisition (StraightCom is not issuing more shares). 2. You have been asked to estimate the value of synergy in the merger of StraightCom, a mov streaming firm, and Movie Sorcery, an entertainment company and have been provided with the following information on the two companies: Revenues NOPAT next year WACC Return on capital Net Debt Number of shares (millions) StraightCom Movie Sorcery $750.00 $60.00 12.00% 10.00% $100.00 125 $250.00 $30.00 9.00% a. Estimate the value per share of StraightCom, prior to the merger. 12.00% $50.00 50 Both firms are in stable growth, growing 3% a year in perpetuity. Remember from the study guide, the reinvestment rate is the growth rate divided by the Return on Capital and that the FCFF is the NOPAT x (1-the reinvestment rate). b. Estimate the value per share of Movie Sorcery, prior to the merger. c. Now assume that combining the two firms will be able to cut annual operating expenses by $22 million (on an after-tax basis), though it will take three years for these costs savings to show up. Estimate the value of synergy in this merger. (Remember that you can capitalize this cost savings and provide a present value and the WACC is the weighted WACC from the two firms weighted by their Enterprise Values) d. Assume that both companies were fairly priced before the acquisition and that StraightCom pays a 25% premium over market price to buy Movie Sorcery. Estimate the value per share for StraightCom after the acquisition (StraightCom is not issuing more shares).

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To estimate the value of synergy in the merger of StraightCom and Movie Sorcery we need to follow the steps outlined in the question Lets calculate ea... View the full answer