Suppose we want to figure out who gains and loses from the US Airways & AA...
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Suppose we want to figure out who gains and loses from the US Airways & AA merger ■ Let's suppose the market information for these firms prior to deal being leaked was US Airways (A) □ PV = $3 billion □ #shares 150 m. share price=$20 - American (B) PV =$2 billion □ #shares = 400 m. share price=$5 US Airways & AA- Example [Part 2] Furthermore, suppose US Airways estimates that the merger will O Generate additional $5 m./year in FCF from AA's operations because of efficiency gains It will generate additional $10 m. per year in FCF from economies of scale Assume US Airways r = 10% A Assume AA's r = 11% A US Airways & AA- Example [Part 3] If US Airways offers to pay a $1 premium per share to the AA shareholders... • How much value is created? • What will be value of the combined firm [ignoring how the deal is paid for]? • How much value goes to AA? • How much value goes to US Airways? Suppose we want to figure out who gains and loses from the US Airways & AA merger ■ Let's suppose the market information for these firms prior to deal being leaked was US Airways (A) □ PV = $3 billion □ #shares 150 m. share price=$20 - American (B) PV =$2 billion □ #shares = 400 m. share price=$5 US Airways & AA- Example [Part 2] Furthermore, suppose US Airways estimates that the merger will O Generate additional $5 m./year in FCF from AA's operations because of efficiency gains It will generate additional $10 m. per year in FCF from economies of scale Assume US Airways r = 10% A Assume AA's r = 11% A US Airways & AA- Example [Part 3] If US Airways offers to pay a $1 premium per share to the AA shareholders... • How much value is created? • What will be value of the combined firm [ignoring how the deal is paid for]? • How much value goes to AA? • How much value goes to US Airways?
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Answer rating: 100% (QA)
Solution To determine the value created by the merger we need to calculate the present value of the expected synergies and compare it to the premium o... View the full answer
Related Book For
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
Posted Date:
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