p.8
Terminology and Jargon in M&A
What does consolidation refer to in M&A?
The combination of different firms into a new company (newco).
p.52
Market Reactions and Probability of Deal Closure
What happens to the bidder's stock price after applying the new formula?
It jumps from $45 to $46.
p.9
Terminology and Jargon in M&A
What is a cash offering in M&A terminology?
When a bidder offers cash to purchase the target shares.
p.20
Merger Synergies and Their Implications
What is operating synergy?
Improving operating efficiency through economies of scale or scope by acquiring a customer, supplier, or competitor.
p.26
Market Value Balance Sheet (MVBS) Concepts
How do you calculate E newco in a cash merger?
E newco = C newco + EV newco - D newco.
p.20
Merger Synergies and Their Implications
What is financial synergy?
Benefits that arise from a merger that lead to a lower cost of capital and lower risk.
p.16
Valuation Techniques: Discounted Cash Flow (DCF)
How can you find the EV of a publicly traded firm?
By going backward from the share price.
p.41
Market Value Balance Sheet (MVBS) Concepts
What is the formula for calculating C newco in a cash merger?
C newco = C bidder + C target - offer price.
p.52
Merger Synergies and Their Implications
Why do target shareholders receive a larger share of the synergy?
Because they experience a higher return compared to the bidder's shareholders.
p.9
Terminology and Jargon in M&A
What is a stock offering in M&A terminology?
When a bidder offers shares of stock of the newly merged company in exchange for shares of target stock.
p.9
Terminology and Jargon in M&A
How does the author differentiate between 'acquisition' and 'merger'?
The author uses 'acquisition' for M&A deals paid for by cash and 'consolidation' or 'merger' for deals paid for by stock.
p.6
Terminology and Jargon in M&A
What is a hostile takeover bid?
An attempt to buy a controlling interest in a publicly-traded company without the consent of the target company's board.
p.38
Market Value Balance Sheet (MVBS) Concepts
What does MVBS stand for in the context of mergers and acquisitions?
Market Value Balance Sheet.
p.24
Merger Synergies and Their Implications
What type of synergy is generated by acquiring potential target B?
$10 million acquirer unique synergy.
p.26
Market Value Balance Sheet (MVBS) Concepts
What is the formula for calculating EV newco in a cash merger?
EV newco = EV bidder + EV target.
p.2
Market Value Balance Sheet (MVBS) Concepts
What model will be developed in the course to analyze M&A deals?
A simple model based on market value balance sheets (MVBS).
p.62
Market Reactions and Probability of Deal Closure
What is the value of each target's share after conversion to Newco?
$23 (calculated as 46 * 0.5).
p.7
Terminology and Jargon in M&A
Can a holding company control a target with less than 51% ownership?
Yes, because some shareholders may not vote.
p.11
Market Value Balance Sheet (MVBS) Concepts
What is the relationship between market value of assets and market value of liabilities?
Market value of assets must equal market value of liabilities.
p.2
Course Logistics and Structure
What prior knowledge is required for the EF4312 course?
Knowledge from Financial Management and Corporate Finance.
p.39
Market Reactions and Probability of Deal Closure
What aspect of merger deals will be discussed regarding their certainty?
When merger deals are not certain to close.
p.26
Market Value Balance Sheet (MVBS) Concepts
What is the formula for calculating C newco in a cash merger with no synergies?
C newco = C bidder + C target - offer price.
p.6
Terminology and Jargon in M&A
What is a negotiated bid in mergers and acquisitions?
A friendly merger where management and shareholders of both firms negotiate the terms.
p.7
Terminology and Jargon in M&A
What percentage of voting shares is considered a controlling interest?
A majority of voting shares, which is 51%.
p.60
Understanding Mergers and Acquisitions (M&A)
What is the offer made by the bidder for each target share?
0.5 shares of Bidder for each target share.
p.48
Control Premium in M&A Transactions
How is the control premium calculated in this merger analysis?
Control premium = Offer value - Initial value = 230 - 210 = $20.
p.23
Control Premium in M&A Transactions
What is a control premium in M&A?
The price a bidder pays in addition to the market value of the target to take control of the target company.
p.60
Market Reactions and Probability of Deal Closure
What is the market-implied probability of the deal closing based on stock price reaction?
To be calculated based on the provided data.
p.48
Market Reactions and Probability of Deal Closure
How much does each share surge after the merger?
$1 (calculated by dividing the net gain by 10 shares).
p.22
Merger Synergies and Their Implications
What is synergy in the context of mergers and acquisitions?
An increase in enterprise value (EV) solely attributable to combining the companies instead of running them as separate businesses.
p.59
Understanding Mergers and Acquisitions (M&A)
What is the focus of EF4312?
Mergers and Acquisitions.
p.55
Market Reactions and Probability of Deal Closure
What happens to the stock prices of the target and bidder after a merger announcement?
They are assumed to be identical to their prices after the deal is closed.
p.16
Market Value Balance Sheet (MVBS) Concepts
How do practitioners find out the equity value and share price after obtaining EV?
By using the Market Value Balance Sheet (MVBS).
p.59
Analysis of Cash and Stock Mergers
What is a key consideration in stock mergers?
The stock price reaction.
p.35
Market Value Balance Sheet (MVBS) Concepts
What is the value of the offer to the target in the MVBS analysis assuming synergy = 0?
220, calculated as 5 * 44.
p.20
Merger Synergies and Their Implications
What are merger synergies?
Benefits that arise from the combination of two companies, leading to improved efficiency and performance.
p.8
Terminology and Jargon in M&A
What is a joint venture?
A business arrangement where two or more companies combine certain assets and work together without exchanging stock or ownership.
p.16
Valuation Techniques: Discounted Cash Flow (DCF)
What valuation technique do practitioners use to obtain the Enterprise Value (EV) of a firm?
Discounted Cash Flow (DCF).
p.33
M&A Process and Key Steps
What is the formula for calculating the capital of the new company in a stock merger with no synergy?
C newco = C bidder + C target.
p.2
Valuation Techniques: Discounted Cash Flow (DCF)
Which traditional firm valuation technique will be implemented in the course?
Discounted Cash Flow (DCF).
p.38
M&A Process and Key Steps
What type of analysis is being conducted in the class exercise?
MVBS analysis of a stock merger.
p.7
Terminology and Jargon in M&A
What is a controlling interest in a corporation?
An ownership interest with enough voting stock shares to prevail in any stockholders’ motion.
p.8
Terminology and Jargon in M&A
What is a strategic alliance?
An agreement between two or more parties to pursue agreed-upon objectives while remaining independent organizations.
p.20
Merger Synergies and Their Implications
What are economies of scope?
Cost advantages that result when a company produces multiple products rather than specializing in a single product.
p.58
Market Reactions and Probability of Deal Closure
What is the focus when merger deals are not certain to close?
Calculating market-implied probability of closing from stock price reaction.
p.54
Market Reactions and Probability of Deal Closure
What does the stock price movement indicate about the market's perception of the deal's closure?
The probability p that the market thinks the deal will close can be inferred from the stock price changes.
p.33
M&A Process and Key Steps
What is the formula for the enterprise value of the new company in a stock merger with no synergy?
EV newco = EV bidder + EV target.
p.33
M&A Process and Key Steps
What is another way to express the equity of the new company in a stock merger?
E newco = E bidder + E target.
p.52
Market Reactions and Probability of Deal Closure
What is the new stock price of the target after the merger?
It jumps from $21 to $23.
p.17
Understanding Mergers and Acquisitions (M&A)
What is the focus of the course EF4312?
Mergers and Acquisitions Valuation.
p.26
Market Value Balance Sheet (MVBS) Concepts
How is D newco calculated in a cash merger?
D newco = D bidder + D target.
p.2
Understanding Mergers and Acquisitions (M&A)
What is the focus of the EF4312 course?
The mechanisms of Mergers and Acquisitions (M&A).
p.8
Terminology and Jargon in M&A
What is an acquisition?
When one company purchases another company's shares to gain control, becoming the holding company of the newly formed company (newco).
p.41
Market Value Balance Sheet (MVBS) Concepts
How is D newco calculated in a cash merger?
D newco = D bidder + D target.
p.41
Market Value Balance Sheet (MVBS) Concepts
What is the formula for calculating EV newco in a cash merger?
EV newco = EV bidder + EV target + synergy.
p.1
Course Logistics and Structure
What types of materials are included in the EF4312 course?
Lectures, textbook, case studies, merger case proposal and presentation, practice problems, and group work.
p.22
Merger Synergies and Their Implications
What are acquirer unique synergies?
Increases in value achievable only by a unique acquirer, and not achievable by any other potential acquirer.
p.20
Merger Synergies and Their Implications
What are economies of scale?
Cost advantages that companies obtain due to the scale of operation, with cost per unit of output generally decreasing with increasing scale.
p.24
Control Premium in M&A Transactions
From the acquirer's perspective, which target should warrant a higher control premium?
It depends on the strategic value of the synergies; both generate $10 million but differ in type.
p.7
Terminology and Jargon in M&A
What is a holding company?
A parent company that owns sufficient stock in a target to control it.
p.57
Market Reactions and Probability of Deal Closure
What equation represents the market's perception of the probability of the deal closing?
p × 42 + (1 − p) × 34 = 41.
p.58
Market Reactions and Probability of Deal Closure
What does 'p' represent in the closing probability formula?
The market-implied probability of closing.
p.18
Valuation Techniques: Discounted Cash Flow (DCF)
What valuation method do practitioners use to obtain the enterprise value (EV) of a firm?
Discounted Cash Flow (DCF).
p.39
Merger Synergies and Their Implications
What type of mergers will be considered in the MVBS analysis?
Mergers with positive synergies.
p.22
Merger Synergies and Their Implications
What are general synergies?
Increases in value achievable by any potential acquiring companies.
p.55
Understanding Mergers and Acquisitions (M&A)
What assumption is typically made about merger deals in this context?
That merger deals are certain to complete.
p.48
Market Value Balance Sheet (MVBS) Concepts
What is the value of the offer to the target in the merger deal?
$230 (calculated as 5 * 46).
p.62
Market Reactions and Probability of Deal Closure
How is the market-implied probability of closing calculated from stock price reaction?
Using the formula: P post − announcement = p × P closing + (1 − p) × P pre − announcement.
p.6
Terminology and Jargon in M&A
What is a tender offer?
An offer made directly to all stockholders of a publicly traded corporation to sell their stock at a specified price within a specified time, usually hostile.
p.2
M&A Process and Key Steps
What will students conduct after laying the foundations in the course?
Actual valuations and analysis of real deals.
p.59
Market Reactions and Probability of Deal Closure
What can be calculated from stock price reaction in M&A?
Market-implied probability of closing.
p.6
Terminology and Jargon in M&A
What is a bear hug in the context of mergers and acquisitions?
An offer made by one company to buy shares of another for a much higher per-share price than the market value.
p.20
Merger Synergies and Their Implications
How can complementary technical assets and skills contribute to merger synergies?
They enhance the combined company's capabilities and innovation potential.
p.48
Merger Synergies and Their Implications
What is the net gain after considering the control premium?
$10 (calculated as synergy - control premium).
p.58
Market Reactions and Probability of Deal Closure
What does 'P closing' represent in the context of mergers?
The stock price if the merger successfully closes.
p.30
M&A Process and Key Steps
What are the assets and liabilities of the bidder?
Assets (A) = 300, Liabilities (L) = 300, Control (C) = 300.
p.36
M&A Process and Key Steps
How do you calculate the control premium in a stock merger?
control premium = N target × R × P newco - E target.
p.49
Market Value Balance Sheet (MVBS) Concepts
Under what condition do bidder shareholders lose money?
If control premium > synergy.
p.5
M&A Process and Key Steps
What is the purpose of due diligence in M&A?
To assess the target company's financial and operational status.
p.30
M&A Process and Key Steps
What are the assets and liabilities of Newco after the merger?
Assets (A) = 100, Liabilities (L) = 380, Control (C) = 100.
p.33
M&A Process and Key Steps
How is the debt of the new company calculated in a stock merger without synergy?
D newco = D bidder + D target.
p.55
Market Reactions and Probability of Deal Closure
Is it certain that any merger deal will close at the time of announcement?
No, it is almost never certain.
p.31
Terminology and Jargon in M&A
What is the exchange ratio (R) in a stock merger?
The number of new shares paid for each old share given up.
p.23
Control Premium in M&A Transactions
Why do bidders pay a control premium?
To gain control of the target company.
p.35
Market Reactions and Probability of Deal Closure
How much does each share drop after the merger?
$1, calculated by dividing the total loss by 10 shares.
p.21
Merger Synergies and Their Implications
What is the formula to calculate synergy in a merger?
If EV Newco > EV A + EV B, then the difference is the synergy.
p.5
M&A Process and Key Steps
What is the first step in the M&A process?
Confidentiality agreement.
p.3
Terminology and Jargon in M&A
What types of transactions are included in M&A?
Mergers, acquisitions, consolidations, tender offers, purchase of assets, and management acquisitions.
p.10
Market Value Balance Sheet (MVBS) Concepts
What does 'D' stand for in the MVBS?
Corporate debt (market value).
p.58
Market Reactions and Probability of Deal Closure
What formula is used to calculate the post-announcement stock price?
P post − announcement = p × P closing + (1 − p) × P pre − announcement.
p.58
Market Reactions and Probability of Deal Closure
What does 'P pre − announcement' refer to?
The stock price before the merger announcement.
p.36
M&A Process and Key Steps
What is the formula for the enterprise value of the new company in a stock merger?
EV newco = EV bidder + EV target.
p.3
Understanding Mergers and Acquisitions (M&A)
What does M&A stand for?
Mergers and Acquisitions.
p.15
Valuation Techniques: Discounted Cash Flow (DCF)
How do perpetuity models calculate future cash flows?
They assume CF_n = (1 + g)^n × CF1.
p.46
Valuation Techniques: Discounted Cash Flow (DCF)
How can equity (E newco) also be expressed in terms of the bidder and target's equity?
E newco = E bidder + E target + synergy
p.53
Market Reactions and Probability of Deal Closure
Why was Whole Foods' stock price below $42 per share shortly before the deal's completion?
Concerns about regulatory approval or market conditions.
p.29
Market Value Balance Sheet (MVBS) Concepts
What is the purpose of the last two formulas in the cash merger calculations?
They help check if your calculation is correct.
p.5
M&A Process and Key Steps
What is the merger agreement?
A legal document outlining the terms and conditions of the merger.
p.43
M&A Process and Key Steps
How is the cash value of the new company (C newco) calculated in a cash merger?
C newco = C bidder + C target - offer price.
p.43
Control Premium in M&A Transactions
What is the formula for calculating the control premium?
Control premium = offer price - E target.
p.33
M&A Process and Key Steps
How is the equity of the new company calculated in a stock merger?
E newco = C newco + EV newco - D newco.
p.11
Market Value Balance Sheet (MVBS) Concepts
What does P represent in the MVBS identities?
P = E / N, where E is equity and N is the number of shares.
p.25
Market Value Balance Sheet (MVBS) Concepts
What are the total assets and liabilities of the bidder?
Assets: A L C = 300, D = 300; EV = 450; E = 450.
p.29
Market Value Balance Sheet (MVBS) Concepts
How is D newco calculated in a cash merger?
D newco = D bidder + D target.
p.10
Market Value Balance Sheet (MVBS) Concepts
What does MVBS stand for?
Market Value Balance Sheet.
p.32
Terminology and Jargon in M&A
What is the share exchange ratio offered by the Bidder for each Target share?
0.5 shares of Bidder for each Target share.
p.50
Valuation Techniques: Discounted Cash Flow (DCF)
What is the formula for determining the debt (D newco) of the new company in a stock merger?
D newco = D bidder + D target
p.3
M&A Process and Key Steps
What is the nature of most M&A deals?
Generally friendly and negotiated.
p.47
Merger Synergies and Their Implications
Why did the stock price for the bidder's shareholders increase from $45 to $46?
Due to the synergies created by the merger.
p.43
M&A Process and Key Steps
What is the purpose of the last two formulas in the cash merger calculations?
They help check if your calculation is correct.
p.35
Market Value Balance Sheet (MVBS) Concepts
How is the equity value of the new company (newco) represented in the MVBS analysis?
As 1/3 of the equity value of newco, calculated as 5/(10 + 5).
p.35
Control Premium in M&A Transactions
What is the control premium in this merger deal?
10, calculated as 220 - 210.
p.36
M&A Process and Key Steps
What is the formula for calculating the capital of the new company in a stock merger with no synergy?
C newco = C bidder + C target.
p.36
M&A Process and Key Steps
How is the debt of the new company calculated in a stock merger?
D newco = D bidder + D target.
p.19
Valuation Techniques: Discounted Cash Flow (DCF)
What does MVA stand for and how is it calculated in the example?
MVA = C + EV; in this case, MVA = 0 + 20000 = $20000.
p.46
Valuation Techniques: Discounted Cash Flow (DCF)
What is the formula for calculating equity (E newco) in a stock merger?
E newco = C newco + EV newco − D newco
p.29
Market Value Balance Sheet (MVBS) Concepts
What is the alternative formula for E newco considering synergies?
E newco = E bidder + synergy - control premium.
p.15
Valuation Techniques: Discounted Cash Flow (DCF)
What is the significance of the variables 'r' and 'g' in the Gordon growth model?
'r' is the discount rate and 'g' is the growth rate of cash flows.
p.36
M&A Process and Key Steps
What do the last two formulas help you verify?
They help check if your calculation is correct.
p.5
M&A Process and Key Steps
What is a bid auction in the context of M&A?
A competitive process where multiple bidders submit offers for a target company.
p.27
Market Value Balance Sheet (MVBS) Concepts
What caused the bidder’s equity value to decline from $450 to $360?
The increase in debt and changes in the capital structure post-merger.
p.19
Valuation Techniques: Discounted Cash Flow (DCF)
What valuation technique do practitioners use to obtain the enterprise value (EV) of a firm?
Discounted Cash Flow (DCF).
p.46
M&A Process and Key Steps
What is the formula for calculating the number of shares in a new company (N newco) after a stock merger?
N newco = N target × R + N bidder
p.29
Market Value Balance Sheet (MVBS) Concepts
What is the formula for calculating C newco in a cash merger with no synergies?
C newco = C bidder + C target - offer price.
p.18
Market Value Balance Sheet (MVBS) Concepts
How is equity value and share price determined after calculating EV?
By using the Market Value Balance Sheet (MVBS).
p.21
Merger Synergies and Their Implications
What does the synergy from a merger represent?
The difference when the Enterprise value of the combined firm exceeds the sum of the Enterprise values of the individual firms.
p.29
Market Value Balance Sheet (MVBS) Concepts
What is the formula for calculating EV newco?
EV newco = EV bidder + EV target.
p.36
M&A Process and Key Steps
What is the formula for the equity of the new company in terms of the bidder and target?
E newco = E bidder + E target.
p.3
Understanding Mergers and Acquisitions (M&A)
What is the general definition of Mergers and Acquisitions?
The consolidation of companies or assets through various types of financial transactions.
p.3
Understanding Mergers and Acquisitions (M&A)
What happens to the companies involved in a merger?
Combinations of two companies occur, and only one survives, becoming the holding company or newco.
p.10
Market Value Balance Sheet (MVBS) Concepts
What is the relationship between book value and market value of debt in MVBS?
Book value is an acceptable estimate of market value of debt for valuation purposes.
p.50
Valuation Techniques: Discounted Cash Flow (DCF)
What is the formula for calculating equity (E newco) in a stock merger?
E newco = C newco + EV newco − D newco
p.50
Valuation Techniques: Discounted Cash Flow (DCF)
How can E newco also be expressed in terms of bidder and target equity?
E newco = E bidder + E target + synergy
p.43
Valuation Techniques: Discounted Cash Flow (DCF)
How is the enterprise value of the new company (EV newco) calculated?
EV newco = EV bidder + EV target + synergy.
p.45
Terminology and Jargon in M&A
What is the exchange ratio (R) in a stock swap during mergers?
The number of new shares paid for each old share given up.
p.37
Understanding Mergers and Acquisitions (M&A)
What is the share exchange ratio offered by the Bidder for each target share?
0.5 shares of Bidder for each target share.
p.19
Market Value Balance Sheet (MVBS) Concepts
How is equity value and share price determined after calculating EV?
By using the Market Value Balance Sheet (MVBS).
p.21
Merger Synergies and Their Implications
How is synergy defined in the context of M&A?
Synergy = 3 - (1 + 1) = 1.
p.46
M&A Process and Key Steps
What is the formula for determining the total debt (D newco) of the new company in a stock merger?
D newco = D bidder + D target
p.46
Valuation Techniques: Discounted Cash Flow (DCF)
How is the enterprise value (EV newco) of the new company calculated?
EV newco = EV bidder + EV target + synergy
p.14
Valuation Techniques: Discounted Cash Flow (DCF)
What is the formula used to calculate the enterprise value (EV) in Will's business?
EV = Cash Flow / Discount Rate.
p.50
Valuation Techniques: Discounted Cash Flow (DCF)
What is the formula for calculating the number of shares in a new company (N newco) during a stock merger?
N newco = N target × R + N bidder
p.29
Market Value Balance Sheet (MVBS) Concepts
How is control premium defined in the context of a cash merger?
Control premium = offer price - E target.
p.49
Market Value Balance Sheet (MVBS) Concepts
Can the control premium be smaller than, equal to, or larger than total synergy?
Yes, it can be smaller than, equal to, or larger than total synergy.
p.50
Valuation Techniques: Discounted Cash Flow (DCF)
How is the enterprise value (EV newco) of the new company calculated?
EV newco = EV bidder + EV target + synergy
p.43
M&A Process and Key Steps
What does D newco represent in a cash merger?
D newco = D bidder + D target.
p.40
M&A Process and Key Steps
What is an all-cash merger?
An all-cash merger is when the offer is a fixed cash amount per share for all shares that are properly tendered under the offer.
p.25
M&A Process and Key Steps
What is the cash offer made by the bidder for the target equity?
$300 cash for all target equity.
p.40
Market Value Balance Sheet (MVBS) Concepts
What are the financial details of the bidder in the merger?
Bidder: N = 10, P = 45, A = 300, L = 300, D = 300, EV = 450, E = 450.
p.40
Market Value Balance Sheet (MVBS) Concepts
What are the financial details of the target in the merger?
Target: N = 10, P = 21, A = 100, L = 100, D = 80, EV = 190, E = 210.
p.25
Market Value Balance Sheet (MVBS) Concepts
What are the total assets and liabilities of the target?
Assets: A L C = 100, D = 80; EV = 190; E = 210.
p.36
M&A Process and Key Steps
How is the equity of the new company calculated?
E newco = C newco + EV newco - D newco.
p.47
M&A Process and Key Steps
What is the assumed share exchange ratio in the merger deal?
0.5 shares of Bidder for each target share.
p.18
Valuation Techniques: Discounted Cash Flow (DCF)
What should you expect when using DCF to value a public company?
The stock price may not exactly equal the market price, but should fall within a reasonable range.
p.5
M&A Process and Key Steps
What does it mean to execute a merger legally?
To finalize the merger in accordance with legal requirements.
p.50
Control Premium in M&A Transactions
What is the formula for calculating the control premium in a stock merger?
control premium = N target × R × P newco − E target
p.15
Valuation Techniques: Discounted Cash Flow (DCF)
What is the formula for calculating the enterprise value (EV) using DCF?
EV = CF1 / (1 + r) + CF2 / (1 + r)^2 + CF3 / (1 + r)^3 + ... + CF_n / (1 + r)^n.
p.29
Market Value Balance Sheet (MVBS) Concepts
How do you calculate E newco?
E newco = C newco + EV newco - D newco.
p.49
Market Value Balance Sheet (MVBS) Concepts
Under what condition do bidder shareholders make money?
If control premium < synergy.
p.53
Market Reactions and Probability of Deal Closure
Why did Whole Foods' stock price jump to $44 per share after the acquisition announcement?
Market speculation and investor optimism about the deal.
p.30
M&A Process and Key Steps
What are the assets and liabilities of the target company?
Assets (A) = 100, Liabilities (L) = 80, Control (C) = 100.
p.50
Control Premium in M&A Transactions
How is the price of the new company (P newco) calculated in relation to the target's price?
P newco × N target × R = P target × N target + control premium
p.41
Market Value Balance Sheet (MVBS) Concepts
How do you calculate E newco in a cash merger?
E newco = C newco + EV newco - D newco.
p.42
Market Reactions and Probability of Deal Closure
Why did the bidder's stock price increase from $45 to $46?
Due to the perceived value of the merger and synergy.
p.10
Market Value Balance Sheet (MVBS) Concepts
What is represented by 'C' in the MVBS?
Cash and cash-like assets such as short-term investments.
p.13
Market Value Balance Sheet (MVBS) Concepts
What determines Apple's stock price according to public investors?
The Enterprise Value (EV) of $2.41 trillion.
p.34
M&A Process and Key Steps
What is the share exchange ratio offered by the Bidder for each Target share?
0.5 shares of Bidder for each Target share.
p.50
Valuation Techniques: Discounted Cash Flow (DCF)
How is the total cash (C newco) of the new company calculated in a stock merger?
C newco = C bidder + C target
p.10
Market Value Balance Sheet (MVBS) Concepts
What does 'E' represent in the MVBS?
Equity value (market value of equity).
p.50
Control Premium in M&A Transactions
What is the formula relating the price of the new company (P newco) to the bidder's price and control premium?
P newco × N bidder = P bidder × N bidder + synergy − control premium
p.46
M&A Process and Key Steps
How is the total capital (C newco) of the new company calculated in a stock merger?
C newco = C bidder + C target
p.10
Market Value Balance Sheet (MVBS) Concepts
What does 'EV' represent in the context of MVBS?
Enterprise value (value of operation).
p.13
Market Value Balance Sheet (MVBS) Concepts
What is the significance of present value in the context of Apple's MVBS?
It represents the projected future cash flows.
p.34
Merger Synergies and Their Implications
Why did the stock price for the Bidder's shareholders decrease from $45 to $44?
Due to the merger and the dilution of shares.
p.15
Valuation Techniques: Discounted Cash Flow (DCF)
What does the Discounted Cash Flow (DCF) method assume about the present value of an enterprise?
It is equal to the sum of all future cash flows of the enterprise, discounted to the present value at a discount rate.
p.25
Market Value Balance Sheet (MVBS) Concepts
What would the MVBS of the merged company (newco) look like?
The MVBS would combine the assets and liabilities of both the bidder and the target.
p.19
Valuation Techniques: Discounted Cash Flow (DCF)
How is equity (E) calculated in the example?
E = MVL - D; where MVL = MVA.
p.36
M&A Process and Key Steps
What is the relationship between the new company's price and the bidder's price in a stock merger?
P newco × N bidder = P bidder × N bidder - control premium.
p.43
Valuation Techniques: Discounted Cash Flow (DCF)
What is the formula for equity in the new company (E newco)?
E newco = C newco + EV newco - D newco.
p.43
Valuation Techniques: Discounted Cash Flow (DCF)
How can you express E newco in terms of the bidder's equity and synergy?
E newco = E bidder + synergy - control premium.
