The synergy from an acquisition 5msw-。-+-名等 △CE=△Rey,-△Cost-△Taxes,-△Cptl slide 10
slide 10 The synergy from an acquisition The synergy from an acquisition CostvCF Taxes Cptl r CF VVVSynergy t t t t T t t t BAAB Δ−Δ−Δ−Δ=Δ + Δ =+−= ∑= Re )1( )( 1
Source of Synergy from Acquisitions ■ Revenue Enhancement Cost Reduction Including replacing ineffective managers. Tax Gains Net Operating Losses Unused Debt Capacity -The Cost of Capital Economies of Scale in Underwriting. slide 11
slide 11 Source of Synergy from Acquisitions Source of Synergy from Acquisitions Revenue Enhancement Cost Reduction – Including replacing ineffective managers. Tax Gains – Net Operating Losses – Unused Debt Capacity The Cost of Capital – Economies of Scale in Underwriting
Earnings Growth Before Mergers After Mergers X Y S F Earning Per Share 1.00 1.00 1.43 1.43 Price per share 25.00 10.00 25.00 35.71 P/E 25 10 17.5 25 Number of shares 100 100 140 140 Total earnings 100 100 200 200 Total Value 2,500 1,000 3,500 5,000 slide 12
slide 12 Earnings Growth Earnings Growth Before Mergers After Mergers X Y S F Earning Per Share 1.00 1.00 1.43 1.43 Price per share 25.00 10.00 25.00 35.71 P/E 25 10 17.5 25 Number of shares 100 100 140 140 Total earnings 100 100 200 200 Total Value 2,500 1,000 3,500 5,000
The NPV of a Merger Before Acquisition A B Market Value 500 100 Number of Shares 25 10 Price per share 20 10 VA=VAB-Cash=700-150=550 slide 13
slide 13 The NPV of a Merger The NPV of a Merger Before Acquisition A B Market Value 500 100 Number of Shares 25 10 Price per share 20 10 VA = VAB – Cash = 700 – 150 = 550
The NPV of a Merger After Acquisition Cash Stock(0.75:1)Stock(0.6819:1) Market Value 550 700 700 Number of Shares 25 32.5 31.819 Price per share 22 21.54 22 slide 14
slide 14 The NPV of a Merger The NPV of a Merger After Acquisition Cash Stock (0.75:1) Stock (0.6819:1) Market Value 550 700 700 Number of Shares 25 32.5 31.819 Price per share 22 21.54 22