《Corporate Finance》公司理财Stephen A.Ross机械工业出版社Chapter 29: Mergers and Acquisitions29.1 The salient point here is that both firms are shown at market value. Therefore, Lageris paying 300,000 for an asset valued at 200,000 (the total value of PhiladelphiaPretzel shown on the balance sheet). The merger creates $100,000 of goodwill(300,000 - 200,000).Balance SheetLager Brewing(in $ thousands)Current assets $480 Current liabilities $200Other assets 140 Long-term debt 400Net fixed assets 580 Equity 700Goodwill 100Total assets $1,300 Total liabilities $1,300 29.2 In this problem, Lager is paying 300,000 for an asset worth 240,000. Since thebalance sheet for Philadelphia Pretzel shows assets at book value instead of marketvalue, the goodwill will be only $60,000 (=$300,000 - $240,000). Thus, the net fixedassets are $620,000 (=$1,300,000 - $480,000 - $140,000 - $60,000).Balance SheetLager Brewing(in $ thousands)Current assets $480 Current liabilities $200Other assets 140 Long-term debt 400Net fixed assets 620 Equity 700Goodwill 60Total assets $1,300 Total liabilities $1,30029.3 Now, they will use the pooling-of-interests method, so the assets are carried at thepre-merger levels, and the aggregate value of the two firms is unchanged by themerger.Balance SheetLager Brewing(in $ thousands)Current assets $480 Current liabilities $280Other assets 140 Long-term debt 100 Net fixed assets 580 Equity820 Total assets $1,200 Total liabilities $1,20029.4a. False. Although the reasoning seems correct, the Stillman-Eckbo data do not support the monopoly power theory.b.True. When managers act in their own interest, acquisitions are an important control device for shareholders. It appears that some acquisitions and takeovers are the consequence of underlying conflicts between managers and shareholders. c.False. Even if markets are efficient, the presence of synergy will make the value of the combined firm different from the sum of the values of the separate firms. Incremental cash flows provide the positive NPV of the transaction.d.False. In an efficient market, traders will value takeovers based on “Fundamental factors” regardless of the time horizon. Recall that the evidence as a whole suggests efficiency in the markets. Mergers should be no different.e.False. The tax effect of an acquisition depends on whether the merger is taxable or non-taxable. In a taxable merger, there are two opposing factors to consider, the capital gains effect and the write-up effect. The net effect is the sum of these two effects.f.True. Because of the coinsurance effect, wealth might be transferred from thestockholders to the bondholders. Acquisition analysis usually disregards this effect and considers only the total value.29.5Recall that the PV of a perpetuity is found asCFPV =iwhere CF is the cash flow received yearly and i is the annual discount rate.So, for Small Fry, the value is found as8Value =50.16= When the rate is the unknown, solve for i . So, for the Benefits from acquisition:542.55.117642.5ii ===Similar for all but the last entry.29.5(continued)For the final entry, first sum the component values, then use that to solve for the rate:Whale-Fry SmallFry Whale Benefits from AcquisitionValue Value + Value + Value 5025042.5292.5==++=33292.5.1128ii ==Now, apply the same techniques to fill-in the remaining numbers:(in $ millions) Net Cash Flow Per Year (Perpetual)DiscountRate (%) Value Small Fry 8 16% 50 Whale 20 10% 200 Benefits from Acquisition: 5 11.76% 42.5 Revenue Enhancement 2.5 20% 12.5 Cost Reduction 2 10% 20 Tax Shelters 0.5 5% 10 Whale-Fry $33 11.28% $292.5Per share price = ($292.5-100)/5 = $38.529.6a.To find the distribution of joint values, we first must find the joint probabilities.First, find the joint probabilities for each possible combination of weather in the two towns. The weather conditions are independent, therefore, the joint probabilities are the products of the individual probabilities.Possible states Joint probability Rain Rain 0.1 x 0.1=0.01 Rain Warm 0.1 x 0.4=0.04 Rain Hot 0.1 x 0.5=0.05 Warm Rain 0.4 x 0.1=0.04 Warm Warm 0.4 x 0.4=0.16 Warm Hot 0.4 x 0.5=0.20 Hot Rain 0.5 x 0.1=0.05 Hot Warm 0.5 x 0.4=0.20 Hot Hot0.5 x 0.5=0.25Next, note that the revenue when rainy is the same regardless of which town. So,since the state "Rain - Warm" has the same outcome (revenue) as "Warm - Rain",their probabilities can be added. The same is true of "Rain - Hot" / "Hot - Rain" and"Warm - Hot" / "Hot - Warm". Thus the joint probabilities are29.6 (continued)Possible states Joint probabilityRain Rain 0.01Rain Warm 0.08Rain Hot 0.10Warm Warm 0.16Warm Hot 0.40Hot Hot 0.25Finally, the joint values are the sums of the values of the two companies for theparticular state.Possible states Joint valueRain Rain 100,000 + 100,000 $200,000Rain Warm 100,000 + 200,000 300,000Warm Warm 200,000 + 200,000 400,000Rain Hot 100,000 + 400,000 500,000Warm Hot 200,000 + 400,000 600,000Hot Hot 400,000 + 400,000 800,000b. Recall, if a firm cannot service its debt, the bondholders receive the value of theassets. Thus, the value of the debt is the value of the company if the face value of thedebt is greater than the value of the company. If the value of the company is greaterthan the value of the debt, the value of the debt is its face value. Here the value of thecommon stock is always the residual value of the firm over the value of the debt.Joint Prob. Joint Value Debt Value Stock Value0.01 $200,000 $200,000 $00.08 300,000 300,000 00.16 400,000 400,000 00.10 500,000 400,000 100,0000.40 600,000 400,000 200,0000.25 800,000 400,000 400,000c. To show that the value of the combined firm is the sum of the individual values, youmust show that the expected joint value is equal to the sum of the separate expectedvalues.Expected joint value = 0.01($200,000) + 0.08($300,000) + 0.16($400,000) +0.10($500,000) + 0.40($600,000) + 0.25($800,000)= $580,00029.6 (continued)Since the firms are identical, the sum of the expected values should be twice theexpected value of either.Expected individual value = 0.1($100,000) + 0.4($200,000) + 0.5($400,000)= $290,000Expected combined value = 2 ($290,000) = $580,000which is the same as the expected joint valued. The bondholders are better off if the value of the debt after the merger is greater thanthe value of the debt before the merger.Value of the debt before the merger:debt value, either company = 0.1($100,000) + 0.4($200,000) + 0.5($200,000)= $190,000Total debt value, pre-merger = 2($190,000)= $380,000To get the expected debt value, post-merger, find the weighted average of the debtvalues under the 6 possible states:debt value, post-merger = 0.01($200,000) + 0.08($300,000) + 0.16($400,000)+ 0.10($400,000) + 0.40($400,000) +0.25($400,000)= $390,000The bondholders are $10,000 better off after the merger.29.7 The decision hinges upon the risk of surviving. That is, consider the wealth transferfrom bondholders to stockholders when risky projects are undertaken. High-riskprojects wil l reduce the expected value of the bondholders’ claims on the firm. Thetelecommunications business is riskier than the utilities business.If the total value of the firm does not change, the increase in risk should favor thestockholder. Hence, management should approve this transaction.If the total value of the firm drops because of the transaction, and the wealth effect islower than the reduction in total value, management should reject the project.29.8 If the market is “smart,” the P/E ratio will not be constant.a. Value = $2,500 + $1,000 = $3,500b. EPS = Post-merger earnings / Total number of shares=($100 + $100)/200 =$1c. Price per share = Value/Total number of shares=$3,500/200 =$17.50d. If the market is “fooled,” the P/E ratio w ill be constant at 25.EPS = Post-merger earnings / Total number of shares= $200/200 = $1.00Price = P/E * EPS = 25 * $1 = $25Value = Post-merger Price * Total number of shares= $25 * 200 = $5,00029.9 a. After the merger, Arcadia Financial will have 130,000 [=10,000 + (50,000)(6/10)]shares outstanding. The earnings of the combined firm will be $325,000. Theearnings per share of the combined firm will be $2.50 (=$325,000/130,000). Theacquisition will increase the EPS for the stockholders from $2.25 to $2.50.b. There will be no effect on the original Arcadia stockholders. No synergies exist inthis merger since Arcadia is buying Coldran at its market price. Examining therelative values of the two firms demonstrates this.First, find the pre-merger stock prices:()16 * $225,000Share price of Arcadia =100,000= $36()10.8 * $100,000Share price of Coldran =50,000= $21.60Now, compare the relative value of these prices: $21.6/$36 = 0.6.Since the problem states that Coldran’s shareholders receive 0.6 shares of Arcadia forevery share of Coldran, no synergies exist.29.10 a.The synergy will be the present value of the incremental cash flows of the proposed purchase. Since the cash flows are perpetual, this amount is000,500,7$08.0000,600$=b.The value of Flash-in-the-Pan to Fly-by-Night is the synergy plus the current market value of Flash-in-the-Pan.V $7,500,000 $20,000,000 $27,500,000=+=c. The value of each alternative is:Cash alternative = $15,000,000Stock alternative = 0.25 ($27,500,000 + $35,000,000)= $15,625,000d. Since these values are already in PV terms, the NPVs are simply Value - Cost:NPV of cash alternative $27,500,000 - $15,000,000$12,500,000NPV of stock alternative $27,500,000 - $15,625,000$11,875,000====e.Use the cash alternative, because its NPV is greater.29.11 a.The value of Portland Industries before the merger is $9,000,000 (=750,000x12).Recall that the discounted value of CF's growing at a constant rate is given by()CF 1+g PV =r-gwhere r is the risk-adjusted discount, and g is the growth rate.We can use this to determine the effect of the changed growth rate, but first we must find the value of r for Portland:Since the value of Portland is also the value of the expected future dividends, we can write using the above :$1.80*250,000*1.05$9,000,000 =(r 0.05)-and solving for r, find r = 0.1025Then, applying the new growth rate, find the value of Portland Industries after the merger is29.11(continued)($1.80*250,000)1.07Value (0.10250.07)$14,815,385=-= This is the value of Portland Industries to Freeport.b.NPV= Gain - Cost= Value of Portland - (Price * #shares)= $14,815,385 - ($40 * 250, 000)= $ 4,815,385c.If Freeport offers stock, the value of Portland Industries to Freeport is the same, but the cost differs:Value of the combined firm =(Value of Freeport before merger) + (Value of Portland to Freeport) = $15 * 1,000,000 + $14,815,385 = $29,815,385Cost = (Fraction of combined firm owned by Portland’s stockholders)* (Value of the combined firm)600,000Fraction of ownership 1,000,000600,0000.375=+=Cost 0.375*$29,815,385$11,180,769NPV $14,815,385 - $11,180,769$3,634,616====d. From parts b & c, we have:NPV(cash offer)4,815,385NPV(stock offer)3,634,616==Therefore, the acquisition should be attempted with a cash offer since it provides a higher NPV.29.11(continued)e.Recalculate the value found in part a for Portland, with a revised growth of 6%, instead of 7%:($1.80*250,000)1.06Value (0.10250.06)$11,223,529=-= This is the revised value of Portland Industries to Freeport.Then, the revised NPV(cash offer) :NPV= Gain-Cost=$11,223,529 - ($40x250,000)=$1,223,529Now find the revised NPV(stock offer):As with the 7% version, if Freeport offers stock, the value of Portland Industries to Freeport is the same, but the cost differs.Value of the combined firm =(Value of Freeport before merger) + (Value of Portland to Freeport) = $15 * 1,000,000 + $11,223,529 = $26,223,529Cost = (Fraction of combined firm owned by Portland’s stockholders)* (Value of the combined firm)600,000Fraction of ownership 1,000,000600,0000.375=+= Cost 0.375*$26,223,529$9,833,823NPV $11,223,529 - $9,833,823$1,389,706====So, now we haveNPV(cash offer)1,223,529NPV(stock offer)1,389,706==The acquisition should be attempted with a stock offer since it provides a higher NPV.29.12 a.Number of shares after acquisition (in millions)= 30 + 15 = 45Stock price of Harrods after acquisition:value 1,000Price == = 22.22 pounds # shares 45b.Let α= fraction of ownership. Then,α* 1 billion = 300 million α= 30%New Shares IssuedFractional ownership New Shares Issued + Old SharesNew Shares Issued30%New Shares Issued 30 millionNew Shares Issued =12.86 million==+So, the exchange ratio isnew shares 12.86.643shares in acquired firm 20==which we can also write as 12.86 : 20 = 0.643 : 1The proper exchange ratio sh ould be 0.643 to make the stock offer’s value to Selfridge equivalent to the cash offer.29.13To evaluate this proposal, look at the present value of the incremental cash flows.First, using the information in the problem and in the table for cash projections for Company B, fill in the table of Cash Flows to Company A (in $ million) Year 0 1 2 3 4 5 Acquisition of B -550 Dividends from B 150 32 5 20 30 45 Tax-loss carryforwards 25 25 Terminal value 600 Total -400 32 30 45 30 645The additional cash flows from the tax-loss carry forwards and the proposed level of debt should be discounted at the cost of debt because they are determined with very little uncertainty.The after-tax cash flows are subject to normal business risk and must be discounted at a normal rate.bond 8%6%8%0.25β-==29.13 (continued)20.25 1.25*0.751company β=+=Discount rate for normal operations:r = 6% + 8% (1) = 14%To find the discount rate for dividends:The new beta coefficient for the company, 1, must be the weighted average of the debt beta and the stock beta.company debt debt stock stockstock stockstock weight *weight *1 = 0.5(0.25) + 0.5()so, solving for = 1.75ββββββ=+and now we have:r = 6% + 8%(1.75) = 20%Putting all this together for the total NPV (in millions):2.21$17.204$43.467$85.19$43.21$08.18$47.14$57.11$47.3$67.26$400$)08.1(300$)14.1(900$)08.1(25$)08.1(25$)2.1(45$)2.1(30$2.1(20$)2.1(5$2.132$400$NPV 5532543)2-=-++++++++-=-++++++++-=Because the NPV of the acquisition is negative, Company A should not acquireCompany B.29.14 The commonly used defensive tactics by target-firm managers include:i.corporate charter amendments like super-majority amendment or staggering the election of board members. ii.repurchase standstill agreements. iii.exclusionary self-tenders. iv.going private and leveraged buyouts. v.other devices like golden parachutes, scorched earth strategy, poison pill, ..., etc.Mini Case:U.S.Steel’s case. You have 3 choices: tender, or do not tender or sell in the market. If you do sell your shares in the market, at some point somebody else would need to make a decision to “tender” or “not tender” as well. It is important to recognize that the firm has about 60 million shares outstanding (since 30 million shares will give US Steel 50.1% of Marathon shares). Let’s consider the possible selling prices, which you will receive for each of the following scenarios:US Steel Tender offerIf US Steel’s tender offer fails, you are equally well off since your share value is determined by the market price.If you choose not to tender, and 30 million shares were tendered, US Steel succeeds to gain 50.1% control, you will only receive $85 a share.If you do tender, the price you will receive will be no worse than $85 a share and can be as high as $125 a share.Depending on the number of shares tendered, you will receive one of the following prices.If only 50.1% tendered, you will get $125 per share.If the shares tendered exceed 50.1% but less than 100%, you will get more than $105 a share.If all 60 million shares were tendered, you will get $105 per share:()()85$6030125$6030+ It is clear that, in the above 3 cases, when you are not sure about whether US Steel will succeed or not, you will be better off to tender your shares than not tender. This is because at best, you will only receive $85 per share if you choose not to tender.《Corporate Finance 》公司理财Stephen A.Ross机械工业出版社。
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