Section__10B_Solutions

# Section__10B_Solutions - Section#10 M&A Analysis...

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Section #10 The “PowerWoman International” Case April 7th, 2009 Copyright 2009 by Rich Curtis

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PowerWoman Women s Wealth Shares Outstanding 5 M 2 M Earnings \$12.5 M/year \$5 M/year Total Equity Market Value \$500 M \$108 M Pre -Merger Data : PowerWoman Women s Wealth Share Price EPS P/E Ratio a. Please fill in the following table. \$100 \$54 \$2.50 \$2.50 40 21.6
b. What is the value of WW to PowerWoman? P 0 = D 1 k e g = \$2(1.10) k e -.10 But what is k e ? If we assume that k e for WW’s assets are the same both pre- and post-merger, we can use the pre-merger growth rate and stock price to back out k e . (Otherwise we have to make some other assumption.) k e = D 1 P 0 + g = \$2(1.08) \$54 + .08 = .12 Using .12 for k e in the equation at the top of the slide we have: P 0 = D 1 k e g = \$2(1.10) .12-.10 = \$110 With 2 Million shares outstanding, this implies a value of WW to PowerWoman of \$220 Million .

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Would PowerWoman’s management let Women’s Wealth’s management know the \$220 Million value PW places on WW? Absolutely not … that would only enhance WW’s negotiating position. So PW’s management would not divulge their valuation of WW! Would Women’s Wealth’s management try to estimate
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Section__10B_Solutions - Section#10 M&A Analysis...

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