Chapter_08

Chapter_08 - Applying Relative, Asset Oriented, and Real...

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Unformatted text preview: Applying Relative, Asset Oriented, and Real Option Valuation Methods to Mergers and Acquisitions Course Layout: M&A & Other Restructuring Activities Part IV: Deal Structuring & Financing Part II: M&A Process Part I: M&A Environment Payment & Legal Considerations Public Company Valuation Financial Modeling Techniques M&A Integration Business & Acquisition Plans Search through Closing Activities Part V: Alternative Strategies Accounting & Tax Considerations Business Alliances Divestitures, Spin-Offs & Carve-Outs Bankruptcy & Liquidation Regulatory Considerations Motivations for M&A Part III: M&A Valuation & Modeling Takeover Tactics and Defenses Financing Strategies Private Company Valuation Cross-Border Transactions Learning Objectives Primary learning objective: To provide students with knowledge of alternatives to discounted cash flow valuation methods, including Market Approach Comparable companies Comparable transactions Same industry or comparable industry Asset oriented approach Tangible book value Liquidation value Break-up value Cost approach Weighted average method Secondary learning objective: Enable students to understand how real options apply to M&As Applying Market-Based (Relative Valuation) Methods 1 MV T = (MV C / I C ) x I T Where MV C = Market value of the comparable company C I C = Measure of value for comparable company C I T = Measure of value for company T (MV C /I C ) = Market value multiple for the comparable company 1 Comparable companies may include those with profitability, risk, and growth characteristics similar to the target firm. Market-Based Methods: Comparable Company Example Exhibit 8-1. Valuing Repsol YPF Using Comparable Integrated Oil Companies Target Valuation Based on Following Multiples (MV C /VI C ): Comparable Company Trailing P/E 1 Forward P/E 2 Price/Sales Price/Book Average Col. 1 Col. 2 Col. 3 Col. 4 Col. 1-4 Exxon Mobil Corp (XOM) 11.25 8.73 1.17 3.71 British Petroleum (BP) 9.18 7.68 0.69 2.17 Chevron Corp (CVX) 10.79 8.05 0.91 2.54 Royal Dutch Shell (RDS-B) 7.36 8.35 0.61 1.86 ConocoPhillips (COP) 11.92 6.89 0.77 1.59 Total SA (TOT) 8.75 8.73 0.80 2.53 Eni SpA (E) 3.17 7.91 0.36 0.81 PetroChina Co. (PTR) 11.96 10.75 1.75 2.10 Average Multiple (MV C /VI C ) Times 9.30 8.39 0.88 2.16 Market-Based Methods: Recent Transactions Method 1 Calculation similar to comparable companies method, except multiples used to estimate targets value based on purchase prices of recently acquired comparable companies. Most accurate method whenever the transaction is truly comparable and very recent....
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Chapter_08 - Applying Relative, Asset Oriented, and Real...

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