Lecture_23

Lecture_23 - Lecture 23: Merger and Acquisitions: II BD...

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Lecture 23: Merger and Acquisitions: II BD Chapter 26
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Topics Setting the bid price. Merger analysis when there is a permanent change in capital structure. Leveraged buy-out (LBO) and Divesture.
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Setting the bid price The valuation models show that $83.1 million is the most Caldwell should pay for Tutwiler’s stock. Tutwiler’s equity value is $62.5 million as a separate company. Therefore the bid price will be between $83.1 million and $62.5 million. The $20.6 million difference is synergistic benefit. How to divide the synergistic benefit? The bargaining positions depend on a number of factors. Cash or stock payment. Negotiation skills of the two management teams. Fundamental economic conditions: whether the synergistic benefit is unique to one acquirer or a number of acquirers.
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Analysis when there is a permanent change in capital structure Tutwiler currently has equity of $62.5 million and debt of $27 million, giving it a debt ratio of 30.2%. Tutwiler’s interest rate on debt is 9%.
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Lecture_23 - Lecture 23: Merger and Acquisitions: II BD...

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