Section _9B--PowerWoman - Lecture #18 M&A Analysis: The...

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Lecture #18 M&A Analysis: The “PowerWoman International” Case November 2nd, 2010 Copyright 2010 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
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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 _9B--PowerWoman - Lecture #18 M&A Analysis: The...

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