M&A_ValuationExampleRoundatable

789 million digital shares outstanding and digital

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Unformatted text preview: 1,006 million in debt outstanding. Estimate the maximum price you would be willing to offer on this deal. price Assume that Compaq wanted to do an exchange offer, where it Assume would exchange its shares for Digital shares. Assuming that Compaq stock is valued at $27 per share, what would be the exchange ratio? The actual deal was $30 cash and 0.945 Compaq shares / Digital share. Compaq Evaluating Compaq’s Offer Evaluating Value of Digital with Synergy $6,964 m Number of Shares outstanding 146.789 m Value of Cash paid in deal = $ 30 * 146.789 m Value Digital’s Outstanding Debt (assumed by Compaq) $1,006 m Remaining Value Remaining Remaining Value per Share Remaining Compaq’s value per share at time of Exchange Offer $ 27 Appropriate Exchange Ratio = 10.59/27 = 0.39 Compaq shares Appropriate for every Digital share for Amount paid = $30 + 0.945*27 = $55.52 Amount paid = $30 + 0.945*27 = $55.52 Actual Exchange Ratio = 0.945 Compaq shares/Digital Share 6,963-4,403-1,006 6,963-4,403-1,006 1,554/146.789 1,554/146.789 = $4,403 m $4,403 $ 1,554 m 1,554 $ 10.59 10.59 University of Rochester Roundtable on Corporate M&A and Shareholder Value The Participants Mark Zupan Dean, Simon School (Rochester) Robert Bruner Dean, Darden School (Virginia) Cliff Smith Prof, Simon School Gregg Jarrell Prof, Simon School James Owen Managing Director, The Bank Street Group (investment banking, M&A) Marla Sincavage Financial Analyst, E&Y (valuation) Matt Ostrower Equity Analyst, Morgan Stanley (REITs) Is M&A Good for the Economy? Robert Bruner What does the empirical evidence show? o Target returns, acquirer returns, total returns? What 4 factors seem to distinguish good and bad deals? Is M&A Good for the Economy? Gregg Jarrell Is M&A good for Wall Street o for the economy, on the whole? How much credit does the market give for predicted synergies? Predicted synergy often insufficient to justify purchase price o Why does he find this problematic? How does Jarrell feel about market efficiency? M&A and Corporate Governance...
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