This preview shows page 1. Sign up to view the full content.
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
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
for every Digital share
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
1,554/146.789 = $4,403 m
$4,403 $ 1,554 m
10.59 University of Rochester Roundtable on
Corporate M&A and Shareholder Value
Dean, Simon School (Rochester)
Dean, Darden School (Virginia)
Prof, Simon School
Prof, Simon School
Managing Director, The Bank Street Group (investment banking, M&A)
Financial Analyst, E&Y (valuation)
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...
View Full Document
- Fall '14