average takeover premium is applied to the estimate to determine the

Average takeover premium is applied to the estimate

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average takeover premium is applied to the estimate to determine the acquisition price of Northwest Airlines. Table – 1.8 Target Company Pre-merger Stock Price Takeover Price Takeover Premium Comair $17.94 $23.85 32.94% 14 | P a g e Northwest Variables Target company Comparable Company Mean multiples Estimated Value EPS -20.03 P/E -2.13 42.74 Cash flow per share -1.42 P/CF 0.58 -0.82 Book Value per share 5.41 P/BV 1.02 5.54 Revenue per share 7.67 P/S 0.09 0.71 EV/Revenue(2008) 0.63 4024.17 Estimated Stock Value 12.04
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ASA Holdings $31.94 $24.69 -22.70% Iberia $2.57 $2.02 -21.40% KLM $11.96 $16.38 36.96% Mean Premium 6.45% Mean Target's estimated Stock Value 12.04 Estimated takeover premium 6.45% Estimated takeover Price of Target 12.82 Table – 1.9 3. Comparable Transaction Analysis: In this analysis we collect a relevant sample of recent takeover transactions in order to look at same relative value measures thereby comparing the target’s multiples against the multiples paid in similar transactions. The comparable companies are those that are in the similar time period having similar size, structure and scope. The comparable companies used in the valuation are Trans World Airlines, America West and Comair. The table below gives us the valuation variables used for this analysis as given in the case. 15 | P a g e Valuation Variables TWA America West Comair Acquisition share price $38.62 $7.09 $29.07 EPS ($5.57) $1.66 $0.34 Cash Flow per share ($0.05) $4.37 $1.69 Book Value Per share ($2.85) $45.95 $7.41 Sales per share $55.16 $66.59 $7.53
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Table – 2.1 The table below details the value of the equity multiples that are computed for each of the comparable company and the mean relative valuation ratios are applied to the corresponding data for Northwest to estimate the comparable stock price. In sum, each valuation multiple was multiplied by the corresponding variable of Northwest Airlines to produce an estimated takeover value based on each comparable. The cash flow per share variable was over-weighted and a weighted average calculated to determine an overall take over value estimate of $11.91 per share. Because comparable transactions approach is based on the acquisition price, the takeover premium of 6.45% is implicitly recognized in this approach. Table – 2.2 Target Company(Northwest) Variables Target company Comparable Company Mean multiple s Mean EPS -20.03 P/E 27.6 -553.08 Cash flow per share -1.42 P/CF -251.2 356.69 Book Value per share 5.41 P/BV -3.2 -17.08 Sales per share 7.67 P/S 1.6 11.93 Estimated Stock Value(includes takeover premium) $11.91 Table – 2.3 16 | P a g e
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