Reference no: EM132509502
ECOM095 Mergers and Acquisitions - Queen Mary University of London
Problem 1 a) Describe the difference between a bulge-bracket investment bank and a boutique.
b) Describe the two possible market signals that investors perceive from a firm announcing an increase in its dividend payments to shareholders.
Problem 2
a) Briefly describe what is meant by a "tax-inversion" in M&A practice.
b) Define a hostile vs. a friendly acquisition and outline the differences in outcomes between the two types of transactions.
c) Briefly describe the goal of an accretion/dilution model.
d) Describe a situation in which an M&A modeller will chose a 3-stage growth model to analyse a company (instead of a 1-stage growth model).
Problem 3
A Company has become the subject of a takeover offer. The Company's current share price is $12.40 per share, and shareholders have been offered $17.00 per share.
Calculate the fully diluted shares outstanding given the following information about the Company from Figure 1 and Figure 2 below and the fact that the Company has convertible bonds outstanding with the following financial statement note regarding the bonds: "the Company has outstanding $10 million of 5.25% convertible notes which are included in Long-term debt on the Balance Sheet. The notes are payable in cash at maturity unless holders exercise their option to convert the notes into shares of common stock. The initial conversion rate, provided under the terms of the Notes, is 76.9231 shares of common stock per $1,000 principal amount of notes."
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Balance Sheet
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Period Ending
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30-Jun-18
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30-Sep-18
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31-Dec-18
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As of
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10Q Quarterly
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10K Annual
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10Q Quarterly
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Assets
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Cash
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82,000,000
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83,200,000
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110,000,000
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Accounts Receivable
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5,600,000
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6,100,000
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7,100,000
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Inventory
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9,200,000
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9,800,000
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10,300,000
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Current Assets
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96,800,000
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99,100,000
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127,400,000
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Property, Plant & Equipment
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41,000,000
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40,000,000
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38,000,000
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Goodwill
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0
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0
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0
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Total Assets
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137,800,000
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139,100,000
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165,400,000
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Liabilities
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0
4,600,000
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0
4,700,000
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0
5,200,000
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Short Term Debt Accounts Payable
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Current Liabilities
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4,600,000
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4,700,000
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5,200,000
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Long Term Debt
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51,000,000
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32,000,000
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32,000,000
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Total Liabilities
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55,600,000
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36,700,000
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37,200,000
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Shareholders' Equity
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Equity Capital
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69,000,000
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69,000,000
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69,000,000
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Shares outstanding
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2,062,539
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2,071,240
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2,083,333
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Retained Earnings
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13,200,000
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33,400,000
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59,200,000
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Shareholders' Equity
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82,200,000
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102,400,000
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128,200,000
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Liabilities & Shareholders' Equity
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137,800,000
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139,100,000
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165,400,000
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Figure 1
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Stock Options Outstanding
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Stock Options Exercisable
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Options
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Weighted Average
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Weighted Average
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Tranches
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Number
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Exercise Price/Share
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Number
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Exercise Price/Share
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1
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13,700
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8.50
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11,100
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8.60
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2
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12,000
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9.20
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10,400
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9.10
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3
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9,500
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11.40
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8,400
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11.90
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4
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16,300
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13.10
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16,100
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12.40
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5
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4,500
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16.40
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3,900
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16.55
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6
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650
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18.90
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600
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18.61
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7
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2,100
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19.50
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1,900
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19.90
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8
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3,600
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20.60
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3,300
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20.30
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62,350
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55,700
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Figure 2
Problem 4
In an accretion/dilution analysis of an acquisition, if the purchase price exceeds the book value of the target's assets, discuss the key components of the balance sheet that will be adjusted on the pro forma financial statements.
Problem 5
Describe the two terminal valuation methods used in DCF valuations, and give the formulas for each.
Problem 6
a) Describe the Comparables Valuation method and for what purpose market participants use this method. Give some examples of commonly used components one would see in a Comparables Valuation table.
b) Describe the Precedent Transactions valuation method and for what purpose market participants use this method. Give some examples of commonly used components one would see in a Precedent Transaction table.
c) Describe the Sum of the Parts valuation method and for what purpose market participants use this method. Discuss the investment implications of SOTP analyses which exceed market valuations.
Problem 7
Describe an MBO and an LBO and their key features.
Problem 8
a) Describe the clean price of a stock in an M&A transaction.
b) Give the formula for the premium offered in a takeover offer.
c) Given the following table in Figure 3 of gross live deal spreads, which is the most attractive to a merger arbitrageur (all else equal) and why?
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Deal
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Gross Spread
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Time to Completion
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A
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2.20%
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2.5 months to complete, cash deal
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B
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8.20%
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13 months to complete, share for share deal
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C
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4%
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7.5 months to complete, cash deal
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Figure 3