What portion of the stock will the old Patrick shareholders hold in the firm after the acquisition?

Advanced Corporate Finance
Spring 2016
Homework #14
Valuation Issues in Mergers & Acquisitions
1. You work in the finance department of a large corporation, which is considering the
acquisition of a smaller target firm. You have been assigned to make the preliminary analysis of
the value of the target. In the most recent fiscal year the target firm generated total cash flows of
$24,785,000.
You will first use a Gordon Growth Model to estimate a range of Stand Alone Values for the
target. You feel that reasonable discount rates for its future cash flows are between 13% and
16%, and that probably (perpetual) annual growth rates for the flows are between 3% and 5%.
The managers of your firm feel that the merger of the two entities will create perpetual annual
synergies of between $5,500,000 and $7,500,000.
Use these parameters to estimate the potential high and low values of the target firm.
2. Patrick Inc. is considering an acquisition of Acme Corp. Patrick has 3,859,250 shares
outstanding selling for $34.17. Acme has 1,994,500 shares outstanding selling for $21.67.
What are the market values of both firms? In a stock-for-stock offer how many shares of Patrick
stock will each Acme equity holder receive for his share (if they allocate purely on the basis of
the current prices)? If there are no synergies, how many shares will be outstanding after the
acquisition? What will be the value of each share? What portion of the stock will the old Patrick
shareholders hold in the firm after the acquisition?
Patrick has adequate excess-cash-on-hand to pay each shareholder of Acme $7.50. If they wish
to make an acquisition based on a combination of stock and cash, how many shares of Patrick
stock will each Acme stock holder have to be given to buy-out the remainder of his share beyond
the $7.50? If there are no synergies, how many shares will be outstanding after the acquisition?
What will be the value of each share (recall that each shareholder of the Acme stock is being
given $7.50, so the value of the firm will decline accordingly)? What portion of the stock will the
old Patrick shareholders hold in the firm after the acquisition?
Now, presume that the merger will create synergies that have a present value of $30,000,000.
Assume the two firms execute a straight stock-for-stock offer at the exchange ratio in the first
example above. What will be the firm value, the number of outstanding shares, and the share
price after the acquisition?

Homework Market
Calculate your paper price
Pages (550 words)
Approximate price: -

Why Homework Market

HomeworkMarket

Quality Researched Papers

We always make sure that writers follow all your instructions precisely. You can choose your academic level: high school, college/university or professional, and we will assign a writer who has a respective degree.

Homework Market

Qualified Writers

We have hired a team of professional writers experienced in academic and business writing. Most of them are native speakers and PhD holders able to take care of any assignment you need help with.

HomeworkMarket

Unlimited Revision

If you think we missed something, send your order for a free revision. You have 10 days to submit the order for review after you have received the final document. You can do this yourself after logging into your personal account.

HomeworkMarket

Timely Delivery

All papers are always delivered on time. In case we need more time to master your paper, we may contact you regarding the deadline extension. We will always strive to deliver on time.

HomeworkMarket

Original & Confidential

We use several writing tools checks to ensure that all documents you receive are free from plagiarism. Our editors carefully review all quotations in the text.

HomeworkMarket

Customer Support 24/7

Our support agents are available 24 hours a day 7 days a week and committed to providing you with the best customer experience. Get in touch whenever you need any assistance.

Try it now!

Calculate the price of your order

Total price:
$0.00

How it works?

Follow these simple steps to get your paper done

Homework Market

Place your order

Fill in the order form and provide all details of your assignment.

Homework Market

Proceed with the payment

Choose the payment system that suits you most.

Homework Market

Receive the final file

Once your paper is ready, we will email it to you.

Homework Market Writing Services

No need to work on essay at night. Sleep tight, we will cover your back. We offer all kinds of essay writing services.

HomeworkMarket HomeworkMrket

Essays

Essay Writing Services

No matter what kind of academic paper you need and how urgent you need it, you are welcome to choose your academic level and the type of your paper at an affordable price. We take care of all your paper needs and give a 24/7 customer care support system.

HomeworkMarket HomeworkMarket

Admissions

Admission Essays

An admission essay is an essay or other written statement by a candidate, often a potential student enrolling in a college, university, or graduate school. You can be rest assurred that through our service we will write the best admission essay for you.

HomeworkMarket HomeworkMarket

Editing

Essay Editing

Our academic writers and editors make the necessary changes to your paper so that it is polished. We also format your document by correctly quoting the sources and creating reference lists in the formats APA, Harvard, MLA, Chicago / Turabian.

HomeworkMarket HomeworkMarket

Research Paper

Research Paper

If you think your paper could be improved, you can request a review. In this case, your paper will be checked by the writer or assigned to an editor. You can use this option as many times as you see fit. This is free because we want you to be completely satisfied.