Merger Analysis

Prior to beginning work on this journal, read Chapter 23: Corporate Restructuring of the textbook and watch the two videos

FIN490 | Understanding Merger TransactionsLinks to an external site. and

FIN490 | Valuing Synergies in TransactionsLinks to an external site.

.

In this journal, you will watch two videos that describe merger transactions and illustrate many of the calculations used in financial analysis of mergers. This journal will assist you in preparing for the Week 5 Final Project.

In your journal,

Explain what the

FIN490 | Understanding Merger TransactionsLinks to an external site.

video means when it states “the CMI shares will be retired” at time stamp 2:09.

Explain which firm’s shareholders – the acquiring company or the target (acquired) company – are better off if the exchange ratio is higher.

Feel free to explain your response using the examples in the FIN490 | Understanding Merger TransactionsLinks to an external site. video, beginning at time stamp 6:15.

Suppose a company is offering an exchange ratio of 0.30 to acquire a company, and the target company negotiates to get a 0.40 exchange ratio. Explain if the dilution to the acquiring company shareholders is worse with the 0.40 exchange ratio.

Pose one question about pre-merger analysis based upon your review of the FIN490 | Understanding Merger Transactions

Describe how to calculate the market value of equity for a company, as used when determining the capital weights in the weighted average cost of capital calculation.

Feel free to explain your response using the examples in the FIN490 | Valuing Synergies in TransactionsLinks to an external site. video, beginning at time stamp 3:42.

Explain why a terminal value is included in the analysis of synergistic cash flows, and what the terminal year value represents.