M&a Practice Questions
Autor: Amit4112 • December 27, 2015 • Coursework • 1,127 Words (5 Pages) • 994 Views
PRACTICE QUESTIONS
1. Suppose Microsoft wants to acquire ExxonMobil and thinks that Newco’s DCF value will be $550 billion. (Currently, Microsoft and ExxonMobil’s market capitalizations are at $278 billion and $256 billion, respectively.) Suppose ExxonMobil thinks, however, that because the two companies’ businesses are so unrelated, Newco will suffer a diversification discount, and will have a DCF value of only $500 billion- even less than the sum of the two companies’ current market capitalizations.
Additional Information: Microsoft is currently trading at $25.96, and Exxon Mobil, at $38.31 per share. Shares Outstanding are 10.7 bn and 6.8 bn for Microsoft and Exxon, respectively.
What is the minimum DCF value for Newco that Microsoft must convince Exxon is possible in order for there to be a possibility for a win-win deal (where zone of possible agreement exists)?
2. Two companies are in merger negotiations. The buyer’s and target’s shares are currently trading at $35 and $20, respectively. The buyer is projected to earn $200 million, and the target, $150 million. No synergies are expected from the deal. Each party has 80 million shares outstanding.
Calculate the maximum and minimum exchange ratios for DCF values ranging from $3 billion to $7 billion and graph your results. If the projected stand-alone DCF value is $5 billion, can a deal be feasible?
3a. On June 6, 2003, Oracle Corporation, a provider of software solutions, announced a hostile tender offer for PeopleSoft, a company specializing in software solutions for business. PeopleSoft’s stock was trading at $15.11; Oracle offered to pay $16.00 per share. Oracle’s own stock was trading at $13.36 a share. What is the exchange ratio implied in this offer?
3b. On June 16, 2003, Oracle raised its bid for PeopleSoft to $19.50 a share. What is the exchange ratio implied in this offer?
Some data about the two companies follows:
Data for fiscal year 2002 |
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% contribution | ||||
(In millions) | Oracle | PeopleSoft | Oracle | PeopleSoft |
Revenues | 9,673 | 1,949 | 83.2% | 16.8% |
Operating expense | 6,102 | 1,696 | 78.2% | 21.8% |
Operating income | 3,571 | 253 | 93.4% | 6.6% |
Net income | 2,224 | 183 | 92.4% | 7.6% |
Operating margin | 36.9% | 13.0% | ||
Net margin | 23.0% | 9.4% | ||
Total assets | 10,800 | 2,849 | 79.1% | 20.9% |
Total shareholders’ equity | 6,117 | 1,956 | 75.8% | 24.2% |
Outstanding shares | 5,518 | 311 | ||
Market capitalization on May 15, 2003 | 71,237 | 5,038 | 93.4% | 6.6% |
3c. Use contribution analysis to evaluate the eventual exchange ratio offered, assuming the contributions are based on each company’s – a. Net income, b. Total Assets, c. Book value of Equity.
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