Motives for the proposed acquisition
If our company acquires Morrison, shareholders could benefit from synergy. Hillier (2013) states that synergy occurs when the acquisition makes the value of the combined firm greater than the sum of the value of the acquiring and acquired firm. There are mainly following three resources of synergies.
1. Revenue enhancement
Firstly, Morrison could bring a higher market gain through improving media programming, distribution network and balancing product mix. In 2014, Morrison has launched an advertisement campaign through many TV channels and websites which brings a good public image. Secondly, we could mitigate our weakness in distribution by taking advantage of Morrison‘s nationwide distribution network which is made up with 8 major distribution centers. In addition, Morrison could also help us to alter our portfolio of products because it provides a wide range of grocery, fresh foods and alcoholic products. Finally, since Morrison and our company are in the same sector, it is horizontal acquisition which could reduce competition we are currently facing to and strengthen monopoly benefits.
2. Cost reduction
According Hillier (2013), a horizontal acquisition could increase operating efficiency through economies of scale. Generally, the cost per unit is relate to the size of production, a company would experiences economies of scale in which the cost per unit decrease with an increase of production size until it reaches the optimal firm size and after that diseconomies of scale will show up. Furthermore, we could share same central facilities such as computer systems, corporate headquarters and management which could reduce the management costs. A lower operating and management costs could miti...
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... also future prediction.
These valuations are just estimation and there is no absolutely right valuing method.
Time value of money needs to be considered, so need to discount the future value to present value.
DCF model could be the basic valuation, other valuing method, like Market Multiples should be considered to make result more accurate.
If there are significant difference between DCF and other method, the assumptions and predictions should be reconsidered.
The difference between the EV without synergy and with synergies could give us an purchasing price boundary when we negotiate with the target company.
Since we believe the share price of Morrison might be undervalued and we now cannot afford the risk of paying large amount of cash, stock exchange might the best method of financing. But negotiated exchange ratio has to be based on synergies.
The second section will be a report to the board of directors that identifies a synergistic acquisition candidate for Target. This section will identify Target's proposed acquisition terms, price, financing, and potential negotiation strategies. This segment will also include price / earnings ratios, book value, current market value, and liquidation based on the supporting financial data. Also in this part will be a discussion of the general and specific risks inherent in an acquisition strategy.
Theoretically, it is the foundation of simpleness and reasoning for stock valuation as any cash payoff from company is entirely in form of dividends. However, in practice, this model require further hypothesis on company’ dividend payments, future interest rate and growth pattern. Therefore, it is assumed that the DDM model merely applies to evaluate roughly minor proportion of the value of company’ share price. Specifically, the JB HI-FI value obtained from the DDM is 30.65 higher than their actual currently trading share price 24.1; a different of 6.55, and then the stock is undervalued. Consequently, DMM is not applicable for stock price valuation in case of JB HI-FI since it is not an individual approach of stock
Have you ever been transported in time and space? The book, Roll of Thunder Hear My Cry, transports you to the nineteen thirties in the Deep South. In this book cotton fields fill the landscape and the tension of being an African American family I the south fills every page. The author, Mildred D. Taylor, tells the story of Cassie Logan, a young girl and her family. The character, Mr. L. T. Morrison, was a co-worker of Cassie’s father, David, and later worked for him. Over time, he became a part of the Logan family. Mr. L. T. Morrison is an admirable character in Roll of Thunder Hear My Cry, because he helps defend the family, he is hard on the outside but soft on the inside, and is a strong man.
Berry, A. W. (2010, May 31). Advantages and disadvantages of acquisitions and mergers. Retrieved from http://www.helium.com/items/1561489-mergers-and-acquisitions
Discounted Cash Flow Method takes the forecast free cash flows during forecasted horizon. Then we estimate the cost of capital (weighted average cost of capital) and estimate continuing value (value after forecast horizon). The future value is discounted to the present value. We than add back cash ($13 Million) and non-current assets and deduct total debt. With the information provided several assumptions had to be made to obtain reasonable values (life period of 30-years, Capital expenditures not to exceed $1 million dollars, depreciation to stay constant at $1.15 Million and a discounted rate of 10%). Based on our analysis, the company has a stand-alone value of $51 Million at the end of fiscal year end 1990 with a net present value of cash flows of $33 million that does not include the cash and non-current assets a cash of and non-current assets.
In conclusion, time is money and knowing investment options, interest rates, and the formation of calculations of both present and future value as I have learnt in this class, will be a great deal of help both now and in the future. “Time is money”. The value of money right now the same as it will be in the future and vice versa. So this is to encourage us that we should know the appropriate investment of money in other to differentiate between the worth of investments that offer us returns at different times.
The objective of this report is to give an overall view on research and analysis to regards of two companies, Wm Morrison Supermarkets Plc and Tesco Plc that I have chosen for. In this report, I will be comparing two companies’ financial analysis based on their comprehensive income and balance sheet for one year; and also will be comparing their generating cash ability, cash management and financial adaptability based on statement of cash flows for the past two year and also determine whether the two companies have the ability to repay their debts to their creditors, generating into cash and going concern which related to finance.
In the horizontal integration, the company product range is from a wide clientele. That is they sell product either clothing or luxurious foods from different manufacturers. These give them the edge since the products they offer a variety for the customers to choose from, and hence they can shop less than one roof (Cole, 1997). In the vertical integration strategy, the firm will deal substantial with products from a single supplier and M&S gets the exclusive rights to deal with the product and its supply to the market. This is necessary when the company aim is to serve an identified target market which is exclusive and has the potential to sustain and grow the company substantively. These employ a tar...
Value indication is based on TTM EBITDA of $207mm at 7.6 times (multiple is per Jan 2015 NYU Stern study based on 56 global E&C business). Backing out
Discounted cash flow is a valuation technique that discounts projected cash inflows and outflows to evaluate the potential value of an investment. There are three discounted cash flow methods: Net Present Value (NPV), Profitability Index (PI) and Internal Rate of Return (IRR). The net present value discounts all cash inflows and outflows at a minimum rate of return, which is usually the cost of capital. The profitability index refers to the ratio of the present value of cash inflow to the present value of cash outflows. The internal rate of return refers to the interest rate that discounts cash inflow projections to the present to ensure that the present value of cash inflows is equivalent to the present value of cash outflows (Brown, 1992).
“the most prominent pro-competitive effect of a vertical integration is the elimination of pre-merger double marginalization which arises when both the upstream and downstream markets exhibit some degree of economic market power, and thus firms at each level mark up their prices above marginal cost” (Meyer and Wang, 2011).
Poor organizational management, failure to innovate and adapt to the environment, and an outdated brand image have all contributed to Sears massive decline. By not setting a clear organizational strategy, executives of Sears strayed away from innovation, allowing for competitors to attract Sears loyal customers to their organization. In addition, the outdated brand image of Sears has failed to meet the ever changing customers of today’s society. Overall, there are many reasons that have led to the downfall of a once powerful retail giant.
As the business, people put it, to maximize the wealth of shareholders (Peavler, 2016). This could be done by pursuing more of an immediate reason that will realize the shareholders wealth maximization goal. However, this main reason may fail to be realized as most mergers depict negative results.
Companies merge and acquire other companies for a lot of strategic reasons with different degree of success. The success of a merger is measured by whether the value of the acquiring firm is enhanced by it. The impact of mergers and acquisitions on organization can be small and big in other cases.
The Net Present Value (NPV) is a Discounted Cash Flow (DCF) technique that relies on the concept of opportunity cost to place a value on cash inflows arising from capital investment, where opportunity cost is the "calculation of what is sacrificed or foregone as a result of a particular decision".