Valuation in FED	
2013/10/20(Sun)	
1
自己紹介	
•  名前	
  
•  所属	
•  勉強会に参加したきっかけ	
  
	
  

2
Contents	
•  Part1 Foundations of Value	
•  Part2 Core Valuation Techniques	
•  Part3 Intrinsic Value and the Stock Market...
Review of previous studied contents	

4
Contents	
•  Part1 Foundations of Value	
•  Part2 Core Valuation Techniques	
•  Part3 Intrinsic Value and the Stock Market...
What	
  is	
  value	
  
In	
  the	
  context	
  of	
  valua3on	
  and	
  	
  
in	
  your	
  life	
  ?	

6
What is Value?	
•  Value is defining dimension of measurement in a market
economy.	
•  Value is a particularly helpful mea...
Fundamental principles of corporate finance	

Companies create value by investing capital to
generate future cash flow at ...
Two core principles of value creation	
•  The combination of growth and return on invested
capital(ROIC) relative to its c...
Growth and ROIC:Drives of Value	

Return on 	
investment capital	
Cash flow	
Revenue growth	
Value	
Cost of of Capital	

1...
Contents	
•  Part1 Foundations of Value	
•  Part2 Core Valuation Techniques	
•  Part3 Intrinsic Value and the Stock Market...
Part2 Core Valuation Techniques	
6. Framework for Valuation	
7. Reorganizing the Financial Statements	
8. Analysand Perfor...
Framework for DCF-Based Valuation	
EXHIBIT 6.1 (P104)	
Model

Measure

Discount factor

Assessment

Enterprise discounted
...
Home Depot:

Enterprise DCF	
Forcaset year

Free cash flow
($ million)

Discount factor
(@ 8.5%)

2009
5,909
2010
2,368
20...
Enterprise valuation of 

a multibusiness company	
Exhibit6.3 P106	
225	

30	

40	

560	

200	

520	

360	
125	

200	

Uni...
Contents	
•  Part1 Foundations of Value	
•  Part2 Core Valuation Techniques	
•  Part3 Intrinsic Value and the Stock Market...
Part3 Intrinsic Value and the Stock Market	
15 Market value tracks return on invested capital and growth
16 Markets value ...
Research Findings	
•  Valuation levels for the stock market as a whole clearly reflect the
underlying fundamental performa...
Markets value substance, not form	
•  Managers can go to great lengths to achieve analysts’ expectations
of EPS or to smoo...
Patterns in mispricing	
•  Individual company share price deviate significantly from
the company’s fundamentals value only...
The implication of market efficiency
for managers	
•  Managers should focus on driving return on ROIC and
growth to create...
Contents	
•  Part1 Foundations of Value	
•  Part2 Core Valuation Techniques	
•  Part3 Intrinsic Value and the Stock Market...
Part4 Managing for Value	
•  Chap19 Corporate Portfolio Strategy
•  Chap20 Performance Management
•  Chap21 Mergers and Ac...
Part4 Managing for Value	
•  Chap19 Corporate Portfolio Strategy
•  Chap20 Performance Management
•  Chap21 Mergers and Ac...
How companies can create value through
management?	

25
Managing for Value	
•  Part4 looks at value creation from a management perspective.
•  At the heart of a company’s corpora...
What is corporate finance?	
Asset Side

Capital market side

【2】Decision for finance
and capital structure

【1】Decision fo...
CEO, COO, and CFO	
CEO	
• 
• 
• 

Mission, vision, Value
Final decision
leadership	

COO	

CFO	
• 

• 

Management of whol...
Who is the best owner?	

29
Better owner	
•  To identify the best owner of a business in any given industry
circumstances, you first have to understan...
The best owner life cycle	
•  At each stage of the company’s life, each best owner took actions to
increase the company’s ...
Constantly evolving portfolio of business	
•  Applying the best-owner sequence, executives must continually look
for and a...
Constructing the portfolio	
1. 

Determine the company’s current market value, and compare it with the
company’s value as ...
Constructing the portfolio	

P420	

34
EG Corporation
Value created through restructurting	

P424	

35
The myth of diversification	
• 

Our perspective is that diversification is intrinsically neither good nor bad:
–  We have...
Part4 Managing for Value	
•  Chap19 Corporate Portfolio Strategy
•  Chap20 Performance Management
•  Chap21 Mergers and Ac...
How do companies can create value through
management?	

38
Performance Management	
•  The overall value that a company creates is the sum of the
outcomes of innumerable business dec...
The success or failure of performance	
•  Do the senior management team members really understand the
economics of the bus...
Value Creation Tree	
Exhibit20.1 Value creation tree	

P431	

41
Short term value drivers	
•  Short-term value drivers are the immediate drivers of historical ROIC
and growth.	

Sales pro...
Medium-term value drivers	
•  Medium-term value drivers look forward to indicate whether a
company can maintain and improv...
Long term strategic value drivers
and Organizational health	
•  Long term strategic value drivers
–  The ability of an ent...
Simple value driver tree:
Manufacturing	

P435	

45
Value Trees from four perspectives:
Temporary-help company	

P436	

46
Summary short term value tree:
Temporary-help company	

P437	

47
Summary medium term value tree:
Temporary-help company, new geographic markets	

P438	

48
Organizational support	
•  The following ingredients lead to more effective organizational
support for corrective action.	...
Part4 Managing for Value	
•  Chap19 Corporate Portfolio Strategy
•  Chap20 Performance Management
•  Chap21 Mergers and Ac...
Can M&A create Value?	

51
Value creation framework	
•  Acquisitions create value when the cash flows of combined
companies are greater than they wou...
Acquisition Evaluation Framework 	
Value Created = Value of improvements – acquisition premium	

53
Selected Acquisitions:
Significant Improvements	
• 
• 

The performance improvements were substantial, typically in excess...
Empirical Results	
•  Researchers have shown that acquisitions collectively do create
value for the shareholders of both t...
Successful specific factors
for acquirer’s shareholder	

Non important
factor	

Strong operators are more successful
Low t...
Archetypes for value creating acquisitions	
1.  Improve the performance of the target company
2.  Consolidate to remove ex...
More difficult strategies for creating value
from acquisitions	
•  Roll-up strategy
•  Consolidate to improve competitive ...
Estimation of operating improvements	
The analysis for estimating cost savings should be structured using the
following fo...
Sample framework
for estimating cost saving	
Function	

Example savings	

Research and Development	

・Stopping redundant p...
Automotive merger:
Estimating cost savings	

61
Estimating Revenue Improvements	
Revenue improvements will come from one or more of four sources.
1. Increasing each produ...
Evaluating the quality and accuracy of
improvements estimates	
•  According to McKinsey’s
Merger Management, 86% of
the ac...
How to pay:
in cash or stock?	
•  Research evidence shows that an acquirer’s stock returns
surrounding the acquisition ann...
Focus on value creation, not accounting	
•  Stock markets pay no attention to the effects of an acquisition on
accounting ...
Market reaction to EPS
impact of acquisitions	
•  Financial markets understand the priority of creating real value over
re...
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20131020 第6回valuation勉強会

  1. 1. Valuation in FED 2013/10/20(Sun) 1
  2. 2. 自己紹介 •  名前   •  所属 •  勉強会に参加したきっかけ     2
  3. 3. Contents •  Part1 Foundations of Value •  Part2 Core Valuation Techniques •  Part3 Intrinsic Value and the Stock Market •  Part4 Managing for Value •  Part5 Advanced Valuations Issues •  Part6 Special Situations 3
  4. 4. Review of previous studied contents 4
  5. 5. Contents •  Part1 Foundations of Value •  Part2 Core Valuation Techniques •  Part3 Intrinsic Value and the Stock Market •  Part4 Managing for Value •  Part5 Advanced Valuations Issues •  Part6 Special Situations 5
  6. 6. What  is  value   In  the  context  of  valua3on  and     in  your  life  ? 6
  7. 7. What is Value? •  Value is defining dimension of measurement in a market economy. •  Value is a particularly helpful measure of performance because it takes into account the long-term interests of all the stakeholders in a company,not just shareholders. •  Competition among value-focused companies also helps to ensure that capital,human capital,and natural resources are used efficiency across the economy,leading to higher living standards for everyone. (P3) 7
  8. 8. Fundamental principles of corporate finance Companies create value by investing capital to generate future cash flow at rate of return that exceed their cost of capital. (P17) 8
  9. 9. Two core principles of value creation •  The combination of growth and return on invested capital(ROIC) relative to its cost is what drives value. –  Companies can sustain strong growth and high returns on invested capital only if they have a well-defined competitive advantage. •  Conservation of value –  Anything that doesn't increase cash flow doesn't create value.   –  M・M  theory (P4) 9
  10. 10. Growth and ROIC:Drives of Value Return on investment capital Cash flow Revenue growth Value Cost of of Capital 10
  11. 11. Contents •  Part1 Foundations of Value •  Part2 Core Valuation Techniques •  Part3 Intrinsic Value and the Stock Market •  Part4 Managing for Value •  Part5 Advanced Valuations Issues •  Part6 Special Situations 11
  12. 12. Part2 Core Valuation Techniques 6. Framework for Valuation 7. Reorganizing the Financial Statements 8. Analysand Performance and Competitive Position 9. Forecasting Performance 10. Estimating Continuing Value 11. Estimating the Cost of Capital 12. Moving from Enterprise Value to per Share 13. Calculating and Interpreting Results 14. Using Multiple 12
  13. 13. Framework for DCF-Based Valuation EXHIBIT 6.1 (P104) Model Measure Discount factor Assessment Enterprise discounted cash flow Free cash flow Weighted average cost of capital Works best for projects, business units, and companies that manage their capital structure to a target level. Discounted economic profit Economic profit Weighted average cost of capital Explicity highlights when a company creates value. Adjusted present value Free cash flow Unlevered cost of equity Highlights changing capital structure more easily than WACC-based models. Capital cash flow Capital cash flow Unlevered cost of equity Compresses free cash flow correctly because capital structure is embedded within the cash flow.Best used when valuing financial institutions. Equity cash flow Cash flow to equity Levered cost of equity Difficult to implement correctly because capital structure is embedded within the cash flow. Best used when valuing financial institutions. 13
  14. 14. Home Depot:
 Enterprise DCF Forcaset year Free cash flow ($ million) Discount factor (@ 8.5%) 2009 5,909 2010 2,368 2011 1,921 2012 2,261 2013 2,854 2014 3,074 2015 3,308 2016 3,544 2017 3,783 2018 4,022 Continuing value 92,239 Present value of cash flow Forecasting performance Estimating Continuing Value 0.922 0.850 0.784 0.723 0.666 0.614 0.567 0.522 0.482 0.444 0.444 Present value of FCF (& million) 5,448 2,013 1,506 1,634 1,902 1,889 1,874 1,852 1,822 1,787 40,966 62,694 Midyear adjustment factor Value of operations 1.041 65,291 Value of excess cash Value of long-term investments Value of tax loss carry-forwards Enterprise value 361 112 65,764 Less:Value of debt Less:Value of capitalized operating leases Equity value Number of shares outstanding(December 2008) Equity value per share (11,434) (8,298) 46,032 1.7 27.1 14
  15. 15. Enterprise valuation of 
 a multibusiness company Exhibit6.3 P106 225 30 40 560 200 520 360 125 200 Unit A Unit B Unit C Corporate center Value of Nonoperating Enterprise operations assets Value Value of debt Value of operating units Equity Value 15
  16. 16. Contents •  Part1 Foundations of Value •  Part2 Core Valuation Techniques •  Part3 Intrinsic Value and the Stock Market •  Part4 Managing for Value •  Part5 Advanced Valuations Issues •  Part6 Special Situations 16
  17. 17. Part3 Intrinsic Value and the Stock Market 15 Market value tracks return on invested capital and growth 16 Markets value substance, not form 17 Emotions and mispricing in the markets 18 Investors and managers in efficient markets 17
  18. 18. Research Findings •  Valuation levels for the stock market as a whole clearly reflect the underlying fundamental performance of companies in the real economy. •  Companies with higher ROIC and those with higher growth are valued more highly in the stock market. •  Over the long term(10 years and more), higher ROIC and growth also lead to higher total returns to shareholders(TSR) in the stock market. •  Whether increasing revenue growth or return on capital will create more value depends on the company’s performance. 18
  19. 19. Markets value substance, not form •  Managers can go to great lengths to achieve analysts’ expectations of EPS or to smooth earnings from quarter to quarter. •  Stock markets are perfectly capable of seeing the economic reality behind different forms of accounting information. •  Since investors value substance over form, managers need not worry about whether their share are spilt into smaller shares, traded in one or many developed stock markets, or included in a large stock market index. 19
  20. 20. Patterns in mispricing •  Individual company share price deviate significantly from the company’s fundamentals value only in rare circumstances. •  Market wide price deviations from fundamental valuations are even less frequent, although they may appear to be becoming more so. •  Price deviation from fundamentals are temporary(typically three years). 20
  21. 21. The implication of market efficiency for managers •  Managers should focus on driving return on ROIC and growth to create maximum value for shareholders. •  Managers need to understand their investor base, so they can communicate their company’s strategy for value creation effectively to different investor segments. •  Managers should not be distracted from their efforts to drive ROIC and growth by any short-term price volatility. 21
  22. 22. Contents •  Part1 Foundations of Value •  Part2 Core Valuation Techniques •  Part3 Intrinsic Value and the Stock Market •  Part4 Managing for Value •  Part5 Advanced Valuations Issues •  Part6 Special Situations 22
  23. 23. Part4 Managing for Value •  Chap19 Corporate Portfolio Strategy •  Chap20 Performance Management •  Chap21 Mergers and Acquisitions •  Chap22 Creating Value through Divestitures •  Chap23 Capital Structure •  Cahp24 Investor Communications 23
  24. 24. Part4 Managing for Value •  Chap19 Corporate Portfolio Strategy •  Chap20 Performance Management •  Chap21 Mergers and Acquisitions •  Chap22 Creating Value through Divestitures •  Chap23 Capital Structure •  Cahp24 Investor Communications 24
  25. 25. How companies can create value through management? 25
  26. 26. Managing for Value •  Part4 looks at value creation from a management perspective. •  At the heart of a company’s corporate strategy, its blue print for creating value lie decisions about what businesses it should own. •  This chapter explains what makes the best owner for company and how the corporations that qualify as best owner may change over time. 26
  27. 27. What is corporate finance? Asset Side Capital market side 【2】Decision for finance and capital structure 【1】Decision for investment for operation •  •  •  •  financial evaluation for project allocation of resources Arrange for project portfolio •  Decision for debt equity ratio Decision for finance 【3】Decision for payout •  •  Decision for payout ratio Choose of payout and share repurchase 野中郁次郎・楠木建(2013)『はじめての経営学』東洋経済 27
  28. 28. CEO, COO, and CFO CEO •  •  •  Mission, vision, Value Final decision leadership COO CFO •  •  Management of whole project operation •  •  •  Decision for project investment Decision for finance and capital structure Decision for payout Communication with investor 野中郁次郎・楠木建(2013)『はじめての経営学』東洋経済 28
  29. 29. Who is the best owner? 29
  30. 30. Better owner •  To identify the best owner of a business in any given industry circumstances, you first have to understand the sources of value on which potential new owners might draw. •  The most straight forward way that owners add value is through links to other businesses within their portfolio. •  Better owner may have distinctive functional or managerial skills from which the new business can benefit. •  Better governance refers to the way company’s owners interact with the management team to create maximum value in the long term. 30
  31. 31. The best owner life cycle •  At each stage of the company’s life, each best owner took actions to increase the company’s cash flows, thereby adding value. ü  In the United States, most large companies either listed or owned by private equity funds. ü  In Europe, government ownership plays important role. ü  In Asia and South America, large companies are often controlled for several generations by members of their founding families, and family relationship also creates ownership links between different businesses. 31
  32. 32. Constantly evolving portfolio of business •  Applying the best-owner sequence, executives must continually look for and acquire companies where they could be the best owner, •  Executives also must divest business where they used to be the best owner but that another company could now own better. •  The research shows that the stock market consistently reacts positively to divestitures, both sales and spin-offs. 32
  33. 33. Constructing the portfolio 1.  Determine the company’s current market value, and compare it with the company’s value as is. 2.  Identify and value opportunities to improve operations internally. –  By increasing margins, accelerating core revenue growth, and improving capital efficiency. 3.  Evaluate whether some business should be divested. 4.  Identify potential acquisitions or other initiatives to create new growth, and improving on value. 5.  Estimate how the company’s value might be increased through changes in its capital structure or other financial strategy changes. 33
  34. 34. Constructing the portfolio P420 34
  35. 35. EG Corporation Value created through restructurting P424 35
  36. 36. The myth of diversification •  Our perspective is that diversification is intrinsically neither good nor bad: –  We haven’t found any evidence that diversified companies actually generate smoother cash flows. –  We almost never find that the value of the sum of a diversified company’s business units is substantially different from the market value of the consolidated company. –  We’ve never come across diversified companies that systematically used more debt than their peers. •  It depends on whether the parent company adds more value to the business it owns than any other potential owner could, making it the best owner of those business in the circumstance. •  Substantially changing the shapes of a portfolio of real business involves a diversified company in considerable transaction costs of and disruption, and it typically takes many years. –  Investors can diversify their portfolio at lower cost than companies. 36
  37. 37. Part4 Managing for Value •  Chap19 Corporate Portfolio Strategy •  Chap20 Performance Management •  Chap21 Mergers and Acquisitions •  Chap22 Creating Value through Divestitures •  Chap23 Capital Structure •  Cahp24 Investor Communications 37
  38. 38. How do companies can create value through management? 38
  39. 39. Performance Management •  The overall value that a company creates is the sum of the outcomes of innumerable business decision taken by its managers and staff. •  Performance management systems include –  –  –  –  –  long-term strategic plans short-term budgets capital budgeting systems performance reporting and reviews compensation frameworks 39
  40. 40. The success or failure of performance •  Do the senior management team members really understand the economics of the business unit oversee? •  Can they negotiate performance targets that are both challenging and achievable? •  Are trade-offs between the short term and the long term transparent? •  Are managers sufficiently rewarded for focusing on long term value? 40
  41. 41. Value Creation Tree Exhibit20.1 Value creation tree P431 41
  42. 42. Short term value drivers •  Short-term value drivers are the immediate drivers of historical ROIC and growth. Sales productivity The drivers of recent sales growth, such as price and quantity sold, market share, the company’s ability to charge higher prices relative to peers, sales force productivity Operating cost productivity The drivers of unit costs, such as the component costs for building an automobile or delivering a package. Capital productivity How well a company uses its working capital(inventories, receivables, and payables) and its property, plant , and equipment 42
  43. 43. Medium-term value drivers •  Medium-term value drivers look forward to indicate whether a company can maintain and improve its growth and ROIC. Commercial health Whether the company can sustain or improve its current revenue growth. The company’s product pipeline, brand strength, customer satisfaction Cost structure health Company’s ability to manage its costs relative to competitors over three to five years. Asset health How well a company maintains and develops its assets. 43
  44. 44. Long term strategic value drivers and Organizational health •  Long term strategic value drivers –  The ability of an enterprise to sustain its current operating activities and to identify and exploit new growth areas. •  Organizational health –  Whether the company has the people, skills, and culture to sustain and improvement 44
  45. 45. Simple value driver tree: Manufacturing P435 45
  46. 46. Value Trees from four perspectives: Temporary-help company P436 46
  47. 47. Summary short term value tree: Temporary-help company P437 47
  48. 48. Summary medium term value tree: Temporary-help company, new geographic markets P438 48
  49. 49. Organizational support •  The following ingredients lead to more effective organizational support for corrective action. Buy in to performance management at all levels Companies that succeed at performance management instill a value-creating mind-set throughout the business. Their employees at all levels understand core levels of value creation. Motivating targets Managers and staff responsible for meeting targets need to be involved in setting them, so they understand the targets’ purpose and will strive to deliver them. Fact based performance reviews The best way to record facts for performance reviews is on a scorecard incorporating the key value metrics from the value driver analysis. Appropriate rewards Linking stock-based compensation to the specific performance of the company. Linking bonus as much to long term company. 49
  50. 50. Part4 Managing for Value •  Chap19 Corporate Portfolio Strategy •  Chap20 Performance Management •  Chap21 Mergers and Acquisitions •  Chap22 Creating Value through Divestitures •  Chap23 Capital Structure •  Cahp24 Investor Communications 50
  51. 51. Can M&A create Value? 51
  52. 52. Value creation framework •  Acquisitions create value when the cash flows of combined companies are greater than they would have otherwise been. Value Created for Acquirer= Value received – Priced Paid Value Created for Acquirer= (Standard Alone value of target) +Value of performance improvements) −(Market Value of target+Acquisition premium) 52
  53. 53. Acquisition Evaluation Framework Value Created = Value of improvements – acquisition premium 53
  54. 54. Selected Acquisitions: Significant Improvements •  •  The performance improvements were substantial, typically in excess of 50% of the value of the target. Kellogg and PepsiCo paid unusually low premiums for their acquisitions, allowing them to capture more value. 54
  55. 55. Empirical Results •  Researchers have shown that acquisitions collectively do create value for the shareholders of both the acquire and the acquired company. –  According to the McKinsey, the combined value of the acquirer and target increased by about 4% on average. •  However, the evidence is also overwhelming that acquisitions do not create much if any value for the acquiring company’s shareholders. –  Empirical study find that the value- weighted average deal lower the acquirer’s stock price between 1 and 3%. •  It comes as no surprise to find conclusive evidence that most or all of the value creation from acquisitions accrues to the shareholders of the target company. –  Since the target shareholder are receiving high premiums over their stock’s preannouncement market price- typically about 30%. 55
  56. 56. Successful specific factors for acquirer’s shareholder Non important factor Strong operators are more successful Low transaction premiums are better Being the sole bidder helps •  •  Important factor •  •  •  Size of the acquirer relative to the target Whether the transaction increases or dilutes earnings per share P/E ratio of the acquirer relative to the target’s P/E The relatedness of the acquirer and target, based on SIC •  •  56
  57. 57. Archetypes for value creating acquisitions 1.  Improve the performance of the target company 2.  Consolidate to remove excess capacity from an industry. 3.  Create market access for the target’s products. 4.  Acquire skills or technologies more quickly or at lower cost than they could be built in house. 5.  Pick winners early and help them develop business. 57
  58. 58. More difficult strategies for creating value from acquisitions •  Roll-up strategy •  Consolidate to improve competitive behavior •  Enter into a transformation merger •  Buy Cheap 58
  59. 59. Estimation of operating improvements The analysis for estimating cost savings should be structured using the following four steps. 1. Develop an industry-specific business system. 2. Develop a baseline for costs as if the two companies remained independent. Make sure the baseline costs are consistent with the intrinsic valuations. 3. Estimate the savings for each cost category based on the expertise of experienced line managers. 4. Compare resulting aggregate improvements with margin and capital efficiency benchmarks for the industry, to judge whether the estimates are realistic given industry economics. 59
  60. 60. Sample framework for estimating cost saving Function Example savings Research and Development ・Stopping redundant projects ・Eliminating overlap in research personal ・Developing new products through transferred technology Procurement ・Pooled purchasing ・Stndardizing products Manufacturing Sales and Marketing ・Eliminating overcapacity ・Transferring best operating practice ・Cross-selling products ・Using common channels ・Transferring best practice ・Lowering combined marketing budget Distribution ・Consolidating warehouses and truck routes  Administration ・Exploiting economies of scale in finance/accounting and other back-office functions ・ Consolidating strategy and leadership functions 60
  61. 61. Automotive merger: Estimating cost savings 61
  62. 62. Estimating Revenue Improvements Revenue improvements will come from one or more of four sources. 1. Increasing each product’s peak sales level. 2. Reaching the increased peak level faster 3. Extending each product’s life 4. Adding new products(or features) that could not have been developed if the two companies had remained independent. 62
  63. 63. Evaluating the quality and accuracy of improvements estimates •  According to McKinsey’s Merger Management, 86% of the acquires were able to capture at least 70% of the estimated cost savings. •  In contrast almost half of the acquirers realized less than 70% of the target revenue improvements, and in almost ¼ of the observed acquisitions, the acquirer realized 30% of the targeted revenue improvements. 63
  64. 64. How to pay: in cash or stock? •  Research evidence shows that an acquirer’s stock returns surrounding the acquisition announcement are higher when the acquire offers cash than when it offers shares. •  When the acquiring company pays in cash, shareholders carry the entire risk of capturing synergies and paying too much. –  If the companies exchange shares, the target’s shareholders assume a portion of the risk. •  When weighting whether to pay in cash or in shares, you should also consider what your optimal capital structure will be. 64
  65. 65. Focus on value creation, not accounting •  Stock markets pay no attention to the effects of an acquisition on accounting numbers, but react only to the value that the deal is estimated to create. •  Many acquisitions are earnings accretive but destroy value. 65
  66. 66. Market reaction to EPS impact of acquisitions •  Financial markets understand the priority of creating real value over results presented in accounts. •  In a study of 117 U.S. transactions larger than $3 billion that took place in 1999 and 2000, we found that earnings accretion or dilution resulting from deals was not factor in the market’s reaction. 66
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