12. m&a synergy valuation for premium analysis

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12. m&a synergy valuation for premium analysis

  1. 1. Analysis Date February 19, 2013 Market Inputs Current riskfree rate (Rf) 1.71% Risk Premium (Rm - Rf) 5.00% Office Depot (ODP) Office Max (OMX) After Merger Terminal Year General Input Levered (Equity) Beta 3.52 2.68 2.37 2.61 Pre-tax cost of debt 1.71% 1.71% 1.71% 1.71% Tax rate 40.00% 40.00% 40.00% 40.00% Debt to Equity (D/E) 70% 90.00% 60.00% 60.00% Reinvestment Rate (b) 50% 50.00% 50.00% 50.00% Length of growth period 5 5 5 Assets $4,010,780,000 $4,069,280,000 $8,080,060,000 $8,080,060,000 Long Term Debt $485,330,000 $1,699,320,000 $2,184,650,000 $2,184,650,000 Income Statements Sales $10,695,652,000 $7,121,170,000 $17,816,822,000 $17,816,822,000 Cost of Sales $7,448,070,000 $5,311,990,000 $12,760,060,000 $12,760,060,000 Gross Profit $3,247,582,000 $1,809,180,000 $5,056,762,000 $5,056,762,000 SG&A and Other Expenses $3,208,200,000 $1,690,970,000 $4,899,170,000 $4,899,170,000 Research & Development $0 $0 $0 $0 Depreciation/Amortization $0 $0 $0 $0 Unusual Expense $0 $11,200,000 $0 $0 Other Operating Expenses $0 $20,530,000 $0 $0 Operating Income (EBIT) $39,382,000 $86,480,000 $157,592,000 $157,592,000 Other Non Operating Income $0 $0 $0 $0 Interest Expense $8,282,472 $29,000,000 $37,282,472 $37,282,472 EBT $31,099,528 $57,480,000 $120,309,528 $120,309,528 Income Tax $12,439,811 $22,992,000 $48,123,811 $48,123,811 Net Income (NI) $18,659,717 $34,488,000 $72,185,717 $72,185,717 Calculations NOPAT $23,629,200 $51,888,000 $94,555,200 $94,555,200 Profit Margin (NI/Sales) 0.17% 0.48% 0.41% 0.41% Asset Turnover (Sales/Assets) 2.67 1.75 2.21 2.21 Debt to Asset (D/D+E) 41% 47% 38% 38% Asset/Equity 170% 190% 160% 160% M&A Synergy Potential and Premium Calculation | Deb Sahoo | MBA, Finance, University of Michigan | MS, EE, University of Southern California | B-Tech, EE, IIT |
  2. 2. ROE 0.79% 1.61% 1.43% 1.43% Sustainable Growth Rate (ROE*b) = 0.40% 0.81% 0.71% 0.71% Unlevered (Asset) Beta 2.48 1.74 1.74 1.92 Cost of Equity (Re)= 19.31% 15.11% 13.54% 14.76% After-tax cost of Debt = 1.02% 1.02% 1.02% 1.02% Cost of capital, WACC = 11.78% 8.44% 8.85% 9.61% Valuation PV of FCFF in high growth = $110,222,516 $261,432,442 $471,348,819 Terminal Value = $204,612,436 $640,253,125 $1,019,918,540 Value of firm today = $227,480,413 $688,490,891 $1,138,907,533 Value of Potential Synergy Value of independent firms $915,971,304 Value of combined firm $1,138,907,533 Value of synergy $222,936,230 Premium for control 24.34%

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