Macr
Mergers, Acquisitions and Corporate Restructuring Assignment - 1
Submitted to Prof. Utkarsh Majmudar
By Varun Mediratta (111057)
On 14/02/2013
INDIAN INSTITUTE OF MANAGEMENT UDAIPUR
Fisher Corporation
The three options are as follows:
Option 1: All cash deal financed by issuing 20-year 10% coupon bonds taxable in nature
Option 2: Issuance of optionally convertible Weston stock paying dividend @ $ 2 per share
Option 3: Stock for stock deal
Under option1, the deal size of $58.50 mn values Fisher Corporation at $32.50 per share. The deal is taxable and a capital gains tax @ 28% is applicable on the same. From the shareholder point of view, the deal presents a good exit opportunity at a reasonable premium to the current market price. The company has given a flat revenue guidance for the year and the net income is expected to drop significantly on the back of a steep increase in input costs. Based on this, it makes sense for the shareholders to exit from the stock since not much appreciation in the stock price is expected going forward.
Working out the numbers, the options can be compared as follows:
Price per share under option 1: $32.50 per share
Price per share under option 2: $30 per share (preference shares + dividends)
(Calculated as 50,000,000/1,800,000 + 2/ (1-0.1); assuming cost of capital = 10%)
Let x be the cut-off acquisition price for deciding between option 1 and option 2: * (32.5-30) = 0.28x (capital gains tax = 28%) * x = $23.57
Submitted to Prof. Utkarsh Majmudar
By Varun Mediratta (111057)
On 14/02/2013
INDIAN INSTITUTE OF MANAGEMENT UDAIPUR
Fisher Corporation
The three options are as follows:
Option 1: All cash deal financed by issuing 20-year 10% coupon bonds taxable in nature
Option 2: Issuance of optionally convertible Weston stock paying dividend @ $ 2 per share
Option 3: Stock for stock deal
Under option1, the deal size of $58.50 mn values Fisher Corporation at $32.50 per share. The deal is taxable and a capital gains tax @ 28% is applicable on the same. From the shareholder point of view, the deal presents a good exit opportunity at a reasonable premium to the current market price. The company has given a flat revenue guidance for the year and the net income is expected to drop significantly on the back of a steep increase in input costs. Based on this, it makes sense for the shareholders to exit from the stock since not much appreciation in the stock price is expected going forward.
Working out the numbers, the options can be compared as follows:
Price per share under option 1: $32.50 per share
Price per share under option 2: $30 per share (preference shares + dividends)
(Calculated as 50,000,000/1,800,000 + 2/ (1-0.1); assuming cost of capital = 10%)
Let x be the cut-off acquisition price for deciding between option 1 and option 2: * (32.5-30) = 0.28x (capital gains tax = 28%) * x = $23.57