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Merger Analysis

728 words - 3 pages

2. Briefly describe the differences between a hostile merger and a friendly merger. Is there any reason to think that acquiring companies would, on average, pay a greater premium over target companies’ pre-announcement prices in hostile mergers than in friendly mergers?

Mergers can occur on either a friendly or a hostile basis. A friendly merger occurs when the target company's management agrees to the merger and recommends that shareholders approve the deal. However, the shareholders of the target firm must vote on the merger, but managements support generally assures the vote will be favorable. Once the stockholders approve the merger, the transaction is typically consummated either ...view middle of the document...

Operating Costs 9,600,000 11,520,000 13,824,000 16,588,800
Depreciation 276,000 317,400 365,010 419,762
Fixed Operating Costs 690,000 793,500 912,525 1,049,404
Interest expense 86,250 99,188 114,066 131,175
---------- ---------- ---------- ----------
Earnings before taxes $1,347,750 $1,669,913 $2,064,399 $2,546,859
Taxes 539,100 667,965 825,760 1,018,744
---------- ---------- ---------- ----------
Net income $808,650 $1,001,948 $1,238,640 $1,528,116
Plus depreciation 276,000 317,400 365,010 419,762
---------- ---------- ---------- ----------
Cash flow $1,084,650 $1,319,348 $1,603,650 $1,947,877
Req'd addn to equity 388,125 446,344 513,295 196,763
---------- ---------- ---------- ----------
Available CF $696,525 $873,004 $1,090,354 $1,751,114
Expected terminal value 16,635,138
---------- ---------- ---------- ----------
Free cash flow $696,525 $873,004 $1,090,354 $18,386,252
========== ========== ========== ==========
Maximum total offer, total: $12,333,176
Maximum offer price per share: $4.11

Merger cash flow statements and capital budgeting cash flow analysis are the same. However,...

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