Mergers and Acquisitions , Corporate Finance

Assignment Help:
a) Cookie Monster Inc. (a $15 billion snack food company) is considering acquiring Keebler Elves but is unsure of how much is should be willing to pay for the target firm. At the moment, Keebler''s 44 million shares are trading in the market for $67.54 but Cookie Monster''s managers are convinced that its managers could tease out more value from their operations. Specifically, they expect to be able to decrease corporate overhead and thus increase the growth rate of Keebler''s dividends by 1% per year. In order to capture these gains, Cookie Monster will also have to incur $65 million worth of after-tax restructuring costs at the end of the first year and another $40 million (after-tax) at the end of year 2. Keebler''s dividend this year was $3.80 and the appropriate discount rate is 13%. Assuming they can purchase the company for its current share price, how much would the Keebler acquisition be worth to Cookie Monster?

b) After consulting with their investment bankers, Cookie Monster''s managers believe they will need to offer Keebler''s shareholders a 10% premium above its current market price in order to secure its sale. Furthermore, there is some uncertainty about how successful the integration of the new firm will be with the worst case scenario (20% chance of occurring) resulting in no change in Keebler''s dividend growth. Assuming a 100% cash deal, what is the maximum loss Cookie''s shareholders can incur?

c) If Cookie Monster instead offers Keebler a 15% premium on its current price but the deal offers them new shares in Cookie Monster instead of cash, what is the maximum loss Cookie''s shareholders original shareholders can incur?

Related Discussions:- Mergers and Acquisitions

Determine current stock price, Determine current stock price: 1) IBM ...

Determine current stock price: 1) IBM issued 10-year bonds with a par value of $1,000 and a coupon rate of 10%, paid semiannually. The yield to maturity on this bond is 12%.

form of repurchases, S5 Corporation is evaluating an extra dividend versus...

S5 Corporation is evaluating an extra dividend versus a share repurchase.  In either case, the total payout to the investors will be $10,000. Current earnings are $1 per share and

EBIT, Firm A has $10,000 in assets entirely financed with equity. Firm B al...

Firm A has $10,000 in assets entirely financed with equity. Firm B also has $10,000 in assets, but these assets are financed by $5,000 in debt (with a 10 percent rate of interest)

Calculate the net present value, Here is the pro-forma income statement for...

Here is the pro-forma income statement for Semen Indonesia, an overseas venture that Cemex is planning to invest in.  In this exercise, you will need to evaluate the inve

Evaluate accounting method, Question 1: Collect a current annual report (2...

Question 1: Collect a current annual report (2009) of an Australia listed company. Select the firm that reported the following assets. Select BOTHtypes of assets. Proper

What do you understand by the term hedging effectiveness, Question: (a)...

Question: (a) You have just been recruited as risk analyst at the Air Mauritius Limited. Your risk manager is trapped between diverging expectations. He is not sure whether oil

Explain the negotiation of letter of credit in trade finance, Judges Maurit...

Judges Mauritius Co Ltd imports spare parts for cars from Dubai on a letter of credit basis, payable 60 days from ‘bill of lading' issue date. Each letter of credit is valid for 90

Calculate the present value of a company''s bonds, 1. How do you calculate ...

1. How do you calculate the present value of a Company's bonds? 2. "An analysis of the magnitude and stability of cash flows comparative to fixed charges is very important in de

Discuss assumptions underlying the diversification theory, Question: a)...

Question: a) You have just been appointed a portfolio manager of Malou investment. An investor has two assets available from which to form his desired portfolio. Asset X has a

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd