FI519 Mergers & Acquisitions : An International Perspective Assignment Final Report

FI519 Final Report 

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Assignment Details:

Merger Consequence Analysis                

You will perform merger consequence analysis for a potential acquiring firm and write a report for the proposed deal by using M&A model implemented in the class. For this purpose, you will consider three scenarios of payment and analyse their effects (accretive/dilutive) on acquiror EPS.

• Scenario 1: 50% stock and 50% cash
• Scenario 2: 100% stock
• Scenario 3: 100% Cash

Task 1. For Scenario 1, you are required to discuss in detail salient effects of proposed M&A deal on acquiror’s balance sheet, income statement, cash flow statement and some of its key financial ratios.  (40 points)

Task 2. Then you are required to provide a comparative analysis on accretive/ dilutive effects of all three scenarios for acquiror so as to highlight implications of different payment considerations/offers on acquiring firm’s shareholders.  (30 points)

How will you do it?

A. Company Selection Criteria:

You will choose a potential acquiror and a target company and provide their information on spreadsheet that will be shared with you on moodle. Your companies should meet the following criteria:

• Your acquiror and target companies MUST be unique firms. This means that two students cannot work on same set of companies (acquirors & target). Conditional formatting in the spreadsheet will alert (in red fill) you if your chosen firm is already taken by someone else (see for example in row 6 & 7 in the spreadsheet).
• Both acquiror and target should be publicly listed active firms.
• Make sure that financial data for both companies (balance sheet, income statement, cash flow statements etc) is available for the period 2020 – 2023
• Make sure that you provide all information relating to company name, ticker symbol listed in stock exchange, industry and nation correctly.
• Acquiror and Target should not be financial firms
• Acquiror and target can be from same country and same industry

 (5 points)

B. Guidelines- Projections, Assumptions & Sources 

The related book chapter (chapter 7-Buy side M&A) comprehensively explains various parts of M&A model to help you implement it, so you should carefully read it. In addition to this, belowmentioned guidelines are meant to make you further avoid some unnecessarily complex parts of this model and work on rather simplistic assumptions.

• Your projections and other estimates including corporate tax rate should be based on realistic and justifiable information (for instance past trends, industry averages etc..).
• On assumption worksheet A1, A2 for both acquiror and target, you will only provide estimations for base scenario which you will be working on. So other scenarios including upside, downside, management etc can be ignored.
• Unless highly necessary do not modify the line items listed in financial statements. If you find certain important item of balance sheet, income statement or any other statement of your companies which is not listed in this model and it cannot be ignored, you can put that in “other” category. For instance, an unlisted line item in current liability could be reported under “other current liabilities”.
• Financing structure could perhaps be the most challenging part where we don’t really expect you to get into unnecessarily complex details such as providing commitment fee on unused revolving credit or propose a multi-layered financing structure. You can work on simple assumptions where you are financing the deal with one specific type of longterm debt which deem most suitable to the company given its past trends. You can also make assumption based on a previous M&A deal completed by your acquiror company.
• Similarly estimates relating to applicable interest rate could be justified from previous bond issuance, type of rate offered (LIBOR etc) or average interest rate paid on companies liabilities. Estimates relating to transaction fee, tender call premium could be inferred from previous transaction by the company itself or another company in that industry.
• You can also ignore details relating to Option/Warrants in diluted shares outstanding section.
• For estimation of purchase price, you can take target share price on 31/12/2023 or last trading day of the year.
• For premium you have two options. Either you can work on the same range as given in model which indeed is supported by M&A literature Or you can chek range of premium offered in the industry. The second option, of course, requires a bit of research on databases and internet.
• Only important parts of tables could be inserted in the relevant parts of the PDF report. While M&A model spreadsheet will be separately uploaded on moodle.
• Finally, you are not required to provide a sell side perspective on M&A as we previously intended. Hence, you might think of ignoring chapter 6 for this report.

Potential Sources of Information: Bloomberg, Orbis, and other databases available through learning centre. However, Bloomberg and Orbis should majorly cover your M&A data specific needs. All other internet sources ranging from financial newspapers, companies’ websites etc should also help.

   (15 points)

Formatting:  

The full 10% is awarded for a professionally formatted report that uses a suitable Word template, wellformatted tables and charts, and has no obvious formatting errors. 3% is awarded for a report that attempts to do the above but has some clear formatting errors (e.g. copying tables directly from Excel, using a Word template poorly, messy style). 0% is awarded for reports that don’t even meet these basic criterions.

   (10 points)

Uploading your report to moodle

All reports have to be uploaded to the Turnitin program on moodle in pdf format while M&A model spreadsheet will be uploaded in xlsx format. No paper copies are to be submitted. To submit your report a link will be shared on the moodle page of the M&A module enabling you to upload your work.

Simply following the straightforward instructions on the page will lead you successfully upload your assignment. However, to avoid any last minute problem that will surely be not considered as valid excuse, it is highly recommended to check before the deadline that you know exactly how to upload.

Good luck!

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