- This topic has 1 reply, 2 voices, and was last updated 8 hours ago by
.
- Posts
Hi Tutor,
I would like to clarify the confusion over the value of combined entity and acquiree’s stakeholders value in case of share-for-share offer. I have three scenarios and ways of solutions ( please correct me if I’m wrong in any of them)
Scenario 1 : Value of combined entity is estimated by the DCF, so we need to subtract the debt to find FCFE then we can find the price per share of the combined entity. Price per share multiplied with number of shares issued to acquiree = value attributable to acquiree
Scenario 2: (pre-dec Mock) Value of combined entity = Value of equity of acquirer was given + synergy + estimated value of acquiree.
Then find prcie per share and same as scenario 1Scenario 3: Future CF of Combined entity was given (FCFF), Debt-equity ratio of acquirer was given. So to find the attributable value of acquiree, we need to find the FCFE then subtract the market value of equity of acquirer.
So if I have to define the value attributable to acquiree, it will be the FCFE available to acquiree ?
And the value of combined entity if I discount cash flow will always be FCFF (as in lecture I remember, when we discount future CF, it is everything available to creditors and shareholders)And why the calculation of FCFE not involve subtracting the debt of acquiree as well?
What you have written for the three scenarios is OK.
As far as the value attributable to the acquiree is concerned, the depending on the scenario it is either the increase in the value of the equity or the increase in the value of the firm. If it is the increase in the value of the firm then this will be the same as the increase in the value of the equity assuming that the debt in the acquired is unchanged.
- You must be logged in to reply to this topic.