- January 21, 2023 at 2:35 pm #677170
Dear John, I wanted to reply to my earlier post to ask you to answer my question when you have time, which you asked me to do so on Tuesday, but my message was not sent out no matter how many times I tried. It would be great if you could answer the question in my earlier post.
Thanks in advance!January 22, 2023 at 11:12 am #677211
I do remember (although I do not know why it was that you couldn’t send it again). Please can you copy and paste your original question so that I will then be able to answer it?January 23, 2023 at 3:33 am #677241
sure thing John! Thanks again!
The question is from Cigno Co (2015DecQ1) where FCFF calculation is used to calculate the total value to Anatra Co after unbundling, I am wondering why would the FCFF calculation result and unbundling part not being the value attributable to Cigno Co as Anatra Co is acquired by Cigno Co, but rather the total value to Anatra Co?
It makes sense to me for the value attributable to Anatra Co’s shareholders, but I don’t understand why the value attributable to Cigno Co is the remaining part of 37478 – 37350. I thought it is 37478.
Suggested solution: Total value of Anatra Co following unbundling of equipment manufacturing business and absorbing medical R&D business: $5,594m (appendix 1) + $31,884m = $37,478m (approximately)
The value attributable to Cigno Co’s shareholders from the acquisition of Anatra Co before taking into account the cash benefits of potential tax savings and redundancies = $128m
I did 2020MarchQ1 Westparley where the result of FCFF calculation of $15872m is included as a part of the value attributable to the bidding company.
Suggested solution: Value attributable to Westparley Co shareholders = present value of cash flows + proceeds from sell-off + value of synergies – value to Matravers Co’s investors = $15,872m + $5,058m + $1,842m – $20,875m = $1,897m
The calculation itself makes sense to me, it is just why the result would not be attributable to Cigno Co.
the result of the FCFF calculation is considered as the total value to Anatra Co after unbundling, how to distinguish whether the FCFF calculation is the result of the value to the bidding or the target company? In the case of Westparley, it looks like it is the value to the bidding company, but in the case of Cigno, the total value to Anatra Co is spread between Antra and Cigno.
Thanks in advance:)January 23, 2023 at 9:27 am #677248
What is happening is that the free cash flow valuation of 37,478 is the total value of the future cash flows, but it does not take into account the amount that has to be paid ‘now’ to Anatra. Since they have to pay 37,350 to Anatra it leaves 128 as the benefit that ends up going to Cigno’s shareholders.January 25, 2023 at 11:29 am #677351
Thanks John, it makes sense now 🙂January 26, 2023 at 6:40 am #677371
You are welcome 🙂
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