Dear Sir.
When we discuss the value of the firm in this section, we are referring to the value of the firm’s equity; that is, that part of the cash flows generated by the firm’s assets that accrue to the firm’s shareholders.
Recall the following:
VA = value of firm A (acquiring firm); VB = value of firm B (the target firm);
and VAB = value of the combined firm
The M&A should only proceed if VAB > VA + VB (there must be synergy!)
?V = VAB – (VA + VB),
where: ?V = incremental net gain from the M&A (i.e. synergy)
We can now define:
= the value of Firm B to Firm A in an M&A.
V*B = VB + ?V
V*B NPV (M&A) = V*B – Cost to Firm A of the acquisition....i understand all the above,except the last point,when they say "we can now define",the V*B part,it does not make sense to ma after the above explanation,please help,thank you.
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Merger and Acquisition valuations
6y ago#1I don't know where you have copied all this from, but for them to have written it all out in symbols like that is a bit silly as far as the AFM exam is concerned :-)
What the last line means is that the benefit to the shareholders of company A is the value of company B to company A (i.e. V*B) less the cost to company A of the acquisition (although that isn't obvious from the equation as they have written it).
Yes sir,what confuses me is that the value of V*B itself.how on earth they get that mathematically,when the change(V is the differnce of the VA +VB),and suddenly we say V*B is the sumt of VandV*B,my thought process is that it should be V-VA.Thank you, i know get the implication by the last statemen(Comapny A value)t,but i don't get the way around V*B.
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