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. Post-merger cash flows and bidding Aa Aa In a merger analysis, the most important part of the analysis is to determine whether there are any operating synergies between the merging companies. This step is critical in the process of estimating post-merger cash flows and the value that the merger will bring to the firms A merger in which the incremental post-merger cash flows are simply the target firms expected cash flows is called Consider the case of LetsMerge Co. and WhoMe Inc. LetsMerge is targeting WhoMe for a potential friendly merger. After initial discussions with the management of WhoMe, LetsMerge sends a team of analysts, engineers, and advisers to evaluate expected synergistic benefits and to estimate the value of operations of WhoMe. This process is called due diligence. The due diligence team submits a report stating that WhoMes current market value of equity is $39.60 million. Based on projected cash flows in the pro-forma statements, analysts calculate that the post-merger value of operations will be equal to $47.52 million. What is the value of the synergistic benefits that the merger will bring to LetsMerge from WhoMes operations? O $7.92 million O $11.88 million What is the most likely bidding strategy for LetsMerge Co.? O LetsMerge will negotiate a price between $47.52 million and $39.60 million. O LetsMerge will negotiate a price that is lower than $39.60 millionNow consider the following: Suppose LetsMerge Co. is also targeting another company, YesYou Inc., which has a current value of $75.60 million. Analysts conduct due diligence and estimate the post-merger value of YesYous equity to be $83.16 million. YesYou has 28.80 million shares outstanding If the merger analysts expect the synergies to be realized, the maximum price per share that LetsMerge is likely to pay if it is making a cash offer for YesYou Inc. is LetsMerge has 43.20 million shares outstanding that are trading at $7.20 per share. Suppose LetsMerge makes an offer to acquire YesYou at $2.31 per share. If the deal goes through, the post-merger value of YesYou to the The total value of the merged companys equity will be If LetsMerge wanted to issue stock for this merger, how many new shares should LetsMerge issue so that YesYous former stockholders will own 17.62% of the shares of the merged company? O 7.39 million shares O 11.09 million shares O 9.24 million shares 5.54 million shares

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Home nert Page Layout Formulas Data Review View dd-Ins as Cut E AutoSum ー E ゴWrap Text copy ▼ в 1 프 . Ej-., Δ. : rーー 逻锂函Merge & Center. $, % , 弼,8 Conditional Format eCell Insert Delete Format Paste Sort &Find & 2 ClearFe Select Edting Format Painter Formatting, as Table w styles. ▼ ㆆ ▼ Clipboard Font Alignment Number Cells B20 Formula Ba HP HQ HR HS HT HW HX HY Hz IA IB IC ID IE 2 ans 1 A merger in which the incremental post-merger cash flows are simply the target firms expected cash flows is called pure financial merger 4 5 ans 2 6 7 ans 3 VALUE OF SYNERGISTIC BENEFITS = 47.52 39.60 7.92 MILLION LETSMERGE WILL NEGOTIATE A PRICE BETWEEN 47.52 MILLION & 39.60 MILLION CASH OFFER FOR YESYOU INC-83.16/28.80 9 ans 4 10 2.89 PER SHARE VALUE OF EQUITY OF LETSMERGE PURCHASE PRICE OF YESYOU INC VALUE OF MERGED ENTITY 43.20 X 7.20 28.80 X 2.31- 311.04 66.53 377.57 12 13 14 15 ans 5 If the deal goes through, the post-merger value of YesYou to the LetsMerge shareholders is $66.53 million 16 17 18 19 20 ans6 So no of shares for Yes you shareholders will be-43.20 x17.62%/82.38% il 1 n YTC ! NPV 3 ASSETS 1 NPV real cfat The total value of the merged companys equity will be 377.57 MILLION Present no of shares 43.20 million If yes you ask for 17.62% of shares, then existing shareholders will have 82.38% of shares 9.24 million allocation amorti LOAN OP TIONSSPLIT VALUE OF SHAREHPR REAL RETURN EPS BEST PLANEAC HIGH LOW Sheet 09:12 22-01-2019

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