corporate finance Flashcards
FCF
Net Income \+Net interest after tax =Unlevered net Income \+/- Change in deferred taxes =Net Operating Profit less adjusted taxes (NOPLAT) \+ Net noncash charges - Change in net working capital - Capital Expenditures (capex) = FCF
FCFF
NI + non cash charges + [Interest expense (1-tax rate)] - Fixed Capital Investment (capex) - Working capital investment
Terminal value - discount rate
FCF(1+g)
/
adjusted wacc - g
Terminal Value - price
FCFt x (P/FCF)
change in Price ex-dividend
Change in P = D(1-Td)/(1-Tcg)
Defenses to take over:
Just say No
Litigation
say no
file law suit, on anti trust grounds or some violation of security laws
Greenmail
Share repurchase
Greenmail:
Pay off potential acquirer by buying back their shares at a premium
Share Repurchase:
Submit tender offer for own shares
Leveraged recap
Crown Jewle
Lev recap: take on debt to buy back on shares
Crown Jewel: Sell off a sub or major asset to neutral 3rd party in hopes of dissuading take over. May be illegal
PAC man
White Knight
White Squire
PAC: unlikely - make a counter offer to acquire the acquirer
Knight: sell to a friendly 3rd party which good strategic fit
Squire: Have friendly 3rd party buy minority stake large enough to fend of hostile takeover.
HHI Concentration Level
Less than 1000- not concentrated - Any change - No action
1000-1800 - moderate concentration - 100 or more change - Possible action
Greater than 1800 - highly concentrated - 50 or more - Anti trust challenged
HHI concentration calculation
(MS x 100)^2 x #of firms with that market share.
Example 10 firms 8% & 2 firms 10%
(.08 x 100)^2 x 10 + (.10 x 100)^2 x 2 = 840
`DCF advantages and Disadvantages
Good: uses forecasted fundamentals, easy to model and customize
Bad: Difficult when FCF is negative, estimates of earnings and FCF are highly subject to error, sensitive to discount rate, estimation error in terminal value
Comparable company
advantages and Disadvantages
Good: data is easy to access, estimates are derived directly from the market rather than assumptions
Bad: assumptions other valuations were correct, provide fair value price not fair value takeover price - must add takeover premium, difficult to incorporate synergies or changing capital structures, uses historical data
Comparable Transactions
advantages and Disadvantages
Good: no need to estimate a takeover premium, uses market data rather than assumptions, reduces changes for mispricing
Bad: assumes past transactions were priced correctly, maybe not enough comparable data/transactions, difficult to incorporate synergies or change in capital structures
Post Merger Value
= Va + Vt + S - C
Value Acquirer
Value Target
Synergies
Cash
Gain accrued to target
Gains = TP = Pt - Vt
Take-over Premium
Price paid for target
Value for target
Gain accrued to the Acquirer
Gains = S - TP = S - (Pt - Vt)
Synergies
Divestitures
company selling off a division or sub. Most involve direct sale of a portion of a firm to out outside buyer for cash and gives up control.
Equity Carve-Out
Create a new independent company by giving an equity interest in a sub to outside share holders. Shares of the sub are issues in a public offering and sub becomes a new legal entity who is seperate
Spin-offs
are like carve-outs in that they create a new independent company. The primary difference is that shares are not issues to the public but are instead distributed proportionately to the parents company’s share holders. Parent company doesn’t receive cash
Split-Offs
allows shareholders to receive new shares of a division of the parent company in exchange for a portion of their shares in the parent company.
Liquidation
Break up the firm and sell its assets piece by piece. Usually associated with bankruptcy.
Bear Hug
When the merger target is opposed the acquiring company may submit the merger proposal directly to the board
Proxy fight
Proxy solicitation is used to convince shareholders to elect a new board of directors favorable to accepting the merger or offer
