In: Accounting
There has been a rumor that Company Z may become a takeover target for another company in the industry, or even for a private equity fund in a leveraged buy-out (LBO). Here is the updated data on Company Z:
a) Given the data above, what is your guess for the value of the offer that an acquirer would have to make in order to buy Company Z?
b) If the deal is paid in cash, how much debt would the acquirer have to take in order to complete this deal?
c) How would you expect this deal to be financed?
Current Capitalization (Millions of EUR) | |
Currency | Million EUR |
Shares Price | $ 264.5 |
Shares Outstanding | 195.0 |
Market Capitalization | 51,581.8 |
- Cash & Short Term Investments | 2,683.0 |
+ Total Debt | 5,518.0 |
+ Pref. Equity | - |
+ Total Minority Interest | 268.0 |
=Total Enterprise Value (TEV) | 54,684.8 |
Book Value of Common Equity | 6,661.0 |
+ Pref. Equity | - |
+ Total Minority Interest | 268.0 |
+ Total Debt | 5,518.0 |
Depreciation & Amort., Total | 12,447.0 |
SOLUTION(a).
The value of the offer that an acquirer would have to make in order to buy Company Z = 54,684.8 Million EUR, as the Total Enterprise Value reflects the True & Fair Value of the Company.
Answer(b).
If the deal is paid in cash, the debt that the acquirer would need to undertake =
(Total Enterprise Value – Total Debt) = (54,684.8 – 5,518.0) Million EUR
= 49,166.8 Million EUR
Answer(c).
This deal can be financed through a Leveraged Buyout (LBO) or most commonly known as “going-private”. A Leveraged Buyout (LBO) is the accession of another Company by utilizing a considerable amount of borrowed funds or the debt capital to meet its Cost of Acquisition. This will help the Acquirer Company to spend a lesser amount of its own money and thus revitalize its overall performance. However, the Acquirer Company should consider this option only as a short-term measure for upgrading its profit parameters, since it may end up paying more interest rates on the debt capital if held for long periods.