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Mergers & Acquisitions: Analysis w/ Regression Work for Viacom and Paramount

Viacom and QVC's competition for Paramount - Brief Overview

After a week or so of rumors, Viacom made an offer for Paramount Communications of $68.42 a share on September 10, 1993. Ten days later, QVC made a tender offer for Paramount of $83.13 a share. Both offers were a mixture of stock and cash with the estimated offer price based on the bidder stock prior to the offer. The following questions will ask you to advise Viacom on increasing its offer based on your valuation and event study analysis.

The information and data you need to access Viacom's bid is given in the following files.

a) Paramount1993.pdf is a case on this acquisition. Attached.

This case will give you a background on the companies and the deal. The case contains the accounting data, public and transaction comparable data, synergy estimates, and discount rate inputs.

b) The file PARAMOUNT VIACOM stock data.xls contains the total returns, stock price and number of shares for Paramount and Viacom for the period 331 days before to 59 days after the first announcement. This file is needed for question 1, involving the stock market reaction to these offer announcements. Attached.

C) Excel file Valuation Spreadsheet to use for certain problems below

Questions:

NOTE: Priority questions are 1(a), 1(c), 2(a), 3(a) and 3(b), If you can complete these consider this assignment done and "postable" however if you can also work on the other problems that would be very helpful -- not all of the remaining must be done but the more the better but completing those that prioritized above is not 100% essential.

QUESTIONS

1. What was the stock market reaction to the Viacom announcement?

(a) REQUIRED: Estimate the R2 (R-square), intercept and Beta for Paramount's daily return regression on the S&P500 index daily return.

Run this regression for the period -330 to -31 days prior to the announcement. Fill in the table below.

Also Submit the Excel file containing this regression. Call this file Stock Reg .xls

Basic Results from Paramount daily return regressed on S&P 500 daily return -300 to -31

Value t-statistic
Intercept
Beta
R-squared/standard error

(b) Estimate the R2, intercept and Beta for Viacom's daily return regression on the S&P500 index daily return. Run this regression for the period -330 to -31. Fill in the table below.

Basic Results from Viacom's daily return regressed on S&P 500 daily return -300 to -31
Value t-statistic
Intercept
Beta
R-squared/standard error

(c) REQUIRED:Give a basic interpretation of the estimated values and t-statistics in (a)? Do they make sense?

(d) What are the announcement day (9/10/93) abnormal returns?

Announcement day returns for Paramount and Viacom
Paramount Viacom Combined
% Abnormal Return
t-statistic
$ value

(e) What are the abnormal returns for the period 5 days before to 11 days after the (9/10/93) announcement?

Announcement day returns for Paramount and Viacom
Paramount Viacom Combined
% Abnormal Return
t-statistic
$ value

Attachments

Solution Summary

The solution provides a detailed response complete with calculations for a full understanding of the questions.

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