Premium in a Tender Offer
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Company A is considering the acquisition of a firm in the Czech Republic and would like your opinion on this. It plans to operate the firm for 3 years and then reevaluate the holding.
Free Cash flows are estimated as follows:
Year 1 - 38.63M Czech Koruna (CZK), Year 2 - 44.33 M CZK,
Year 3 - 50.48M CZK
The third year terminal value is estimated at 375M CZK.
The Czech Koruna's exchange rate is assumed to be .038 USD/CZK for each year. Company A uses a WACC of 13 % for its domestic projects. So, the PV of the FCF's for the firm is 363.78 M CZK or $13.82M. The Czech firm has 1,000,000 shares outstanding and a debt to equity ratio of 1:1. Current market price is 185 CZK per share.
Should Company A make a deal if its policy is to never exceed a 20% premium in any tender offer?
What changes in the analysis or additional analysis do you suggest before a final decision should be made?
I'm not sure even where to start. Not sure how to create this excel spreadsheet.
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Solution Summary
Sets up an excel spreadsheet for calculating the value of an international operation for acquisition. Using the concept of present value of free cash flows of the firm, the fair price is worked out. This price is discussed within the overall policy of the firm not to make any tender offer for a premium more than 20%.
Solution Preview
See the attached file. Thanks
WACC 13%
Year Free cash flow Discounting Factor Dicounted Value
1 38.6 M CZK 0.885 34.15929204 M CZK
2 44.33 M CZK 0.783 34.71689247 M CZK
3 50.48 M CZK 0.693 34.98517219 M CZK
Terminal Cash Flow 375 M CZK 0.693 259.8938109 M CZK
Present value of Free cash Flows 363.7551676 M CZK
Total value of the Czech Firm 363.7551676 M CZK
Debt Equity Ratio 1
Value of Equity of the Czech Firm 181.8775838 M CZK
Number of Outstanding Equity Shares 1 M
Estimatede Value per share 181.8775838 CZK
Current ...
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