Mellon Financial BNY Group 9 Q1 2 3 5 6

727 WordsJul 26, 20153 Pages
Q1. What is the approximate, net of tax, present value of the cost savings synergies created by the deal if the relevant cost of capital (discount rate) is 7%? A1. Given: Cost of Capital = 7% Assumption: Tax rate (US Corporate Tax Rate) = 33% Year 2007 2008 2009 2010 Terminal Annual Cost Saving ($ Mio) 105 350 595 700 10000 One Time Charge ($ Mio) 692 337 61 0 0 Net Cost Saving ($ Mio) -587 13 534 700 10000 Tax Rate 33% 33% 33% 33% 33% After Tax Cost Saving ($ Mio) -393.29 8.71 357.78 469 6700 Discount Factor 0.966736 0.903492 0.844385 0.789145 0.789145 Present Value of Cost Savings -380.208 7.869416 302.1041 370.109 5287.271 Net Present Value ($ Mio) 5587.146 Q2. Will synergy cash flows allow the banks to increase their debt?…show more content…
of shares of Mellon post deal (*Cumulative total earnings/Pre deal EPS) 1152.13 million (=748.887/0.65) Shares of Mellon (1:1 exchange ratio) 411.9 million Shares of Bank of New York 740.23 million (=1152.13-411.9) To maintain the EPS pre and post deal, the following exchange ratio is calculated:- Exchange ratio= Bank of New York post deal shares/ Bank of New York pre deal shares =740.23 million/751.8million =0.9846 The exchange ratio of 1:0.9846 will maintain the EPS both pre and post deal. Q6. In the absence of synergies, is the proposed deal accretive or dilutive for Mellon shareholders? For BNY shareholders? The proposed deal (and as executed) had the following exchange ratios: CASE A Bank of New York: 1:0.9434 Mellon Financial: 1:1 BNY Shareholders experienced a loss of 1.69% as per the EPS post-merger, in comparison to the EPS if the merger had not taken place. Mellon Financial Shareholders experienced a gain of 3.39% as per the EPS post-merger, in comparison to the EPS if the merger had not taken place. If the merger had taken place as per the current EPS values only, i.e. at the Exchange ratios as given below: CASE B Bank of New York: 1:0.8859 Mellon Financial: 1:1 BNY Shareholders experienced a loss of 5.08% as per the EPS post-merger, in comparison to the EPS if the merger had not taken place. Mellon Financial Shareholders experienced a gain of

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