# Vodafone Case Study

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the Vodafone Case We start of with making the calculations for the premium that Vodafone is going to pay for Mannesmann. We know that Mannesmann will own 47.2% of the equity of the newly combined company. This is 47.2% from € 275 375 million, which is €129 997 million. Vodafone is offering 53.7 shares of the value of December 17, so € 4,957, for every share of Mannesmann. Mannesmann has 517,9 million shares, so Vodafone would pay 517,9 million * 53,7 * € 4,957 = € 137 860.3 million. This would be a premium of € 137 860.3 million - €129 997 million = €7 863 million. This premium we are going to compare with some possible different estimates for the synergy that will follow from the acquisition. (1a) We know that Vodafone and Mannesmann…show more content…
To recalculate the new WACC we assume the following: Market risk premium is 7.7%. A leverage of 5% (or D/V =1/20) and a given risk free rate of 5.5%. Also we assume the cost of debt (rD) to be 7%. We find the return on equity (rD), by using the CAPM formula. For the equity beta of Vodafone we use 1.1, as given in footnote a of exhibit 10: rE= Rf + beta* market risk premium rE = 5.5 + 1.1 * 7.7 = 13.97% Now we can easily find the WACC by filling in the formula: WACC = (D/V * rD) + (E/V *rE) WACC = (1/20 * 0.07) + (19/20 *0.1397) = 13.62% With the new WACC: | 2001 | 2002 | 2003 | 2004 | 2005 | 2006 | After | Op. Pr. | 90 | 246 | 688 | 984 | 1221 | 1489 | | Tax (1) | (31,5) | (86,1) | (240,8) | (344,4) | (427,35) | (521,13) | | ATOP | 58,5 | 159,9 | 447,2 | 639,6 | 793,65 | 967,85 | 10 061(2) | Cap. Ex | 60 | 147 | 360 | 420 | 469 | 506 | | Total | 118,5 | 306,9 | 807,2 | 1059,6 | 1262,65 | 1473,85 | 10061 | PV(3) | 104.30 | 237.73 | 550.32 | 635.80 | 666.82 | 685.05 | 4676,3 | (1) This is the 35% tax taken from Operating profit (2) This is After tax operating profit for after 2006, taken the WACC and growth in consideration, so 967,85/(0,1362-0,04) (3) This is the present value of the total estimate of the synergies after tax, discounted with the WACC, so (total)/(1+0,1362)year If sum up all the present values, we get the amount of £ 7556.32 million. At an exchange rate of 1,5789 EUR/GBP this gives a