i) On April 28, 2008, Mars Inc. announced that it had reached an agreement to merge with Wrigley Corporation for $23 billion in cash. While mergers among competitors are not unusual, the deal's highly leveraged financial structure was uncommon in transactions of this type. Almost 90 percent of the purchase price would be financed through borrowed funds. What is the name of the deal structure Mars was using to acquire Wrigley? Briefly discuss two disadvantages of this type of deal structure.
Q: TransWorld Communications Inc., a large telecommunications company,is evaluating the possible…
A: Part (a): Answer: Appropriate discount rate for valuing acquisition is 14% Calculation of…
Q: In Berkshire Hathaway’s 2012 annual report, Warren Buffett, in discussing the company’s post-control…
A: The situation described above is correct as in GAAP post control acquisition has to be mandatory on…
Q: CBA Corp. is worth $15 million as a stand-alone firm. ABC Corp. has offered 350,000 shares valued at…
A: Given information: Value of CBA Corp. - $15 million ABC corp. offered - 350,000 shares Price of…
Q: Question : Majan Group is considering the acquisition of Mazoon Company in which Mazoon Company…
A: (a) Purchase price premium= OMR ( 66.50 - 49.25) * 24,500 OMR = OMR 422,625
Q: Jupiter, the bidding firm and Venus, the target firm. Assume that both firms have no debt…
A: NPV of merger is the net benefits due to merger of the firm and the difference between the value…
Q: The financial manager of Company A is evaluating Company B as a possible acquisition. Company B is…
A: Acquisition of other company's business is known as business acquisition. Under acquisition, all…
Q: Kunla Ltd and Cunta Ltd intend to merge. The following were observed just before the merger…
A: The question is related to the Merger ans Acquisition. The details of two companies are given.…
Q: Hannahs is considering the acquisition of Shoe Clinic. . Hannahs has 43,000 shares outstanding at a…
A: In finance, the term business acquisition represents a corporate action in which one business…
Q: Aussie Ltd is considering the acquisition of Kiwi Ltd. The values of the two companies as separate…
A: When a periodic benefit is for an indefinite time, it is known as perpetuity. Present value of…
Q: Silver Enterprises has acquired All Gold Mining in a merger transaction. The following balance…
A: Balance sheet is a financial statement that represents all the assets, liabilities and stockholders…
Q: Kaplan Ltd is contemplating the acquisition of Baron Incorporation. The values of the two companies…
A: We'll first find the present value of perpetuity to calculate the gain from the merger. Cash…
Q: 1.What was the dollar value of the purchase price Alcoa offered to pay for Reynolds?
A: As per our protocol we provide solution to the one question only but as you have asked multiple…
Q: Majan Group is considering the acquisition of Mazoon Company in which Mazoon Company would receive…
A: Merger refers when one company merges its operations with the other company. After merger,…
Q: Calculating Synergy. The Left Foot Company has offered $426 million cash for the common stock in the…
A: Given, Based on Market information, valuation = $ 389 million Offered price = $ 426 million
Q: |Three Guys Burgers, Inc., has offered $19 million for all of the common stock in Two Guys Fries,…
A: The term merger refers to the process of two different companies joining together to form a new…
Q: Aubey Appliance Corporation is considering a merger with theVelmore Vacuum Company. Velmore is a…
A:
Q: Consider the following data in relation to a proposed acquisition, where Firm B will take over Firm…
A: Pre-merger Value A=$600m Pre-merger Value B=$475m Post-merger Value A + B=$1,200m Cash Offer=$630m…
Q: ABC has 1.00 million shares outstanding, each of which has a price of $15. It has made a takeover…
A: Given: Particulars Amount ABC Shares outstanding 1 Million Price $16.00 XYZ Shares…
Q: In 2021, Google, a company that specializes in internet-related service, acquired Fitbit, the…
A: Acquisitaion : when one firm purchases another firm.
Q: ABC Corporation will be acquiring XYZ Corporation. The latter's fair value has not yet been…
A: In the context of the given question, we need to determine the value of control over XYZ company…
Q: Consider the following data in relation to a proposed acquisition, where Firm B will take over Firm…
A: given information Pre-merger Value A $550m Pre-merger Value B $420m Post-merger…
Q: When a merger takes place between two companies to form a single firm, the target company to operate…
A: Given: Particulars 1 2 3 After tax cash flows $19.00 $28.50 $34.20 Growth rate 3% Beta…
Q: Pearl, Incorporated, has offered $197 million cash for all of the common stock in Jam Corporation.…
A: Cash offer for Jam Corporation = $ 197 million Market value of Jam Corporation = $ 178 million
Q: Mission Ltd considered the takeover of Impossible Ltd. Both companies operated in the mining…
A: The following computations are done for Mission Limited.
Q: Majan Group is considering the acquisition of Mazoon Company in which Mazoon Company would receive…
A:
Q: On August 27, 2015, Celgene Corporation acquired all of the outstanding stock of Receptos, Inc., in…
A: Business Combination Business combination refer as the small business units into one, therefore new…
Q: What are the accounting ramifications of each of the three following situations involving the…
A: a.
Q: Company A is preparing a deal to acquire company B. One analyst estimated that the merger would…
A: To compute the present value of synergy, we will first find the value of synergy at the end of 3rd…
Q: Firm A has a total market value of RM 200 million. It is planning to acquire Firm B, which has a…
A: Firm Value of B = RM 630 million Premium paid = RM 24 Million Merger charges = RM 42 Million
Q: The directors of Pep Limited have appointed you as a merger and acquisition specialist. They are…
A: (Note: Since we only answer up to 3 sub-parts, we’ll answer the first 3. Please resubmit the…
Q: Type 2D: ABC Inc. is considering the acquisition of Togo Company. respectively. ABC's financial…
A: Given, Value of ABC is $ 40 million Togo is $15 million
Q: Company A is considering the acquisition of Company B, and intends to finance this potential…
A: Current Market Value of A = 700 Current Market Value of B = 420 Number of Shares of A =100 Number of…
Q: Company A is preparing a deal to acquire company B. One analyst estimated that the merger would…
A: Solution:-1 Computation of the value of the synergy (In $ Million) as estimated by the analyst as…
Q: Should Gee Co. proceed with the acquisition of Bea Co.? yes or no? show your solution. The…
A: Economic Value added = Net operating profit after tax - Investment required x WACC
Q: Need help with the following questions please. One company that the analysis indicated as…
A: Note: There is no information provided about the synergies from the merger. Hence Q3 cannot be…
Q: Consider the following premerger information about a bidding firm (Firm B) and a target firm (Firm…
A: Note : As per our guidelines, we can only answer up to 3 subparts , since you already have answers…
Q: 3. Before the acquisition of AFB, the market value of MBSB and AFB were RM250 million and RM15…
A: A merger is the voluntary combination of two businesses on roughly equal terms into one new legal…
(i) On April 28, 2008, Mars Inc. announced that it had reached an agreement to merge with Wrigley Corporation for $23 billion in cash. While mergers among competitors are not unusual, the deal's highly leveraged financial structure was uncommon in transactions of this type. Almost 90 percent of the purchase price would be financed through borrowed funds.
What is the name of the deal structure Mars was using to acquire Wrigley? Briefly discuss two disadvantages of this type of deal structure.
Trending now
This is a popular solution!
Step by step
Solved in 3 steps
- NewCo is trying to fully acquire OldCo in an all cash offer. NewCo will assume all the debt of OldCo as part of the acquisition. The expected synergies from the acquisition are $700 million. Before the transaction OldCo has 25 million shares outstanding, a share price of $65, and outstanding debt of $500 million (no excess cash). Is the following statement true or false? If NewCo offers $65 per share of OldCo and the acquisition is successful, the shareholders of NewCo will have captured the full value of the synergies of this transaction. Pick One: True FalseVelcro Saddles is contemplating the acquisition of Skiers Airbags Incorporated. The values of the two companies as separate entities are $46 million and $23 million, respectively. Velcro Saddles estimates that by combining the two companies, it will reduce marketing and administrative costs by $630,000 per year in perpetuity, Velcro Saddles is willing to pay $28 million cash for Skiers'. The opportunity cost of capital is 7%. What is the gain from the merger? Note: Enter your answer in millions rounded to 2 decimal places. What is the cost of the cash offer? Note: Enter your answer in millions. What is the NPV of the acquisition under the cash offer? Note: Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.TransWorld Communications Inc., a large telecommunications company, is evaluating the possible acquisition of Georgia Cable Company (GCC), a regional cable company. TransWorld's analysts project the post-merger data for GCC (in thousands of dollars) gathered in the Excel Online file below. If the acquisition is made, it will occur on January 1, 2018. All cash flows shown in the income statements are assumed to occur at the end of the year. GCC currently has a capital structure of 40% debt, but Trans World would increase that to 50% if the acquisition were made. GCC, if independent, would pay taxes at 20%; but its income would be taxed at 30% if it were consolidated. GCC's current market-determined beta is 1.35, and its investment bankers think that its beta will rise to 1.50 if the debt ratio were increased to 50%. The cost of goods sold is expected to be 65% of sales, but it could vary somewhat. Depreciation-generated funds would be used to replace worn-out equipment, so they would…
- Tom Corporation is considering the acquisition of Jerry Corporation. Jerry Corporation has free cash flows to debt and equity holders of $3,750,000. If Tom Corporations acquires Jerry Corporation, Jerry will reduce operating costs by $1,500,000. This will increase free cash flow to $4,900,000. Assume that cash flows occur at year-end and the weighted average cost of capital is 9%. a. What is the value of Jerry Corporation without a merger? o. What is the value of Jerry Corporation with the merger?TransWorld Communications Inc., a large telecommunications company,is evaluating the possible acquisition of Georgia Cable Company (GCC), a regionalcable company. TransWorld’s analysts project the following post-merger data for GCC (inthousands of dollars): If the acquisition is made, it will occur on January 1, 2018. All cash flows shown in the incomestatements are assumed to occur at the end of the year. GCC currently has a capital structureof 40% debt, but Trans World would increase that to 50% if the acquisition were made. GCC,if independent, would pay taxes at 20%, but its income would be taxed at 35% if it wereconsolidated. GCC’s current market-determined beta is 1.40, and its investment bankersthink that its beta would rise to 1.50 if the debt ratio were increased to 50%. The cost of goodssold is expected to be 65% of sales, but it could vary somewhat. Depreciation-generatedfunds would be used to replace worn-out equipment, so they would not be available toTransWorld’s…RTE Telecom Inc., which is considering the acquisition of Lucky Coro, estimates that acquiring Lucky will result in an incremental value for the firm. The analysts involved in the deal have collected the following information from the projected financial statements of the target company: Data Collected (in millions of dollars) Year 1 Year 2 Year 3 EBIT $120 $14.4 $18.0 Interest expense 505560 Debt 29.7 35.1 37.8 Total net operating capital 109.2 111.3 1134) Lucky Corp is a pubicly traded company, and its market- determined pre-merger beta is 1.20 You also have the following information about the company and the projected statements: Lucky currently has a $12.00 million market value of equity and S 7:80 million in debt. The risk-free rate is 3.5%, there is a 5.60% market risk premium, and the Capital Asset Pricing Model produces a pre merger required rate of return on equity rs of 10.22% Lucky's cost of debt is 5.50% al a laxtale of 35% The projections assume that the company will have…
- In July 2007, News Corporation entered into an agreement to purchase all of the outstanding shares of Dow Jones and Company for $67 per share. Immediately prior to the News Corporation bid, the shares of Dow Jones traded at $42 per share. The number of outstanding shares at the time of the announcement was 87 million. The book value of interest-bearing liabilities on the balance sheet of Dow Jones was $1.52 billion. Estimate the cost of this acquisition to the shareholders of News Corporation What value did News Corporation place on the control of Dow Jones and Company? Note: For all requirements, enter your answers in billions rounded to 2 decimal places.Financial Corporation wants to acquire Great Western Inc. Financial has estimated the enterprise value of Great Western at $104 million. The market value of Great Western’s long-term debt is $15 million, and cash balances in excess of the firm’s normal working capital requirements are $3 million. Financial estimates the present value of certain licenses that Great Western is not currently using to be $4 million. Great Western is the defendant in several outstanding lawsuits. Financial Corporation’s legal department estimates the potential future cost of this litigation to be $3 million, with an estimated present value of $2.5 million. Great Western has 2 million common shares outstanding. What is the value of Great Western per common share?Majan Group is considering the acquisition of Mazoon Company in which Mazoon Company would receive OMR 66.50 for each share of its common stock. The Majan Group does not expect any change in its price/earnings multiple after the merger. Majan Group is considering either undertaking the acquisition either through a stock for stock transaction, an all-cash transaction or in a stock and cash transaction. Majan Group intends to borrow the cash involved in the transaction in an interest only loan at an annual rate of 6% with the principal to be repaid as a in 15 years. If the stock and cash transaction is to be considered, Majan Group will pay a purchase price of one share of its stock plus a cash amount equal the difference between the offer share price and the target's share price. The marginal tax rate of Majan Group is 40%.Majan Group Mazoon CompanyEarnings available for common stockOMR 184,450OMR 38,150Number of shares of common stock outstanding81,90024,500Market price per shareOMR…
- The firm T, as a standalone business, has asset = $105,008,000, debt = $3,040,000, total number of shares NT = 3,565,315. An eminent entrepreneur A, along with an investment bank, estimate that a potential value of U = $42,003,200 can be unlocked after a takeover of T that will replace the current management of T and implement innovative ways to operate the business of T. The investment bank is hired to assist the takeover which costs F = $3,360,256 to the entrepreneur. The entrepreneur A already owns 12% of the shares of T through anonymous trading in the stock market. 1) If the entrepreneur A plans to pay $32.50 per share to buy all the remaining shares of T, how much cash does the acquiring entrepreneur A need? 2) With the offer price $32.50 per share, what would be the percentage change in the equity value of T’s shareholders excluding the acquiring entrepreneur, following the takeover? 3) If shareholders of T require rather a 18% premium, but entrepreneur A’s offer price remains…Alcoa’s offer to Reynolds Metals consisted of $4.3 billion in cash plus the assumption of $1.5 billion in Reynolds’ outstanding debt. Alcoa’s offer letter, which it made public, from its chief executive to the Reynolds’ CEO indicated that it wanted to pursue a friendly deal but that it would pursue a hostile bid if the two sides could not begin discussions within a week. Reynolds appeared to be highly vulnerable because of its ongoing poor financial performance and because of its weak takeover defenses. Despite pressure from institutional shareholders, the Reynolds’ board rejected Alcoa’s bid as inadequate. Alcoa’s response was to say that it would make a formal offer directly to the Reynolds’ shareholders and simultaneously solicit shareholder support for replacing the Reynolds’ board and dismantling Reynolds’ takeover defenses. Reynolds capitulated within two weeks from receipt of the initial solicitation and agreed to be acquired by Alcoa. The agreement contained a…Penn Corp. is analyzing the possible acquisition of Teller Company. Both believes the acquisition will increase its total aftertax annual cash flow by $1,176,015.93 indefinitely. The current market value of Teller is $23,453,722 and that of Penn is $63,348,212. The appropriate discount rate for the incremental cash flow is 13.63%. Penn is trying to decide whether it should offer 36% of its stock or $35,478,193 in cash to Teller's shareholders. What is the equity cost of the acquisition? HINT: Compute the value of the combined firm by adding the current value of the target with the present value of the differential cash flow of the combined firm. To determine the equity cost of the acquisition, add the current value of the acquirer and then multiply by the proposed percentage of the stock that has been offered for the firm.