The objective of this case study is to describe the negotiations of the exchange ratio in a stock-for-stock merger transaction. Furthermore, this case study asks the students to perform a critical evaluation of the tacit bid premium. The analysis is focused on the complex dialogues of the scheme of arrangement (merger) between commodity trader giant Glencore and diversified miner Xstrata.
This case study offers two distinct, yet complementary, perspectives: one that is of a decision maker/adviser who must evaluate whether the proposed terms of the merger are honest or propose new provisions; and that of a hedge fund manager executing a merger arbitrage investment strategy who is so interested in understanding the odds of success of the deal. The case requires knowledge of fundamental valuation methodologies together with the skill to identify the strategic synergies resulting from the integration. Also, the case demands an understanding of how the bid premium establishes the distribution of synergies between the parties in all-stock trades.
Learning Objective is the chance to present to pupils different mixes of part A, part B and part C. All relevant info essential to perform a whole valuation and to discover a range of exchange ratios for the transaction is gathered in an spreadsheet that pupils can use to discover the value of the combined company post-amalgamation.
It provides information on bidder and target historical share prices and business financials in addition to information on peer firms and precedent transactions.
Publication Date: 06/09/2014
This is just an excerpt. This case is about Accounting
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