Sun Microsystems Case Study Solution
Sensitivity Analysis.
In order to understand the sensitivity of the company and the market, we have assumed the discount rate to fluctuate, once it will go higher by 4% and in the other case it will go lower than 4%. When the discount rate increased by 4%, the share price decreased from 32.3 to 14.1. This happened because the value of the company decreased keeping the other factors of the market the same. When the discount rate will be decreased by 4% the share price will go into negative because the company’s value will be in negative which states that investing in this company is useless and will be a problem in the future as well.
The company is very sensitive in this market as a little bit of changes in the market will cause very high fluctuations in the share price.
Highest bid for Sun Microsystems.
As per the DCF valuation per share value is $32.3. Oracle is currently offering $0.95 per share. The company has a lot of margin to offer as per our calculations and this can be highly positive and beneficial of the company.
Approaches and methods
The amount i.e. paid to a seller by buyer is referred to as valuation which can be calculated using different methods. The application of different formulas for the determination of company’s value, business viability, cash flows and other cost of the company. There are a number of methods for valuation which are as follows:
Comparable Analysis of Company:
The comparison of business value of the organization with any other firm in the industry is evaluated by this method. It is analysis of the companies on the basis of ratios.
Pros:
- The appropriate selection of company assists in assumption of risks, trends and market growth.
- It provides with a clear picture of the market’s status as well as indicates consistent and rational valuation.
- It provides with consistent results for uncontrollable investment of the organization.
Cons:
- The difference in the firms of same industry does not pose similar results evaluation.
- A large number of differences between the organizations increase the chance of errors.
- The company’s value is not effected by the traded or floated stocks.
Discounted Cash Flow:
The forecasting of unlevered free cash flows and its return to firm’s WACC is known as Discounted Cash Flow. It is the financial analysis of any organization as it provides results with high value.
Pros:
- There is no effect of non-economic factors and short-term evaluation of market condition.
- It is the comprehensive approach on the basis of true projections and expectations resulting in the direct streaming of cash.
Cons:
- The obtained results after complete evaluation are complex such as growth rate, profit margin etc.
- It is extremely subjective as it estimates the performance of the organization in future.
Role of synergies:
It is the efficiency of cost after the merger of two different firms. There are a number of benefits offered in the acquisition and merger of the organizations by synergy.
Competent staff:
On the basis of layings-off and other critical conditions, the staff of any organization is effected by consolidation. For any organization, most of the firm’s budget is consumed by the organization.
- Combination of technologies:
The acquisitions or merger done by any small or trending organization is purposely for the interchange of technologies used in different firms.
- Efficient Scale:
For the increase in purchasing and investment amounts, merger is a key tool that can be significantly used by any organization.
- Business Expansion:
The merger and acquisitions are the foremost advantage of synergy as it helps the organization in entering new regions for its business expansion.
IT Sector in general software industry
Following are the major companies in the market.
- Beats was acquired by Apple for $3 billion. This was Apples most expensive acquisition, but probably the cheapest deal. Apple although has made several acquisitions, but none has valued to as much as a billion dollar.
- Nest was acquired by Google for $3.2 billion. Inn 2011, Tony Fadell who was an executive of Apple, co-founded Nest. Nest was bought in-house by google 3 years later.
- com was bought by Walmart for $3.3 billion. In order to compete Amazon, an ecommerce site Jet.com was acquired by Walmart in 2016 in order to launch new services.
- App Dynamics was purchased by Cisco in 2017 for $3.7 billion. Cisco was shifting from hardware to software from several years. Acquiring App Dynamics, a market lead in Application performance management was a major achievement.
- Qualtrics was acquired by Germany giant SAP for $8 billion. Qualtrics was just about to go for an IPO, but since the takeover deal was better Qualtrics was acquired.
Conclusion:
The products of Sun Microsoft are the key reason behind its success that includes JAVA, Niagara Chip, Solaris etc. It has been a trending manufacturer of hardware and software due to the generation of greater revenues. Sun Micro system is suggested to acquire Oracle for the addition of novel products. Due to the indirect acquisition between two different organizations, there is no such competition. Whereas, its acquisition of Oracle, will provide the firm to strong its customer’s base and growth of market share........
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