Example Of Essay On Phlanders Flange Company
I have received your request about merger partnership with Framingham factory as you discussed it with the major shareholder, Jack Daniels. This is a brilliant idea of increasing our company's profits and overall growth (Bryer, 2002). Nonetheless, I have reviewed it and after calculation, I found that the estimated figure you made is too high for our company. I would like to request you to reconsider it before making that offer.
Having Framingham as our horizontal merger will be beneficial to our company as it will save on cost. However, according to my calculations, offering Framingham 60% premium on the price of their stock is too high. Moreover, I think the cash flow that our friendly merger Framingham gave to us is overestimated(Bryer,2002). When making merger analysis, the initial outlay of the project is the price to be paid for the target stock while the merger company estimates the future cash flow from the project.
Our estimated total value of Framingham Factory should be the present value of the future cash flow we will receive after buying their stock. I used the following formula to come up with my proposed figure:
NPV= C0 + C1 [PVFk, 1] + C2 [PVFk, 2] + .+ Cn [PVFk, n]
I, therefore, see that 40% premium would be more accurate. Anything above this value will be wasting our company's money(Bryer,2002). Furthermore, it would lead to financial disaster to our company if Framingham overstates it value.
It would be of great importance; therefore if you consider the points that I have listed before making the decision to merge. Feel free to discuss with me more about this when you get time.
Bryer, L. G., & Simensky, M. (2002). Intellectual property assets in mergers and acquisitions. New York: Wiley.