CHAPTER 26. Mergers, LBOs, Divestitures, and Holding Companies. Topics in Chapter. Types of mergers Merger analysis Role of investment bankers LBOs, divestitures, and holding companies. Economic Justifications for Mergers. Synergy = Value of the whole exceeds sum of the parts
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Mergers, LBOs, Divestitures, and Holding Companies
= PV of FCFs discounted at unlevered cost of equity, rsU
= PV of interest tax savings discounted at unlevered cost of equity, rsU
Interest tax savings = Interest * (tax rate) = TSt
Estimate Tutwiler’s Unlevered Cost of Equity:
Tutwiler is worth more as part of Caldwell than stand-alone
This last debt level is consistent with the assumed long-term capital structure
The last interest payment is consistent with the long-term capital structure
Horizon value of Tax Shields is larger due to increased debt level.
1. Record acquired assets at book value and continue depreciating on current schedule
2. Record acquired assets at appraised value and generate goodwill