The aim of this topic is to assess the negotiations of the exchange ratio in a stock-for-stock merger transaction. It demands practical application of the most widely used business valuation methodologies (discounted cash flow evaluation, peer firms multiples and comparable transactions analysis) in order to identify a range of mutually satisfactory exchange ratios. Moreover, this case study requests the students to execute a critical appraisal of the tacit bid premium. The evaluation is focused on the complex negotiations of the scheme of arrangement (merger) between commodity trader giant Glencore and diversified miner Xstrata.
This topic also offers two distinct, but complementary, perspectives: that of a decision maker/counselor who must evaluate whether the proposed terms of the merger are reasonable or suggest new conditions; and that of a hedge fund manager executing a merger arbitrage investment strategy who is thus interested in understanding the odds of success of the deal. This topic requires knowledge of fundamental valuation methodologies together with the ability to identify the strategic synergies caused by the integration. Additionally, the case demands an understanding of how the bid premium establishes the distribution of synergies between the parties in all-stock transactions.
The learning aim here is that case offers the possibility to present to pupils different combinations of component A, part B and part C. All applicable info required to perform a complete valuation and to determine a variety of exchange ratios for the trade is accumulated in an spreadsheet that pupils can use to ascertain the value of the combined business post-amalgamation.
It supplies tips on bidder and objective historical share prices and business financials as well as 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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