Mylan Lab’s Proposed Merger with King Pharmaceutical (Abridged) Harvard Case Solution & Analysis

Mylan Lab's Proposed Merger with King Pharmaceutical (Abridged) Case Solution

Synergy Valuation

As stated in the case; the merger will allow Mylan to reduce its costs by $100 million, mainly in the form of selling costs. This reduction in cost can be evaluated by calculating the perpetuity value for after-tax synergies as reduction in costs tend to increase the tax payment.The synergies valuation is conducted using after tax synergy value. The total value fir synergies equals to $435.16 million. (See Exhibit 2)

Evaluation of the Deal

The value created by the deal could be evaluated by determining the value per share, which is the actual wealth of the shareholders’,after taking into consideration the results after the acquisition. The operating income after the acquisitions, equals to the sum of the operating incomes of King and Mylan, along with the cost savings by synergies of $100 million. All the other measures are calculated by simply adding the values for the two firms. On the basis of these calculations; the value per share for Mylan, after the acquisition, equals to $10.2, which is a significant improvement in the value per share, i.e. form -$0.67 to $10.2.

Total value of the deal, including the synergies, equals to $535.16 million with an investment of $4000 million, creating 13% rate of return.

This implies that the merger tends to create high value for the shareholders of Mylan Inc., with 13% rate of return.

Recommendations

Although, the conduct of Perry Capital is unethical, but from the above analysis, as the merger would create value for all the shareholders of Mylan Inc., therefore, the investors should vote in the favor of the merger deal. However, the conducted analysis is based on certain assumptions and a limited date, so the investors are also recommended to financially evaluate the opportunity by taking the free cash flows of both of the firms under consideration.

Exhibits

Exhibit 1: DCF Valuation

Exhibit 2: Synergy Valuation

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