ANALYSIS BY CURRENT PREMIUMS OVER CURRENT STOCK PRICE:
This analysis can be done by creating different premiums over the current price of the stock, for the given analysis the value of Saxon stock can be calculated by multiplying the number of outstanding shares with the price of shares calculated with premium. The current price of the Saxon Financial is $12.7 per share.
The amount of share by applying 20% premium would amount to $15.24. If the premium is increased to 30%, the amount of per share price climbs to $16.51 per outstanding share, further increasing the amount of premium to 30% the price of outstanding share sums up to $16.51. And the premium if assumed to be 40%, the amount of stock climbs to $17.78.
The process continues, and the value of equity is determined by multiplying the number of outstanding shares to the amount of stock as calculated by applying different levels of premiums.
The process of calculating the amount of equity is shown in the exhibit.
The revenues are estimated from the year 2009 up to the year 2012; the multiples can be calculated by dividing the amount of enterprise value with the revenues projected as shown in the calculations in excel.
ACCRETION/DILUTION ANALYSIS:
In this method, we are calculating the valuation of Saxon financials by using dilution analysis.
The two different scenarios are given to calculate the result on each basis i.e.
All stock deals.
All cash deals.
The price per share is given to generate the results are $15.
The calculations in a stock deal, the calculation for the analysis can be used by the data used for discounted cash flows analysis. The calculated figure of the value of Saxon is derived by multiplying the amount of net income after its calculation with the amount of $15. $15 is multiplied by the total number of outstanding shares.
The amount of share price of $43.60 of IGM is used to derive the number of shares to be issued. These are some shares to be issued for merger purposes. The expected EPS of IBM for the year 2009 amounts to be $3.49. The number of outstanding shares that are calculated in the previous step is used to derive the amount of total income of 2009. Same is the procedure applied for both the companies.
This analysis shows the effect of dilution when there is combine effect of outstanding shares effects EPS of the company.
The income of both the companies can be calculated and then a total number of outstanding shares are computed for the consolidated company. This amount of income is used and divided by the number of new outstanding shares that IBM will issue to acquire Saxon. If the eps of the company is increased and the change has higher proportionate change than the merger would be done and it would benefit the acquisition process. The accretion is supposed to be made if the change is more than 0.01 $ on account of combined EPS. I.e. the earning on account of investors. Investors would consider investing if EPS raised.
CONCLUSION / RECOMMENDATION:
We have analyzed the company from all the relative aspects and scenarios, the strategic positioning for acquiring the company is good, and it can give a good opportunity to the acquirer to grow and attain the economies of scale.
Furthermore, the valuation of the company has been done according to different scenarios and different values for the worth of the company are calculated.
By the first method i.e. DCF analysis the value calculated can be computed by multiplying the share price of$40.9 to the number of outstanding shares. The share price can reasonably be increased after accounting for the synergies.
The other methods use for the purpose of valuing the company are comparable company analysis and precedent transaction analysis.
Different share premiums also add to the better acquisition of the company. The premium should be around 20% to 30% would provide the best opportunity.
The company should opt for a stock deal, and it would provide the acquirer an opportunity to increase the EPS of the merged company.
The stock value should be assessed as the average value of the three methods taken into consideration. The deal offered should be on the average enterprise value of the methods. The stock value should be held in between $20 to 40$ for new stock.
EXHIBITS:
Exhibit 1
| WACC | |
| Risk Free Rate | 3.66% |
| Growth Rate | 4% |
| Market Risk Premium | 7.42% |
| Beta | 0.62 |
| WACC | 8.3% |
Exhibit 2
| Without Synergies | |||||
| Years | 2008 | 2009 | 2010 | 2011 | 2012 |
| Total Revenues | $ 50.58 | $ 58.67 | $ 62.19 | $ 65.30 | $ 67.91 |
| EBITDA / EBIT / EBT | $ 22.76 | $ 26.40 | $ 27.99 | $ 29.39 | $ 30.56 |
| Income Tax (34.5%) | $ 7.85 | $ 9.11 | $ 9.66 | $ 10.14 | $ 10.54 |
| Cash Flows | $ 14.91 | $ 17.29 | $ 18.33 | $ 19.25 | $ 20.02 |
| NPV | $70.45 | ||||
| Terminal Value | $ 488.65 | ||||
| Enterprise Value | $559.10 | ||||
| Total Shares Outstanding | 13,669,725 | ||||
| Per Share Value | $ 40.90 |
Exhibit 3
| With Synergies | |||||
| Years | 2008 | 2009 | 2010 | 2011 | 2012 |
| Total Revenues | $ 50.58 | $ 58.67 | $ 62.19 | $ 65.30 | $ 67.91 |
| EBITDA / EBIT / EBT | $ 22.76 | $ 26.40 | $ 27.99 | $ 29.39 | $ 30.56 |
| Savings | $ 5.00 | $ 5.00 | $ 5.00 | $ 5.00 | $ 5.00 |
| $ 27.76 | $ 31.40 | $ 32.99 | $ 34.39 | $ 35.56 | |
| Income Tax (34.5%) | $ 9.58 | $ 10.83 | $ 11.38 | $ 11.86 | $ 12.27 |
| Cash Flows | $ 18.18 | $ 20.57 | $ 21.61 | $ 22.52 | $ 23.29 |
| NPV | $83.43 | ||||
| Terminal Value | $ 568.60 | ||||
| Enterprise Value | $652.03 | ||||
| Total Shares Outstanding | 13,669,725 | ||||
| Per Share Value | $ 47.70 |
Exhibit 4
| Analysis at Various Prices Assuming Different Premiums: | |
| Current Price of IGM Shares | $ 43.60 |
| Current Price of Saxon Shares | $ 12.70 |
| No. of shares outstanding | 13,669,725 |
| Price with 20% premium | $ 15.24 |
| No. of shares outstanding | 13,669,725 |
| Total Value | $ 208,326,606 |
| Shares to be Issued 20% | 4,778,133 |
| Price with 30% premium | $ 16.51 |
| No. of shares outstanding | 13,669,725 |
| Total Value | $ 225,687,156 |
| Shares to be Issued 30% | 5,176,311 |
| Price with 40% premium | $ 17.78 |
| No. of shares outstanding | 13,669,725 |
| Total Value | $ 243,047,706 |
| Shares to be Issued 40% | 5,574,489 |
| Price with 50% premium | $ 19.05 |
| No. of shares outstanding | 13,669,725 |
| Total Value | $ 260,408,257 |
| Shares to be Issued 50% | 5,972,666 |
| Price with 60% premium | $ 20.32 |
| No. of shares outstanding | 13,669,725 |
| Total Value | $ 277,768,807 |
| Shares to be Issued 60% | 6,370,844 |
Exhibit 5
| Companies | |
| Guardian Capital | 8.01 |
| Jovian Capital | 0.7 |
| Sea mark Asset Management | 5.89 |
| Average | 4.87 |
| Saxon Financial | 12.7 |
| Total Shares | 13,669,725 |
| Total Value on the basis of Market Average | $ 66,525,994 |
| Total Value | $ 173,605,505 |
|
|
|
| EV | |
| Companies | |
| Guardian Capital | 335 |
| Jovian Capital | 88 |
| Sea mark Asset Management | 51 |
| Average | 158 |
| Saxon Financial | 136 |
| Total Shares | 13,669,725 |
| Per Share Value on the basis of Market Average | $ 11.56 |
| Per Share Value | $ 9.95 |
| Difference | $ 1.61 |
Exhibit 6
| Total Revenues | $ 58.67 | Total Revenues | $ 58.67 | |
| EBITDA / EBIT | $ 26.40 | EBITDA / EBIT | $ 26.40 | |
| Savings | $ 5.00 | Savings | $ 5.00 | |
| EBT | $ 31.40 | Interest Cost | (16.40) | |
| Income Tax (34.5%) | $ 10.83 | EBT | $ 15.00 | |
| EAT | $ 20.57 | Income Tax (34.5%) | $ 5.17 | |
| EAT | $ 9.82 | |||
| Current No. of shares outstanding | 13,669,725 | Current No. of shares outstanding | 13,669,725 | |
| Current EPS | $ 1.50 | Current EPS | $ 0.72 | |
| Total Price to be paid by Acquirer | $ 205,045,872 | Total Price to be paid by Acquirer | $ 205,045,872 | |
| Increase in the Shares of IGM | 4,702,887 | Increase in the Shares of IGM | 4,702,887 | |
| IGM expected EPS | $ 3.49 | IGM expected EPS | $ 3.49 | |
| Current No. of Outstanding Shares | 265,750,000 | Current No. of Outstanding Shares | 265,750,000 | |
| Expected Net Income | $ 927,467,500 | Expected Net Income | $ 927,467,500 | |
| No. of shares after merger | 270,452,887 | No. of shares after merger | 270,452,887 | |
| New Expected Net Income | $ 948,036,308 | New Expected Net Income | $ 937,291,904 | |
| New EPS | $ 3.51 | New EPS | $ 3.47 | |
| Accretion | $ 0.02 | Dilution | $ 0.02 |
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