Case Study Premiums Paid Analysis
Assess Intercom’s financial performance. Why is Intercom a target of a hostile takeover attempt? 2. As a member of Intercom’s board, you are presented a historical “Premiums Paid Analysis” in Exhibit 10.
This “Premiums Paid Analysis” documents, for a sample of other companies over the past year, how large the takeover offer was relative to the target’s stock price before the offer was announced. Do you find this historical ATA useful In assessing whether to accept or reject the Arles’ offer of $70 per share?
Why or why not? 3. As a member of Intercom board, you are presented a “Comparable Transaction Analysis” in Exhibit 11 (l would call this a Market-Multiple Analysis). You are presented various market multiples enjoyed by competitors of Intercom arranged by division (e. G.
, total firm value divided by sales). Do you find these market multiples of Intercom’s competitors useful in assessing whether to accept or reject the Arles’ offer of $70 per share? Why or why not? 4. Assume the forecasted cash flows over the next ten years for Intercom (given to you on the next page) are correct.
Also assume that the terminal value of Intercom at the end of year ten is estimated to be 14 times its year ten cash flow of $339 million (the 14 was obtained based on stock price multiples of competitors). A.
What is the fair price per share of Intercom stock assuming a discount rate (WAC) of 10% is used based on these forecasts? What if the discount rate is 14%? B. Comment on the choice of 10% as the rate to discount Intercom’s future cash flows. Too low, too high, Just right? Why? Is 14% a more suitable discount rate? Why? C.
What long-term growth rate for cash flow Is Implicitly assumed when the terminal value at the end of year ten is set to equal 14 times year ten cash flow and a discount rate of 10% is used? How about when a discount rate of 14% is used? Are either of these implied growth rates reasonable for Intercom? D. What is your best estimate of Intercom’s stock price if the weighted average cost of capital (WAC) or Intercom Is assumed to be 16% and the value of Intercom at the end of year 10 Is assumed to be ten times year 10 free cash flow (Instead of 14)?
In doing this calculation of Interacts stock price, please assume that the free cash flows for years 1-10 are the same as before. To calculate the stock price, you obviously need to know two things – how many shares of stock Intercom there are outstanding and how much of the asset value of Intercom is financed by debt (instead of equity).
Value of equity – value of assets – debt. Assume that Intercom has 37. Million fully diluted shares outstanding (as Wassermann, Apparel, & Co. Id in Exhibit 13). Also, Exhibit 9 (summary of takeover analysis) mentions that the net debt that Intercom has is $318.
5 million. 5. Should Intercom accept the offer of $70 per share? Why or why not? Note: Feel free to work In groups of no more than six students. Every student must hand In his/her own answers to the case study questions. Finally, It Is not necessary to type up your memo, Just write legally! Be sure to snow your work Tort calculations and write your NAME and SECTION.
