Timken
Autor: wu muxue • August 30, 2017 • Case Study • 347 Words (2 Pages) • 370 Views
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- Synergy=value of A & B - (value of A + value of B)
- Source of synergy:
- Operating synergy: Operating synergy allows for the firms to increase their operating income and achieve higher growth. Operating synergies can arise from the following: Economies of scale; Greater pricing power and higher margins resulting from greater market share and lower competition; Combination of different functional strengths such as marketing skills and good product line; Higher levels of growth from new and expanded markets. Operating synergies are achieved through horizontal, vertical or conglomerate mergers. Mergers of firms which have competencies in different areas such as production, research and development or marketing and finance, can also help achieve operating efficiencies.
- Financial synergy: relate to improvement in the financial metric of a combined business such as revenue, debt capacity, cost of capital, profitability, etc. financial synergies can result in the following benefits post acquisition: Increased debt capacity, Greater cash flows, Lower Cost of Capital, Tax Benefits.
- Minority interest: ownership of less than 50% of a company's equity by an investor or another company. Minority interest shows up as a noncurrent liability on the balance sheet of companies with a majority interest in a company, representing the proportion of its subsidiaries owned by minority shareholders.
- Minority discount: A minority discount is the reduction applied to the valuation of a minority equity position in a company due to the absence of control. Minority shareholders usually have the inability to dictate the future strategic direction of the company, the election of directors, the nature, quantum and timing of their return on investment, or even the sale of their own shares. This absence of control reduces the value of the minority equity position against the total enterprise value of the company. Let's take a company that has two shareholders owning 70% and 30% each. If the company's equity value is $10,000,000, an astute buyer looking to acquire the 30% position would not pay $3,000,000 because of the lack of control attached to this minority shareholding.
- For cash acquisition：NPV to acquirer’s shareholder=value of synergy-premium to acquirees’ shareholder.
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