3. PLAN:
1. What is merge?
2. What is acquisition?
3. Difference between merger and
acquisition?
4. Merger why- why not?
5. Acquisition why- why not?
6. Types of M&A?
7. Motives/Benefits and problems of
M&A.
4.
5. M&A
Mergers and acquisitions (M&A) are transactions in
which the ownership of companies, other business
organization or their operating units are transferred or
combined.
6. Difference between mergers and
acquisitions?
Merger:
1. Merging of 2 organizations in to one.
2. It is the mutual decision.
3. Merger is more expensive than acquisition.(higher legal cost)
4. Through merger shareholders can increase their net worth.
5. It is time consuming and the company has to maintain so
much legal issues.
6. Dilution of ownership occurs in merge.
7. Difference between mergers and
acquisitions?
Acquisition:
1. Buying one organization by another.
2. It can be friendly takeover or hostile takeover.
3. Acquisition is less expensive than merger.
4. Buyers cannot raise their enough capital.
5. It is faster and easier transaction.
6. The acquirer does not experience the dilution of
ownership.
8. Merger- WHY & WHY NOT
Why is important:
1. Increase market share.
2. Economies of scale.
3. Profit for research and development.
4. Benefits on account of tax shields like carried
forward losses and unclaimed depreciation.
5. Reduction of competiton.
Problem with merger:
1. Clash of corporate cultures.
2. Increased business complexity.
3. Employees may be resistant to change.
9. Acquisition: why &why not
Why is important:
1. Increased market share.
2. Increased speed to market.
3. Lower risk comparing to develop new products.
4. Increased diversification.
5. Avoid excessive competition.
Problem with acquisition:
1. Inadequate valuation of target.
2. Inability to achieve synergy.
3. Finance by taking huge debt.
11. 1 + 1
=1
Company A + Company B=
Company A
“The biggest risk is not taking any risk... In a world that is changing
really quickly, the only strategy that is guaranteed to fail is not taking
risks.”
12. “Facebook to acquire
Whatsapp”
Wall street journal February 19,2014
Including debt, the deal is valued at 19.0 billion
Enteprise
Value: 18.5
billion $
Debt: 4.5 billion $
Equity: 14.0 billion $
19.0 b $ 19.0 b $
Enterprise value = Debt value + Equity value
13. Questions ? ? ?
1. Why did Facebook choose Whatsapp for acquisition?
2. Why did Facebook break the bank to buy Whatsapp?
3. Why did Whatsapp agree to be the acquired company?
14. 1. User Growth (see the next
slide)
2. Eliminate one competitor
3. Economies of scale
4. Become the second and then
the first website in the world in
a long term
5. Want to add 450 million user to
1.2 billion Facebook users
6. Super power to fight with other
competitors ( google, gmail,
twitter and other)
The main reasons of this
acquisition
16. EPS $ 2.0 $ 2.0 $
2.35
Price per share $ 50 $ 10 $
50
P/E ratio $ 25 $ 5.0 $
15
Number of shares 2 bln 370 mln 1.6
bln
Total earnings $ 100 bln $ 3.6bln $
103.6 bln
Total market value $ 250 bln $ 18.5 bln $
300 bln
Current earnings per
dollar invested in stock $ 0.25 $ 0.19 $
0.35
Facebook
Whatsapp
(Before
acquisition)
Facebook
(after buying
Whatsapp)
Acquisition
Financial
Valuation
If Whatsapp market value is
approximately 18.5 bln, why
Facebook pay more than 19 bln
?
17. The expecting value of Facebook
shareholders after the acquisition
*Value for shareholders = (Value with the acquisition) / (Value
without the acquisition)
(1 + (PV WhatsApp future earnings / Facebook intrinsic value))/
/(1 + (Facebook shares market price / Facebook Market Cap))
Note: Source from the According Bloomberg,
Facebook intrinsic value to this acquisition - 160.09 b
Facebook market capital – 173.5 b
18. WACC/After tax income for the
Acquisition and Whatsapp valuation
WACC = risk free rate + (B*(risk premium))
*Using CAPM method, we find Beta equals 0.94
According Bloomberg on 19th February 2014 financial
analysis
Free risk rate - 2.74%
Risk premium – 7.43%
Beta – 0.94
So, WACC = 2.74+(0.94*7.43) = 9.7242 % ( about 10)This rate shows that Whatsapp not overvalued and Facebook also
don’t pay over. But, some financial analysts the 19 bln acquisition deal
after income tax need about 1.5 bln
We take the equation of WACC (9.724%) and calcualte with this
formual
After Tax Breakeven Income in steady state = WACC x Purchase Price
* (1 + WACC)5
19. On 19th February 2014 Facebook’s share-price was $68.50.
In few hours, after the acquisition was completed, shares in Facebook
decreased by 4.8% to $64.80.
Facebook’s shares slid by 2.64% (or $1.82) to $66.24 in a hour of
trading
Earlier, on 20th February 2014, 69.08$
0
1
2
3
4
5
November December January February
Facebook share slid on 19th February after the
deal
Facebook
21. The Walt Disney Company Overview
One of the Largest media conglomerate in
the world.
Founded: October,1923
Founders: Walt Disney and Roy Disney
Industry: Media and Entertainment
Revenue: USD 37,843 billions (2008)
Employees: 150,000 (2008)
22.
23. Pixar Overview
Leading digital animation studio, creating animated feature films and
related products
Previous name: “Lucas Film” computer animation workshop
Founded: February, 1986
Over $3 billions in gross revenues to date
Acquisition by Disney: $7.4 billions, March 2006.
24.
25. Timeline
1991 1993 1995 1997 2001 2003 2005
Disney and Pixar signed
cooperative agreement
for 5 movies
Relationship soured in
2004
Walt Disney – Pixar acquisition
is announced
Acquisition Consummated in
2006
26. Why Disney Said
Yes?
Ownership of the
world`s most famous
computer animation
studio and its talent
Perfect Timing for
Disney, as its own
animation films were
failing.
Why Pixar Said Yes?
Good move to face
competitors
Focus on its core
strength of
producing the
computer animation
Apple iTunes has
more video content
to offer
27.
28. Alternative Options:
Renegotiation the contract and
continue
working with Pixar without
acquisition
Focus on internal developme
An option for Disney to outsource the technology
Building strategic alliance with other
companies such as Warner Brothers,
Fox ...
29. The Merger allows Disney and Pixar to exploit both financial
and
organizational synergies
Best Merger of All time
