Sunday, December 16, 2018
'Stock Market and Paramount\r'
'Case pick out Questions ââ¬rife Communications Inc. 1993- Why a prevalent is a takeover target? Several st ordaingic Reasons â⬠Cost reduction: through combinations of similar stage melody and economy of scales â⬠Sales increase: a) cross-promotions of each telephonerââ¬â¢s brand and utilization of each go withââ¬â¢s channels, and b) cooperation in international line of credites. 2. Which of the two firms (Viacom or QVC) would make a better fit with paramount? -Viacom: Overlap in the business creates synergies regarding cost and revenue. However, contributenibalisation whitethorn happen in the near future. QVC: Small entourage for synergies (cost reductions whitethorn be contain to non-business section. ). Volatility may high regarding the realisation of synergies (Most of hot synergies come from new businesses. ). in that respectfore, Viacom is more likely to be a advanced fit with prevalent. 3. Compare your valuation (stand-alone basis) with market e xpense. What makes the fight between two prices? arse Price: $26. 48 to 29. 41 grocery Price: $ 48. 88 to 55. 50 Market Price Multiples: Multiples imply the current personal line of credit price is over placed. PER 33. 46 X, PBR 1. 61 X, EV/EBITDA 13. 7X There is a big difference in our Target Price and Market Price.This may come from 1) Market expectation that the comp some(prenominal) depart gene value more Free Cash Flow exploitation in the next few years 2) Speculation regarding potential takeover 4. What effect would Viacom arrive on the cost at Paramount if it bought the society? What effect would Viacom have on Paramountââ¬â¢s proceeds rate? What would happen to costs and sales growth if QVC bought Paramount instead? 1) Viacom daze on the cost and growth rate at Paramount -Cost reduction can be expected thorough combinations of similar business and economy of scales -Viacom will increase sales growth of Viacom by cross-selling and cooperation in international bu sinesses. ) QVC impact on the costs and sales growth at Paramount -Though QVC expects , the cost reduction will be limited as both companies share the same business area. In addition, sales growth of Paramount will be cut as QVC has intention of restructuring some(prenominal) of the Paramount businesses. 5. What is Paramount worth to Viacom? â⬠Theme approximate range (cross-selling) â⬠Film Library/Film dispersal production line 6. What is Paramount worth to QVC? â⬠New business opportunities in Entertainment â⬠Film Library/Film Distribution Business 7. Compare your valuation with smith Barneyââ¬â¢s.What assumptions do you have to make to get the terminal value EBITDA multiples used by Smith Barney. Is there any benefit of their method relative to FCF method? Smith Barney is using EBITDA of 14 to 16X. Since EBITDA multiple tends to revert to a certain level over the year, we need to suffer that the market will keep pricing the company at the same level of 1993 . The merits of EBITDA multiples: -They donââ¬â¢t need to assume the perpetual growth rate which is hard to calibrate but has substantial impact on pricing. -They can ignore the capital anatomical structure change Easier to understand (it is ââ¬Å"market consensusââ¬Â) 8. What doe 30% allowance suggest? Is it just? 30% of premium over the market price may be reasonable given; a) control premium b) the temperament of takeover (it can be considered as ââ¬Å"Insider workââ¬Â, and to avoid litigation by shareholders, an acquirer may need to pay premium) c) consideration of synergies through a takeover. 9. How should Redstone proceed? What price should he leave? Should the plead be a cash offer, a telephone line offer, or some combination? What should he do about the lock-out option and the termination fee?Should he bother trying to buy Paramount at all? -The price to offer: $63. 00 (after aggressive synergies consideration) > premium of 14. 55% over the current st ock price ($55. 00) -The type of merger: The total amount indispensable will be From $63. 00 * 120 million shares * 50. 1% = $3,787. 6 million to $63. 00 * 120million shares * 100% = $7,560 million. Cash: $3,783. 6million to $7,560 million was too much as Viacom has altogether $28. 7 million cash and most of cash is supposed to be kept for working capital (total current liabilities amount to $848. 3 million).Also, as the LBO is impossible either since Paramount has only somewhat Free Cash Flow of around $300 million. Stock Offer: Therefore, stock offer can be a more reasonable option. However, Redstoneââ¬â¢s control over Viacom itself will accrue (see the table below). Lock-up and termination fee: Redstone should cease the options get-go if he really wants to buy the company. Conclusion: Redstone should not buy Paramount for the following reasons; a) He will substantially lose his control over Viacom b) contemporary market price is overvalued compared to Paramountââ¬â¢ s internal value. c) Realisation of synergies on revenue side is distillery uncertain.\r\n'
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