In addition to the case study the group should prepare a teaching note which will address questions specific to the case. The teaching note will include an exercise to identify the value of the acquisition. The acquisition is meant to create synergy values for the combined firm. Below are the steps necessary to complete the teaching note:
1. Perform a DCF analysis of the target, with free cash flow projections for ten years past the merger year and a terminal value = [final projected year free cash flow*(1+cash flow growth rate)]/[discount rate – cash flow growth rate], and compare that with the acquirer offer. You will need to clearly identify any assumptions used when calculating NPV; specifically growth rates, inflation rates, and required return. Present at least two NPV values, one of which utilizes a required return calculated with your version of beta based on three-year monthly returns.
2. Present alternate strategies for the merger and evaluate the validity and likelihood of those choices.
3. Provide an epilogue to explain what actually occurred with the combined firm or in the case of unsuccessful acquisitions the surviving target. This should include stock market performance post-merger/failed merger.