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Mergers, Acquisitions and Corporate Restructuring

Assignment - 1

Submitted to
Prof. Utkarsh Majmudar

By
Varun Mediratta (111057)

On
14/02/2013

INDIAN INSTITUTE OF MANAGEMENT UDAIPUR

Fisher Corporation

The three options are as follows:
Option 1: All cash deal financed by issuing 20-year 10% coupon bonds taxable in nature Option 2: Issuance of optionally convertible Weston stock paying dividend @ $ 2 per share Option 3: Stock for stock deal

Under option1, the deal size of $58.50 mn values Fisher Corporation at $32.50 per share. The deal is taxable and a capital gains tax @ 28% is applicable on the same. From the shareholder point of view, the deal presents a good exit opportunity at a reasonable premium to the current market price. The company has given a flat revenue guidance for the year and the net income is expected to drop significantly on the back of a steep increase in input costs. Based on this, it makes sense for the shareholders to exit from the stock since not much appreciation in the stock price is expected going forward. Working out the numbers, the options can be compared as follows: Price per share under option 1: $32.50 per share

Price per share under option 2: $30 per share (preference shares + dividends) (Calculated as 50,000,000/1,800,000 + 2/ (1-0.1); assuming cost of capital = 10%) Let x be the cut-off acquisition price for deciding between option 1 and option 2: * (32.5-30) = 0.28x (capital gains tax = 28%)

* x = $23.57
Price...
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