and Scottish Power plc. on the announcement day of the acquisition?
On the 24th of May the public announcement was made that Berkshire Hathaway Ltd, would take over Scottish Powers’ PacifiCorp, a significant effect resulted to the stock prices of both companies respectively. The stock price effect is visible in graph 1 & 2 showing the daily prices for May 2005 for both companies.
b) Assess the bid for PacifiCorp. Do you think the bid is a “fair” price?
In assessing whether the bid price $5.1 billion dollar is a fair price a valuation of PacifiCorp must be conducted. The model that was implemented to perform the valuation was the DCF method. The value derived from this methodology was $ 5 119.348092 million dollars, rather astonishingly close to the bid price of MidAmerican. (The DCF model can be found in appendix) Therefore with a value so similar to that of the bid price, it can be ascertained that the bid reflects the company’s value thus is a fair price. CAPM = | RF + | β | (rm-rt) | 0.1013 = | 0.0488+ | 0.75 | (0.07) |
Table [ 1 ]
Terminal Valuen = E(FCFE)n+1 /(rn -