Fvc Case Summary
SABANCI UNIVERSITY
FACULTY OF MANAGEMENT
FIN524
Mergers and Acquisitions
CASE #1:
Flinder Valves and Controls Inc
Submitted to:
Ast.Prof. Dr. Serif Aziz Simsir
Prepared by
Polat Sen
Chaimae Mabrouk
Strengths and Weaknesses of FVC and RSE
FVC has a good top-management team, skilled workers, and had a reputation for engineering excellence. This strong reputation allowed the company to do prime contract work on high engineering devices for the government. FVC has acquired the patents it needs in developing its products. Its management team believes that a continuous introduction and development of new products with patent protection is a key to success. The company is currently working on …show more content…
Also, acquiring it goes hand in hand with their focused diversification strategy.
FVC Value
To start with, the common assumptions in our valuation calculations are as follows: Assumptions of CAPM hold (i.e. investors have homogeneous expectations, no information asymmetry, etc...). Also, in our WACC calculations we assume that we assume that debt carries no market risk (has a beta of zero).
Using the Free Cash Flows model to find the stand-alone value of FVC, we found that the total value of the firm is $ 126,790,150.
In FVC’s WACC calculations, we assumed that the corporate projects run by the company are long term in …show more content…
We have assumed that company will grow at a 1% lower rate than US Economy starting from 2013. This pessimistic vue is due to the expected increasing competition. the nominal growth rate of GDP have been calculated using using Fisher equation using as inputs the long term real GDP growth and the U.S long term inflation forecasts.
We have used FVC’s forecasts in our FCFF’s calculations. The capital expenditure has been calculated using the beginning PPE, Ending PPE, and depreciation expense.
After that, we have moved forward to calculate the value of FVC with merger, and we found that the total value of the firm is $ 171,262,180. As stated in the case, this merger would result in a pretax constant-dollar savings of $2 million in the first year of operation and $ 4 million thereafter. Hence, these cost cuts have been add to the EBIT in our calculations. Furthermore, we assumed that this merger will help FVC increase its sales by 5% thanks to RSE’s superior marketing clout and wide distribution network.
By calculating the difference between the stand-alone value and the with-merger value, we found that the value of control (i.e: premium for control) is $
FACULTY OF MANAGEMENT
FIN524
Mergers and Acquisitions
CASE #1:
Flinder Valves and Controls Inc
Submitted to:
Ast.Prof. Dr. Serif Aziz Simsir
Prepared by
Polat Sen
Chaimae Mabrouk
Strengths and Weaknesses of FVC and RSE
FVC has a good top-management team, skilled workers, and had a reputation for engineering excellence. This strong reputation allowed the company to do prime contract work on high engineering devices for the government. FVC has acquired the patents it needs in developing its products. Its management team believes that a continuous introduction and development of new products with patent protection is a key to success. The company is currently working on …show more content…
Also, acquiring it goes hand in hand with their focused diversification strategy.
FVC Value
To start with, the common assumptions in our valuation calculations are as follows: Assumptions of CAPM hold (i.e. investors have homogeneous expectations, no information asymmetry, etc...). Also, in our WACC calculations we assume that we assume that debt carries no market risk (has a beta of zero).
Using the Free Cash Flows model to find the stand-alone value of FVC, we found that the total value of the firm is $ 126,790,150.
In FVC’s WACC calculations, we assumed that the corporate projects run by the company are long term in …show more content…
We have assumed that company will grow at a 1% lower rate than US Economy starting from 2013. This pessimistic vue is due to the expected increasing competition. the nominal growth rate of GDP have been calculated using using Fisher equation using as inputs the long term real GDP growth and the U.S long term inflation forecasts.
We have used FVC’s forecasts in our FCFF’s calculations. The capital expenditure has been calculated using the beginning PPE, Ending PPE, and depreciation expense.
After that, we have moved forward to calculate the value of FVC with merger, and we found that the total value of the firm is $ 171,262,180. As stated in the case, this merger would result in a pretax constant-dollar savings of $2 million in the first year of operation and $ 4 million thereafter. Hence, these cost cuts have been add to the EBIT in our calculations. Furthermore, we assumed that this merger will help FVC increase its sales by 5% thanks to RSE’s superior marketing clout and wide distribution network.
By calculating the difference between the stand-alone value and the with-merger value, we found that the value of control (i.e: premium for control) is $