Merger and acquisition

Valibayli AyshanAlizade AyselBaknalova FatimaJavadova AydanMammadli Leyla

Merger and acquisition

PLAN:

1. What is merge?2. What is acquisition?3. Difference between merger and acquisition?4. Merger why- why not?5. Acquisition why- why not?6. Types of M&A?7. Motives/Benefits and problems of M&A.

M&AMergers and acquisitions(M&A) are transactions in which the ownership ofcompanies, otherbusiness organizationor their operating units are transferred or combined.

Difference between mergers and acquisitions? Merger:1. Merging of 2 organizations in to one.2. It is the mutual decision.3. Merger is more expensive than acquisition.(higher legal cost)4. Through merger shareholders can increase their net worth.5. It is time consuming and the company has to maintain so much legal issues.6. Dilution of ownership occurs in merge.

Difference between mergers and acquisitions? Acquisition:1. Buying one organization by another.2. It can be friendly takeover or hostile takeover.3. Acquisition is less expensive than merger.4. Buyers cannot raise their enough capital.5. It is faster and easier transaction.6. The acquirer does not experience the dilution of ownership.

Merger- WHY & WHY NOT Why is important:1. Increase market share.2. Economies of scale.3. Profit for research and development.4. Benefits on account of tax shields like carried forward losses and unclaimed depreciation.5. Reduction of competiton. Problem with merger:1. Clash of corporate cultures.2. Increased business complexity.3. Employees may be resistant to change.

Acquisition: why &why not

Why is important:1. Increased market share.2. Increased speed to market.3. Lower risk comparing to develop new products.4. Increased diversification.5. Avoid excessive competition. Problem with acquisition:1. Inadequate valuation of target.2. Inability to achieve synergy.3. Finance by taking huge debt.

Facebook - Whatsapp- Acquisition.

1 + 1 =1

Company A + Company B= Company AThe biggest risk is not taking any risk... In a world that is changing really quickly, the only strategy that is guaranteed to fail is not taking risks.

Facebook to acquire WhatsappWall street journal February 19,2014

Including debt, the deal is valued at 19.0 billion

Enteprise Value: 18.5 billion $ Debt: 4.5 billion $ Equity: 14.0 billion $19.0 b $19.0 b $Enterprise value = Debt value + Equity value

Questions ? ? ? 1. Why did Facebook choose Whatsapp for acquisition?

2. Why did Facebook break the bank to buy Whatsapp?

3. Why did Whatsapp agree to be the acquired company?

User Growth (see the next slide)Eliminate one competitorEconomies of scaleBecome the second and then the first website in the world in a long termWant to add 450 million user to 1.2 billion Facebook usersSuper power to fight with other competitors ( google, gmail, twitter and other)

The main reasons of this acquisition

Founded: 200950 employees450 mln monthly users320 daily active users1 + mln sign up per day0.99 $ annual fee for service600 mln photos uploaded p.d

Whatsapp Profile before Acquired Facebook*monthly active users in millionsFirst four years growth usage after launch*9 million per 1 employee

EPS $ 2.0 $ 2.0 $ 2.35Price per share $ 50 $ 10 $ 50P/E ratio $ 25 $ 5.0 $ 15 Number of shares 2 bln 370 mln 1.6 blnTotal earnings $ 100 bln $ 3.6bln $ 103.6 blnTotal market value $ 250 bln $ 18.5 bln $ 300 blnCurrent earnings per dollar invested in stock $ 0.25 $ 0.19 $ 0.35

Facebook

Whatsapp(Before acquisition)Facebook(after buying Whatsapp)Acquisition Financial Valuation

If Whatsapp market value is approximately 18.5 bln, why Facebook pay more than 19 bln ?

The expecting value of Facebook shareholders after the acquisition*Value for shareholders = (Value with the acquisition) / (Value without the acquisition)

(1 + (PV WhatsApp future earnings / Facebook intrinsic value))//(1 + (Facebook shares market price / Facebook Market Cap))

Note: Source from the According Bloomberg,Facebook intrinsic value to this acquisition - 160.09 bFacebook market capital 173.5 b

WACC/After tax income for the Acquisition and Whatsapp valuationWACC = risk free rate + (B*(risk premium))

*Using CAPM method, we find Beta equals 0.94 According Bloomberg on 19th February 2014 financial analysis

Free risk rate - 2.74% Risk premium 7.43%Beta 0.94

So, WACC = 2.74+(0.94*7.43) = 9.7242 % ( about 10) This rate shows that Whatsapp not overvalued and Facebook also dont pay over. But, some financial analysts the 19 bln acquisition deal after income tax need about 1.5 blnWe take the equation of WACC (9.724%) and calcualte with this formual After Tax Breakeven Income in steady state = WACC x Purchase Price * (1 + WACC)5

On 19th February 2014 Facebooks share-price was $68.50. In few hours, after the acquisition was completed, shares in Facebook decreased by 4.8% to $64.80.Facebooks shares slid by 2.64% (or $1.82) to $66.24 in a hour of trading Earlier, on 20th February 2014, 69.08$

Disney Pixar Merger

The Walt Disney Company OverviewOne of the Largest media conglomerate in the world.Founded: October,1923Founders: Walt Disney and Roy DisneyIndustry: Media and EntertainmentRevenue: USD 37,843 billions (2008)Employees: 150,000 (2008)

Pixar OverviewLeading digital animation studio, creating animated feature films and related productsPrevious name: Lucas Film computer animation workshop Founded: February, 1986Over $3 billions in gross revenues to dateAcquisition by Disney: $7.4 billions, March 2006.

TimelineDisney and Pixar signedcooperative agreementfor 5 moviesRelationship soured in 2004Walt Disney Pixar acquisition is announcedAcquisition Consummated in 2006

Why Disney Said Yes?Ownership of the world`s most famous computer animation studio and its talentPerfect Timing for Disney, as its own animation films were failing.Why Pixar Said Yes?Good move to face competitorsFocus on its core strength of producing the computer animationApple iTunes has more video content to offer

Alternative Options:

Renegotiation the contract and continueworking with Pixar without acquisitionFocus on internal developmentAn option for Disney to outsource the technologyBuilding strategic alliance with other companies such as Warner Brothers, Fox ...

The Merger allows Disney and Pixar to exploit both financial andorganizational synergies

Best Merger of All time

THANK YOU FOR ATTENTION!