The Birdie Glove-Hybrid Glove Merger Birdie Golf, Inc. has been in merger talks with Hybrid Golf Company for the past six months. After several rounds of negotiations, the offer under discussion is a cash offer of $550 million for Hybrid Golf. Both companies have niche markets in the golf club industry, and the companies believe a merger will result in significant savings in general and administrative expenses. Bryce Bichon, the financial officer for Birdie, has been instrumental in the merger negotiations. Bryce has prepared the following pro forma financial statements for Hybrid Golf assuming the merging takes place. The financial statements include all synergistic benefits from the merger:
2008
2009
2010 1,000,000,
2011 1,125,000,00
2012 1,250,000,
Sales Production
800,000,000
900,000,000
000 700,000,00
0
000 875,000,00
costs Depreciatio
562,000,000
630,000,000
0
790,000,000
0
n Other
75,000,000
80,000,000
82,000,000 100,000,00
83,000,000
83,000,000 125,000,00
expenses
80,000,000
90,000,000
0 118,000,00
113,000,000
0 167,000,00
EBIT Interest Taxable
83,000,000 19,000,000
100,000,000 22,000,000
0 24,000,000
139,000,000 25,000,000
0 27,000,000 140,000,00
Income Taxes
64,000,000
78,000,000
94,000,000
114,000,000
0
(40%) Net Income
25,600,000 38,400,000
31,200,000 46,800,000
37,600,000 56,400,000
45,600,000 68,400,000
56,000,000 84,000,000
Bryce is also aware that the Hybrid Golf Division will require investments each year for continuing operations, along with sources of financing. The following table outlines the required investments and sources of financing.
Investments Net working capital Fixed assets
2008
2009
2010
2011
2012
20000000 15000000
25000000 25000000
25000000 18000000
30000000 12000000
30000000 7000000
Total Sources of financing: New Debt Profit retention Total
35000000
50000000
43000000
42000000
37000000
35000000 0 35000000
16000000 34000000 50000000
16000000 27000000 43000000
15000000 27000000 42000000
12000000 25000000 37000000
The management of Birdie Golf feels that the capital structure at Hybrid Golf is not optimal. If the merger take place, Hybrid Golf will immediately increase its leverage with a 110 million debt issue, which would be followed by a 150 million dividend payment to Birdie Golf. This will increase Hybrid's debt to equity ratio from .50 to 1.00. Birdie Golf will also be able to use a 25 million tax loss carryforward in 2009 and 2010 from Hybrid Golf's previous operations. The total value of Hybrid Golf is expected to be 900 million in five years, and the company will have 300 million in debt at that time. Stock in Birdie Golf currently sells for 94 a share, and the company has 18 million shares of stock outstanding. Hybrid Golf has 8 million shares of stock outstanding. Both companies can borrow at an 8% interest rate. The risk-free rate is 6%, and the expected return on the market is 13%. Bryce believes the current cost of capital for Birdie Golf is 11%. The beta for Hybrid Golf stock at its current capital structure is 1.30. Bryce has ased you to analyze the financial aspects of the potential merger. Specifically, he has asked you to answer the following questions: 1. Suppose Hybrid shareholders will agree to a merger price of $68.75 per share. Should
Birdie proceed with merger? 2. What s the highest price per share that Birdie should be willing to pay for Hybrid? 3. Suppose Birdie is unwilling to pay cash for the merger but will consider a stock
exchange. What exchange ratio would make the merger terms equivalent to the original merger price of $68.75/share? 4. What is the highest exchange ratio Birdie would be willing to pay and still undertake
the merger?
Diketahui :
ß = 1,30 Return of Market (RPM) = 13% Risk Free rate(rRF) = 6% Interest Rate = 8% Cost of Debt (rd) = (Rf + Interest Rate) (1 – Tax) = 6.4% Debt setelah merger = 110 jt Debt sebelum merger = -40 juta Dividen setelah merger = 150 jt Dividen sebelum merger = -80 juta Rasio Hutang / Debt dengan Equity sebelum merger = 0.5 Rasio Hutang / Debt dengan Equity sesudah merger = 1 wd Sesudah merger = (D / D+S) = (110 jt / 260 jt) = 42,3% ws Sesudah merger = (S / D+S) = (150 jt / 260 jt) = 57,7% Maka wd Sebelum merger = (D / D+S) = (-40 jt / -120 jt) = 33,3% Dan ws Sebelum merger = (D / D+S) = (-80 jt / -120 jt) = 66,7% Harga Saham Birdie Golf = 94$ per lembar Jumlah saham Birdie Golf = 18 juta Nilai Birdie Golf menurut saham = 18 juta x 94 = 1.692.000.000 Jumlah saham Hybrid Golf = 8 juta Cash yang ditawarkan untuk syarat merger = 550 juta Perkiraan Market Value Hybrid Golf setelah 5 tahun = 900 juta Perkiraan Hutang Hybrid Golf setelah 5 tahun = 300 juta Tax Loss dari merger = 25 juta
Ketika Struktur modal dan WACC (Weighted Average Cost Capital) tidak tetap, maka untuk menilai Value dari suatu merger tersebut digunakan model APV atau Adjusted Present Value, dengan langkah sebagai berikut : Langkah Cari BCC's pre-merger cost of equity dan unlevered cost of equity: Biaya Ekuitas sebelum merger = rsL = rRF + (RPM) ß = 6% + (13%)1.30 = 22,9%. Biaya Ekuitas tanpa leverage sebelum merger rsU = wdrd + wsrsL = 0.423(6.4%) + 0.577(22.9%) = 18.95% = 2,702% + 13,2133% = 15, 9153% after the merger, BCC will have 42,3 percent of debt costing 6,4%, so its levered cost of equity and WACC will be: rsL = rsU + (rsU –rd)(D/S) = 15, 9153% + (15, 9153% - 6,4%)(42,3/57,7) = 22,891% WACC = wdrd(1-T) + wsrs = 0,423 (6.4%)(1-0.40) + 0,577 (22,891%) = 1,62432% + 13,2081% = 14, 8324% Free cash flows = NOPAT - net retentions =
Free Cash Flow
2008 8000000
2009 9000000
2010 1000000
2011 1125000
2012 125000000
Sales Production
00 5620000
00 6300000
000 7000000
000 7900000
0
costs Depreciati
00 7500000
00 8000000
00 8200000
00 8300000
875000000
on Other
0 8000000
0 9000000
0 1000000
0 1130000
83000000
expenses
0 8300000
0 1000000
00 1180000
00 1390000
125000000
EBIT NOPAT =
0 4980000
00 6000000
00 7080000
00 8340000
167000000
EBIT (1-T) Net
0 3500000
0 5000000
0 4300000
0 4200000
100200000
Retentions Free Cash
0 148000
0 100000
0 2780000
0 4140000
37000000
Flow
00
00
0
0
63200000
Perhitungan g diasumsikan = 2% -
Horizon Value FCF 2012 (HVU, 2012) = FCF2012 (1 + g) / (rsU + g) = 63,200,000 (1.02) /0.1483 – 0.02 = 61.960.784 / 0,1283 = $482,936,744.46
-
Horizon Value Tax Shield (HVU, TS) = 2008 2009 2010 2011 2012 190000 220000 240000 250000 270000 Interest Tax Shield
00 00 00 00 00 760000 880000 960000 100000 108000 0
= TS2012 (1 + g) / (rsU + g)
0
0
00
00
= 10,800,000 (1.02) /0.1483 – 0.02 = 11,016,000 / 0,1283 = $85,861,262.6656
Cash Flow to be discounted at the unlevered cost of equity : 2008 2009 2010 1480000 1000000 2780000 Free Cash Flow Unlevered Horizon Value FCF + Horizon
0
00
0 4829367
0
414000
0
00 100000
01 1080000
7600000 8800000 9600000
00
0 8586126
1480000 1000000 2780000 0
0
Value TS + Horizon Value
2012 6320000
44 5631191
Value Interest Tax Saving Tax Shield Horizon
0
2011 414000
100000
3 9622921
00
3
7600000 8800000 9600000
Vunlevered = (14800000 / 1 + 0.1483) + (10000000 / 1 + 0.1483)^2 + (27800000 / 1 + 0.1483)^3 +(41400000 / 1 + 0.1483)^4 + (63200000+ 482936744 / 1 + 0.1483)^5 = $376237199,7 VTax Shield = (7600000 / 1 + 0.1483) + (8800000 / 1 + 0.1483)^2 + (9600000 / 1 + 0.1483)^3 +(10000000 / 1 + 0.1483)^4 +
(10800000+85429213/ 1 + 0.1483)^5 = $78972706,2 Estimated Hybrid Golf Equity Value = $455.209.906 + 25000000 = $470.209.906 Nilai tersebut lebih rendah dari yang diestimasi Birdie Golf, yaitu $600.000.000
1. Dengan penawaran saham $68.75 per lembar, maka NPV dari
penawaran ini adalah : = $1.692.000.000 + $470.209.906 – $68.75(8.000.000) = $1.612.209.906 Karena NPV positif maka penawaran ini dapat diterima. 2. Maximum Bid Price = $68.75 + ($1.612.209.906 / 8.000.000) =
$270,2762 3. Harga Saham Birdie Golf = 94$ per lembar
Jumlah saham Birdie Golf = 18 juta Jumlah saham Hybrid Golf = 8 juta Penawaran saham $68.75 per lembar =
$68.75(8.000.000) =
$550.000.000 α = New Shares issued / Old Shares + New Shares Issued (N) α x $2.162.209.906 = $550.000.000 α = 0,2543 0,2543 = N / 18.000.000 + N 4.500.000+ 0.2543N = N
0.7457 N = 4.500.000 N = 6.034.598 shares untuk 8 juta shares Hybrid Golf Atau rasio 0,7543 :1 4. Highest Exchange Ratio
Penawaran saham $94 per lembar =
$94(8.000.000) =
$752.000.000 α = New Shares issued / Old Shares + New Shares Issued (N) α x $2.162.209.906 = $752.000.000 α = 0,3478 0,3478 = N / 18.000.000 + N 6.260.262 + 0.3478N = N 0.6522 N = 6.260.262 N = 9.598.684 shares untuk 8 juta shares Hybrid Golf Atau rasio 1,1998 :1
