AFIN353 Advanced Corporate Finance S2 2018
Individual Assignment Instruction
1. Due date
The due date of this assignment is 23:59 Friday 19 October 2018.
The assignment must be submitted via Turnitin and the submission instruction will be available on iLearn in Week 10.
No extensions will be granted. There will be a deduction of 10% of the total available marks made from the total awarded mark for each 24 hour period or part thereof that the submission is late (for example, 25 hours late in submission – 20% penalty). This penalty does not apply for cases in which an application for special consideration is made and approved. No submission will be accepted after solutions have been posted.
2. Assignment tasks
To make an informed decision as to whether you, as a corporate manager, should acquire a potential target company, you need to do your own research. This assignment will give you an opportunity to get a full picture of a real-world merger decision by applying your critical reasoning and analytical problem-solving skills to a real-life case study. You will analyse a chosen deal and the questions should be answered from the perspective of a corporate manager or a consultant hired to advise on the deal.
You can choose any successful deal “completed” before 1 Jan 2017: the only requirement is that both bidder (acquiring) company and target (acquired) company should be listed on the stock markets (not necessarily the same market for example, target from ASX and bidder from NYSE, target from NASDAQ and bidder from LSE, etc.), which is necessary for you to conduct some empirical analyses. Your main task is to provide answers to the following questions (details in the following) on your chosen deal.
Deal motivation (10 marks)
Why does bidder want to buy target? Assess the strategic rationale of the deal, motivated from the acquirer’s perspective with reference to the potential benefits, risks and opportunities.
Target evaluation (10 marks)
• Analyse the bid price as offered by the bidder on the announcement day of the merger. Your valuation should include target’s valuation on a standalone basis using either Discounting Cash Flow (DCF) method or price multiples method (P/E, EV/EBITDA,
P/Sales, etc).
• Describe how you would evaluate synergy in general (you are not required to evaluate the synergy of your chosen deal). How much is the value of synergy as suggested by the bidder, target or analysts?
• Explain whether the offer price is within a fair value range based on your estimation.
Deal structure and target strategy (10 marks)
• Describe the structure of the deal (off-market takeover bid, scheme of arrangement or market takeover bid).
• Analyse the payment method of the deal and discuss the capacity of bidders to increase their bid.
• Has target implemented any defence strategy during the course of the deal and how effective are these strategies (if any)?
Market reaction (10 marks)
• Evaluate the short-term market reaction (for both bidder and target) around the deal announcement and the long-term market reaction after the completion of the deal using event-study method (check lecture slides page 11 and page 50 for a brief introduction to event study)
• Interpret your estimation in terms of wealth transfer and wealth creation and relate it to the motivation(s) of the deal.
Presentation and references (10 marks)
• Word limit: 1500 to 1800 including charts and tables and excluding reference list.
• Data resources must be appropriately acknowledged (in-text or in footnotes). Citations and the reference list must be prepared following Harvard style referencing.
• You can present the answers using a report format or simply answer the questions one by one. However, make sure to edit your assignment before submitting. The font, size, alignment, line space must be consistent throughout. Tables and diagrams should be numbered and captioned. You are expected to use tables and charts to summarise or emphasise findings but the information in a table/chart must be referred to and clearly explained in-text.
3. Marking criteria
This assignment will be marked out of 50 marks and he allocation of marks is indicated in Section 2. The total mark will be scaled to be out of 25 marks, accounting for 25% of the course total.
The criteria below will be followed when marking the assignment:
• The extent and quality of critical reasoning/critical thinking
• The quality of written English.
• The demonstration of knowledge of relevant theory.
• The successful collection and interpretation of relevant data. All calculations must be clearly explained. Important assumptions must be justified.
• The extent to which the work is clearly and concisely presented.
4. Data resources
Recent mergers list
You can find the list of public mergers reviewed by ACCC using the following link:
http://registers.accc.gov.au/content/index.phtml/itemId/751043
Please note that not all the mergers reviewed by ACCC are successfully completed. You must use completed deals to conduct your research.
It is recommended to look at large deals as more information is available.
Share prices and company financials
Morningstar provides a handy way to download past P&L and Balance sheets of most listed companies. It can save you having to enter every single figure from annual reports into your valuation spreadsheet. It's accessible through the Macquarie Uni Library website.
• Go to: https://www.mq.edu.au/on_campus/library/
• In the multi-search textbox type -morningstar datanalysis- and press enter.
• Click the top search result.
• On the 'Links' column on the right hand side click -DataAnalysis premium-.
• Search for your stock using its ticker and then go to -Financial Data- and -Download spreadsheet-, circled below:
Price history (both listed and delisted) can be found by clicking the link “Price History” in the menu on the left. Yahoo Finance provided historical price of all listed companies. It doesn’t provide delisted companies’ (target company of a closed deal) price history.
Research papers
You are expected to use published references so you will find Google Scholar or ProQuest Central very helpful. Search them in MQ library multi-search for subscribed accesses.