Review the proposed merger of Time Warner Cable and Charter via online articles / news reports. Given your research, respond to the following:
1) From a financial manager’s perspective, why would this merger be a value creating proposition? In other words, why are the two firms worth more together than apart?
2) Aside from anti-trust concerns, what reasons made the previously proposed Comcast and Charter merger unattractive?
3) From what you learned, would this have been a merger instead of a leveraged buyout or straight out acquisition? Make sure you fully defend your response with your research / comments from the author.
Kansas City Deck Supply, a small residential builder of decks, is considering purchasing a lumber supplier (Midwest Pine). KC Deck’s analysts project that the merger will result in the following incremental free cash flows, tax shields, and horizon values:
|Free cash flow||$1||$3||$3||$7|
|Unlevered horizon value|
|Horizon value of tax shield||32|
Assume that all cash flows occur at the end of the year. Midwest Pine is currently financed with 30% debt at a rate of 10%. The acquisition would be made immediately, and if it is undertaken, Midwest Pine would retain its current $15 million of debt and issue enough new debt to continue at the 30% target level. The interest rate would remain the same. Midwest Pine’s pre‐merger beta is 2.0 and its post‐merger tax rate would be 34%. The risk‐free rate is 8% and the market risk premium is 4%. What is the value of Midwest Pine to KC Deck?