Exam 7: Merger and Acquisition Cash Flow Valuation Basics

Question

Case Study Short Essay Examination Questions Creating a Global Luxury Hotel Chain Fairmont Hotels & Resorts Inc. announced on January 30, 2006, that it had agreed to be acquired by Kingdom Hotels and Colony Capital in an all-cash transaction valued at $45 per share. The transaction is valued at $3.9 billion, including assumed debt. The purchase price represents a 28% premium over Fairmont's closing price on November 4, 2005, the last day of trading when Kingdom and Colony expressed interest in Fairmont. The combination of Fairmont and Kingdom will create a luxury global hotel chain with 120 hotels in 24 countries. Discounted cash-flow analyses, including estimated synergies and terminal value, value the firm at $43.10 per share. The net asset value of Fairmont's real estate is believed to be $46.70 per share. 1. Is it reasonable to assume that the acquirer could actually be getting the operation for "free," since the value of the real estate per share is worth more than the purchase price per share? Explain your answer. 2. Assume the acquirer divests all of Fairmont's hotels and real estate properties but continues to manage the hotels and properties under long-term management contracts. How would you estimate the net present value of the acquisition of Fairmont to the acquirer? Explain your answer. -Assume the acquirer divests all of Fairmont's hotels and real estate properties but continues to manage the hotels and properties under long-term management contracts.How would you estimate the net present value of the acquisition of Fairmont to the acquirer? Explain your answer.

Introduction to Mergers, acquisitions, and Other Restructuring Activities

The Regulatory Environment

The Corporate Takeover Market: Common Takeover Tactics, anti-Takeover Defenses, and Corporate Governance

Planning,developing Business,and Acquisition Plans: Phases 1 and 2 of the Acquisition Process

Implementation: Search Through Closing: Phases 3 to 10 of the Acquisition Process

Postclosing Integration: Mergers, acquisitions, and Business Alliances

Relative,asset-Oriented,and Real Option Valuation Basics

Applying Financial Models to Value, structure, and Negotiate Mergers and Acquisitions

Analysis and Valuation of Privately Held Companies

Structuring the Deal: Payment and Legal Considerations

Structuring the Deal: Tax and Accounting Considerations

Financing the Deal: Private Equity, hedge Funds, and Other Sources of Funds

Highly Leveraged Transactions: Lbo Valuation and Modeling Basics

Business Alliances: Joint Ventures, partnerships, strategic Alliances, and Licensing

Alternative Exit and Restructuring Strategies: Divestitures, spin-Offs, carve-Outs, split-Ups, and Split-Offs

Alternative Exit and Restructuring Strategies: Bankruptcy Reorganization and Liquidation

Cross-Border Mergers and Acquisitions: Analysis and Valuation

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