SIM/NYU
The Job of the CFO
Valuation
for Mergers & Acquisitions
Prof. Ian Giddy
New York University
What’s a Company Worth
to Another Company?
Required Returns
 Types of Models

Yeo Hiap
Seng
Balance
sheet models
Dividend discount & corporate cash flow
models
Price/Earnings ratios
Option models
Estimating Growth Rates
 Application: How These Change with
M&A

Copyright ©2000 Ian H. Giddy
Valuation for M&A 2
Framework for Assessing Retructuring
Opportunities
Current market
overpricing or
underpricng
Current
Market
Value
1
Company’s
DCF value 2
5
Restructuring
Framework
Operating
improvements
Total
restructured
value
Financial
structure
improvements
(Eg Increase D/E)
4
3
Potential
value with
internal
improvements
Copyright ©2000 Ian H. Giddy
Maximum
restructuring
opportunity
Disposal/
Acquisition
opportunities
Potential
value with
internal
+ external
improvements
Valuation for M&A 3
Equity Valuation:
From the Balance Sheet
Value of Assets
 Book
 Liquidation
 Replacement
Value of
Liabilities
 Book
 Market
Value of Equity
Copyright ©2000 Ian H. Giddy
Valuation for M&A 4
Relative Valuation

Do valuation ratios make sense?
• Price/Earnings (P/E) ratios
 and variants (EBIT multiples, EBITDA multiples,
Cash Flow multiples)
• Price/Book (P/BV) ratios
 and variants (Tobin's Q)
• Price/Sales ratios

It depends on how they are used -- and
what’s behind them!
Copyright ©2000 Ian H. Giddy
Valuation for M&A 5
Discounted Cashflow Valuation:
Basis for Approach
t = n CF
t
Value = 
t
t =1 (1+ r)
where

n = Life of the asset
 CFt = Cashflow in period t
 r = Discount rate reflecting the riskiness of
the estimated cashflows
Copyright ©2000 Ian H. Giddy
Valuation for M&A 6
Valuing a Firm with DCF:
An Illustration
Historical
financial
results
Adjust for
nonrecurring
aspects
Gauge
future
growth
Projected sales
and operating
profits
Adjust for
noncash
items
Projected free cash flows
to the firm (FCFF)
Year 1
FCFF
Year 2
FCFF
Year 3
FCFF
Year 4
FCFF
Discount to present using weighted
average cost of capital (WACC)
Present
value of free
cash flows
Copyright ©2000 Ian H. Giddy
+ cash,
securities &
excess assets
- Market
value of
debt
…
Terminal year FCFF
Stable growth model
or P/E comparable
Value of
shareholders
equity
Valuation for M&A 7
Valuation Example
Fong Industries (Pte) Ltd Singapore
Profit & Loss (S$'000)
FYE 30 Jun
Turnover
1994
1995
1996
1997
1998
1999
9,651
57,888
125,010
120,323
136,003
134,813
Directors' Fees & Rem
Amortisation
Depreciation
Interest Expense
Bad Debts W/O
Fixed Assets W/O
FX loss
107
0
639
227
249
269
1,041
445
368
279
1,277
615
820
280
3,812
1,002
964
39
4,494
697
85
961
35
4,673
1,078
100
543
282
Profit b/f Tax
933
1,250
3,774
6,897
4
1,990
838
Assoc Co
(74)
933
Tax
Profit a/f Tax
Effective Tax Rate
1,990
3
930
1,990
0.32%
0.00%
EBITDA
ISC
Copyright ©2000 Ian H. Giddy
3,745
792.51%
841.57%
108.17%
(14)
1,176
3,811
6,883
96
292
929
178
742
884
2,882
6,705
24.83%
24.38%
2.59%
(768)
(7)
(156)
7,292
1,799
37
838
11.46%
EOI
27
3,009
489.27%
-19.65%
6,270
625.75%
108.37%
9,597
890.26%
####
12,113
1737.88%
Valuation for M&A 8
Valuation Example
Fong Industries
Growth1
Growth2
Tax
Revenue
Expenses
EBIT
WC
b (unlevered)
b (levered)
Kd
MVe
MVd
Combined
Rm
Rf
Ke
WACC
Copyright ©2000 Ian H. Giddy
25%
5%
25%
134,813
91.01%
7,580
10%
1.06
1.09
5.50%
218,993
7,379
226,372
12.00%
4.00%
for 3 years
thereafter
effective
(S$'000); T0
of Revenue
(S$'000)
of Revenue
(S$'000)
(S$'000)
(S$'000)
PERMkt
32.66
Revenue
-Expenses
-Depreciation
EBIT
EBIT(1-t)
+Depreciation
-CapEx
-Change in WC
FCFF
Firm Value
Equity Value
PERcomputed
147,773
140,394
20.94
T1
168,516
153,375
4,533
10,608
7,956
4,533
4,533
3,370
4,586
T2
210,645
191,719
4,533
14,394
10,795
4,533
4,533
4,213
6,582
4,586
6,582
T3
263,307
239,648
4,533
19,125
14,344
4,533
4,533
5,266
9,078
187,655
196,733
T4
276,472
251,631
4,533
20,308
15,231
4,533
4,533
1,317
13,915
$0.65
12.69%
12.41%
Valuation for M&A 9
Estimating Future Cash Flows



Copyright ©2000 Ian H. Giddy
Dividends?
Free cash
flows to
equity?
Free cash
flows to firm?
Valuation for M&A 10
The Weighted Average Cost of Capital
Choice
Cost
1. Equity
- Retained earnings
- New stock issues
- Warrants
Cost of equity
- depends upon riskiness of the stock
- will be affected by level of interest rates
Cost of equity = riskless rate + beta * risk premium
2. Debt
- Bank borrowing
- Bond issues
Cost of debt
- depends upon default risk of the firm
- will be affected by level of interest rates
- provides a tax advantage because interest is tax-deductible
Cost of debt = Borrowing rate (1 - tax rate)
Debt + equity =
Capital
Cost of capital = Weighted average of cost of equity and
cost of debt; weights based upon market value.
Cost of capital = kd [D/(D+E)] + ke [E/(D+E)]
Copyright ©2000 Ian H. Giddy
Valuation for M&A 11
Valuation: The Key Inputs

A publicly traded firm potentially has an infinite life.
The value is therefore the present value of cash flows
forever.
t =  CF
t
Value = 
t
t = 1 (1+ r)

Since we cannot estimate cash flows forever, we
estimate cash flows for a “growth period” and then
estimate a terminal value, to capture the value at the
end of the period:
t = N CFt
Terminal Value
Value = 

N
t
(1
+
r)
(1
+
r)
t =1
Copyright ©2000 Ian H. Giddy
Valuation for M&A 12
Dividend Discount Models:
General Model

Dt
Vo  
t
t  1 (1  k )
 V0
= Value of Stock
 Dt = Dividend
 k = required return
Copyright ©2000 Ian H. Giddy
Valuation for M&A 13
Specified Holding Period Model
D
D

V 
(1 k ) (1 k )
1
0


2
1
P
D
...
(1 k )
N
2
N
N
PN = the expected sales price for the stock at
time N
N = the specified number of years the stock is
expected to be held
Copyright ©2000 Ian H. Giddy
Valuation for M&A 14
No Growth Model
D
Vo 
k


Stocks that have earnings and dividends that
are expected to remain constant
Preferred Stock
Copyright ©2000 Ian H. Giddy
Valuation for M&A 15
No Growth Model: Example

D
Vo 
k



Burlington Power & Light
has earnings of $5 per share
and pays out 100% dividend
The required return that
shareholders expect is 15%
The earnings are not
expected to grow but remain
steady indefinitely
What’s a BPL share worth?
E1 = D1 = $5.00
k = .15
V0 = $5.00 / .15 = $33.33
Copyright ©2000 Ian H. Giddy
Valuation for M&A 16
Constant Growth Model
Do (1  g )
Vo 
kg
g
= constant perpetual growth rate
Copyright ©2000 Ian H. Giddy
Valuation for M&A 17
Constant Growth Model: Example

Do (1  g )
Vo 
kg



Motel 6 has earnings of $5
per share. It reinvests 40%
and pays out 60%dividend
The required return that
shareholders expect is 15%
The earnings are expected
to grow at 8% per annum
What’s an M6 share worth?
E1 = $5.00 b = 40%
k = 15%
(1-b) = 60% D1 = $3.00 g = 8%
V0 = 3.00 / (.15 - .08) = $42.86 Plowback
rate
Copyright ©2000 Ian H. Giddy
Valuation for M&A 18
Estimating Dividend Growth Rates
g  ROE  b
g = growth rate in dividends
 ROE = Return on Equity for the firm
 b = plowback or retention percentage rate
i.e.(1- dividend payout percentage rate)

Copyright ©2000 Ian H. Giddy
Valuation for M&A 19
Or Use Analysts’ Expectations?
Copyright ©2000 Ian H. Giddy
Valuation for M&A 20
Shifting Growth Rate Model
(1  g1)
DT (1  g 2 )
V o  Do 

t
T
( k  g 2 )(1  k )
t 1 (1  k )
T
t
 g1
= first growth rate
 g2 = second growth rate
 T = number of periods of growth at
g1
Copyright ©2000 Ian H. Giddy
Valuation for M&A 21
Shifting Growth Rate Model: Example

D0 = $2.00 g1 = 20% g2 = 5%
k = 15% T = 3 D1 = 2.40
D2 = 2.88 D3 = 3.46 D4 = 3.63

V0 = D1/(1.15) + D2/(1.15)2 + D3/(1.15)3

+ D4 / (.15 - .05) ( (1.15)3
Mindspring
pays dividends
$2 per share.
The required
return that
shareholders
expect is 15%
The dividends
are expected to
grow at 20% for
3 years and 5%
thereafter
What’s a
Mindspring
share worth?
V0 = 2.09 + 2.18 + 2.27 + 23.86 = $30.40
Copyright ©2000 Ian H. Giddy
Valuation for M&A 22
Stable Growth and Terminal Value




When a firm’s cash flows grow at a “constant” rate forever, the
present value of those cash flows can be written as:
Value = Expected Cash Flow Next Period / (r - g)
where,
r = Discount rate (Cost of Equity or Cost of Capital)
g = Expected growth rate
This “constant” growth rate is called a stable growth rate and
cannot be higher than the growth rate of the economy in which
the firm operates.
While companies can maintain high growth rates for extended
periods, they will all approach “stable growth” at some point in
time.
When they do approach stable growth, the valuation formula
above can be used to estimate the “terminal value” of all cash
flows beyond.
Copyright ©2000 Ian H. Giddy
Valuation for M&A 23
Growth Patterns


A key assumption in all discounted cash flow models is the period
of high growth, and the pattern of growth during that period. In
general, we can make one of three assumptions:
 there is no high growth, in which case the firm is already in
stable growth
 there will be high growth for a period, at the end of which the
growth rate will drop to the stable growth rate (2-stage)
 there will be high growth for a period, at the end of which the
growth rate will decline gradually to a stable growth rate(3stage)
The assumption of how long high growth will continue will depend
upon several factors including:
 the size of the firm (larger firm -> shorter high growth periods)
 current growth rate (if high -> longer high growth period)
 barriers to entry and differential advantages (if high -> longer
growth period)
Copyright ©2000 Ian H. Giddy
Valuation for M&A 24
Length of High Growth Period




Assume that you are analyzing two firms, both of which
are enjoying high growth. The first firm is Earthlink
Network, an internet service provider, which operates in an
environment with few barriers to entry and extraordinary
competition. The second firm is Biogen, a bio-technology
firm which is enjoying growth from two drugs to which it
owns patents for the next decade. Assuming that both
firms are well managed, which of the two firms would you
expect to have a longer high growth period?
Earthlink Network
Biogen
Both are well managed and should have the same high
growth period
Copyright ©2000 Ian H. Giddy
Valuation for M&A 25
Choosing a Growth Pattern: Examples
Company
Disney
Valuation in
Nominal U.S. $
Firm
Aracruz
Real BR
Equity: FCFE
Deutsche Bank Nominal DM
Equity: Dividends
Copyright ©2000 Ian H. Giddy
Growth Period Stable Growth
10 years
5%(long term
(3-stage)
nominal growth rate
in the U.S. economy
5 years
5%: based upon
(2-stage)
expected long term
real growth rate for
Brazilian economy
0 years
5%: set equal to
nominal growth rate
in the world
economy
Valuation for M&A 26
The Building Blocks of Valuation
Choose a
Cash Flow
Dividends
Expected Dividends to
Stockholders
Cashflows to Equity
Cashflows to Firm
Net Income
EBIT (1- tax rate)
- (1- ) (Capital Exp. - Deprec’n) - (Capital Exp. - Deprec’n)
- Change in Work. Capital
- (1- ) Change in Work. Capital
= Free Cash flow to Equity (FCFE) = Free Cash flow to Firm (FCFF)
[ = Debt Ratio]
& A Discount Rate
Cost of Equity
Cost of Capital
WACC = ke ( E/ (D+E))
 Basis: The riskier the investment, the greater is the cost of equity.
 Models:
CAPM: Riskfree Rate + Beta (Risk Premium)
+ kd ( D/(D+E))
kd = Current Borrowing Rate (1-t)
E,D: Mkt Val of Equity and Debt
APM: Riskfree Rate + Betaj (Risk Premiumj): n factors
& a growth pattern
Stable Growth
Two-Stage Growth
g
g
Three-Stage Growth
g
|
t
Copyright ©2000 Ian H. Giddy
High Growth
|
Stable
High Growth
Transition
Stable
Valuation for M&A 27
The Building Blocks of Valuation
Choose a
Cash Flow
Dividends
Expected Dividends to
Stockholders
Cashflows to Equity
Cashflows to Firm
Net Income
EBIT (1- tax rate)
- (1- ) (Capital Exp. - Deprec’n) - (Capital Exp. - Deprec’n)
- Change in Work. Capital
- (1- ) Change in Work. Capital
= Free Cash flow to Equity (FCFE) = Free Cash flow to Firm (FCFF)
[ = Debt Ratio]
& A Discount Rate
Spreadsheet example
Cost of Equity
Cost of Capital
WACC = ke ( E/ (D+E))
 Basis: The riskier the investment, the greater is the cost of equity.
 Models:
CAPM: Riskfree Rate + Beta (Risk Premium)
+ kd ( D/(D+E))
kd = Current Borrowing Rate (1-t)
E,D: Mkt Val of Equity and Debt
APM: Riskfree Rate + Betaj (Risk Premiumj): n factors
& a growth pattern
Stable Growth
Two-Stage Growth
g
g
Three-Stage Growth
g
|
t
Copyright ©2000 Ian H. Giddy
High Growth
|
Stable
High Growth
Transition
Stable
Valuation for M&A 28
Relative Valuation

In relative valuation, the value of an asset is derived
from the pricing of 'comparable' assets, standardized
using a common variable such as earnings,
cashflows, book value or revenues. Examples include
-• Price/Earnings (P/E) ratios
 and variants (EBIT multiples, EBITDA multiples,
Cash Flow multiples)
• Price/Book (P/BV) ratios
 and variants (Tobin's Q)
• Price/Sales ratios
Copyright ©2000 Ian H. Giddy
Valuation for M&A 29
Price Earnings Ratios

P/E Ratios are a function of two factors
Required
rates of return (k)
Expected growth in dividends

Uses
Relative
valuation
Extensive use in industry
Copyright ©2000 Ian H. Giddy
Valuation for M&A 30
Ratios Do Have Meaning


P0 
DPS1
r  gn
Gordon Growth Model:
Dividing both sides by the earnings,
P0
Payout Ratio * (1  g n )
 PE =
EPS0
r-gn

Dividing both sides by the book value of equity,
P0
ROE * Payout Ratio * (1  g n )
 PBV =
BV 0
r-g
n

If the return on equity is written in terms of the
retention ratio and the expected growth rate
P0
ROE - gn
 PBV =
BV 0
r-gn

Dividing by the Sales per share,
P0
Profit Margin * Payout Ratio * (1  g n )
 PS =
Sales 0
r-gn
Copyright ©2000 Ian H. Giddy
Valuation for M&A 31
P/E Ratio: No expected growth
E1
P0 
k
P0
1

E1
k

E1 - expected earnings for next year
 E1

is equal to D1 under no growth
k - required rate of return
Copyright ©2000 Ian H. Giddy
Valuation for M&A 32
P/E Ratio with Constant Growth
D1
E 1(1  b)
P0 

k  g k  (b  ROE )
P0
1 b

E 1 k  (b  ROE )
Where
 b = retention ratio
 ROE = Return on Equity
Copyright ©2000 Ian H. Giddy
Valuation for M&A 33
Numerical Example: No Growth
E0 = $2.50 g = 0 k = 12.5%
P0 = D/k = $2.50/.125 = $20.00
P/E = 1/k = 1/.125 = 8



Copyright ©2000 Ian H. Giddy
Quickie Broom Co has earnings of $2.50 per
share. It pays out 100%dividend
The required return that shareholders expect
is 12.5% (based on CAPM with Beta of 1, RF =
7%, Market risk premium 5.5%)
What PE ratio should such a company have?
Valuation for M&A 34
Numerical Example with Growth
b = 60% ROE = 15% (1-b) = 40%
E1 = $2.50 (1 + (.6)(.15)) = $2.73
D1 = $2.73 (1-.6) = $1.09
k = 12.5% g = 9%
P0 = 1.09/(.125-.09) = $31.14
PE = 31.14/2.73 = 11.4
Or PE = (1 - .60) / (.125 - .6(.15)) = 11.4
Copyright ©2000 Ian H. Giddy
Valuation for M&A 35
Disney: Relative Valuation
Company
PE
King World Productions
10.4
Aztar
11.9
Viacom
12.1
All American Communications
GC Companies
20.2
Circus Circus Enterprises 20.8
Polygram NV ADR
22.6
Regal Cinemas
25.8
Walt Disney
27.9
AMC Entertainment
29.5
Premier Parks
32.9
Family Golf Centers
33.1
CINAR Films
48.4
Average
27.44
Copyright ©2000 Ian H. Giddy
Expected Growth
7.00%
12.00%
18.00%
15.8
15.00%
17.00%
13.00%
23.00%
18.00%
20.00%
28.00%
36.00%
25.00%
18.56%
PE ratio divided
by the growth rate
PEG
1.49
0.99
0.67
20.00%0.79
1.35
1.22
1.74
1.12
1.55
1.48
1.18
0.92
1.94
1.20
Valuation for M&A 36
Is Disney fairly valued?

Based upon the PE ratio, is Disney under, over or
correctly valued?




Based upon the PEG ratio, is Disney under valued?




Under Valued
Over Valued
Correctly Valued
Under Valued
Over Valued
Correctly Valued
Will this valuation give you a higher or lower valuation
than the discounted CF valuation?


Higher
Lower
Copyright ©2000 Ian H. Giddy
Valuation for M&A 37
Relative Valuation Assumptions

Assume that you are reading an equity research
report where a buy recommendation for Viacom is
being based upon the fact that its PE ratio is lower
than the average for the industry. Implicitly, what is
the underlying assumption or assumptions being
made by this analyst?

The sector itself is, on average, fairly priced
 The earnings of the firms in the group are being measured
consistently
 The firms in the group are all of equivalent risk
 The firms in the group are all at the same stage in the growth cycle
 The firms in the group are of equivalent risk and have similar cash
flow patterns
 All of the above
Copyright ©2000 Ian H. Giddy
Valuation for M&A 38
Equity Valuation:
Application to M&A
Prof. Ian Giddy
New York University
How Much Should We Pay?
Applying the discounted cash flow
approach, we need to know:
1.The incremental cash flows to be
generated from the acquisition, adjusted
for debt servicing and taxes
2.The rate at which to discount the cash
flows (required rate of return)
3.The deadweight costs of making the
acquisition (investment banks' fees, etc)
Copyright ©2000 Ian H. Giddy
Valuation for M&A 40
The Gains From an Acquisition
Gains from merger
Synergies
Top line
Copyright ©2000 Ian H. Giddy
Bottom line
Control
Financial
restructuring
Business
Restructuring
(M&A)
Valuation for M&A 42
Framework for Assessing Retructuring
Opportunities
Current market
overpricing or
underpricng
Current
Market
Value
1
Company’s
DCF value 2
5
Restructuring
Framework
Operating
improvements
Total
restructured
value
Financial
structure
improvements
(Eg Increase D/E)
4
3
Potential
value with
internal
improvements
Copyright ©2000 Ian H. Giddy
Maximum
restructuring
opportunity
Disposal/
Acquisition
opportunities
Potential
value with
internal
+ external
improvements
Valuation for M&A 43
Equity Valuation in Practice
Estimating discount rate
 Estimating cash flows
 Application to Optika
 Application in M&A: Schirnding-Optika

Copyright ©2000 Ian H. Giddy
Valuation for M&A 44
Optika
Optika
Growth
Tax rate
Initial Revenues
COGS
WC
WACC:
Equity Market Value
Debt Market Value
ReE/(D+E)+RdD/(D+E)
Beta
Treasury bond rate
Debt spread
Market risk premium
Value:
FCFF/(WACC-growth rate)
Revenues
-COGS
-Depreciation
=EBIT
Equity Value:
EBIT(1-Tax)
Firm Value - Debt Value
-Change in WC
= 2278-250 = 2028 =Free Cash Flow to Firm
Cost of Equity (from CAPM)
Cost of Debt (after tax)
WACC
Firm Value
Copyright ©2000 Ian H. Giddy
5%
35%
3125
89%
10%
1300
250
1
7%
1.5%
5.50%
T+1
3281
2920
74
287
187
16
171
12.50%
5.53%
11.38%
CAPM:
7%+1(5.50%)
Debt cost
(7%+1.5%)(1-.35)
2278
Valuation for M&A 45
Optika & Schirnding
Schirnding-Optika
Optika
Growth
Tax rate
Initial Revenues
COGS
WC
Equity Market Value
Debt Market Value
Beta
Treasury bond rate
Debt spread
Market risk premium
Revenues
-COGS
-Depreciation
=EBIT
EBIT(1-Tax)
-Change in WC
=Free Cash Flow to Firm
Cost of Equity (from CAPM)
Cost of Debt (after tax)
WACC
Firm Value
Copyright ©2000 Ian H. Giddy
5%
35%
3125
89%
10%
1300
250
1
7%
1.5%
5.50%
Schirnding
5%
35%
4400
87.50%
10%
2000
160
1
7%
1.5%
5.50%
Combined
5%
35%
7525
T+1
3281
2920
74
287
187
16
171
12.50%
5.53%
11.38%
T+1
4620
4043
200
378
245
22
223
12.50%
5.53%
11.98%
7901
6963
274
664
432
38
394
12.50%
5.53%
11.73%
2278
3199
5859
10%
3300
410
1
7%
1.5%
5.50%
Valuation for M&A 46
Optika-Schirnding with Synergy
Schirnding-Optika
Optika
Growth
Tax rate
Initial Revenues
COGS
WC
Equity Market Value
Debt Market Value
Beta
Treasury bond rate
Debt spread
Market risk premium
Revenues
-COGS
-Depreciation
=EBIT
EBIT(1-Tax)
-Change in WC
=Free Cash Flow to Firm
Cost of Equity (from CAPM)
Cost of Debt (after tax)
WACC
Firm Value
Increase
Copyright ©2000 Ian H. Giddy
5%
35%
3125
89%
10%
1300
250
1
7%
1.5%
5.50%
Schirnding
5%
35%
4400
87.50%
10%
2000
160
1
7%
1.5%
5.50%
T+1
3281
2920
74
287
187
16
171
12.50%
5.53%
11.38%
2278
Combined
5%
35%
7525
10%
3300
410
1
7%
1.5%
5.50%
Synergy
5%
35%
7525
86.00%
10%
3300
410
1
7%
1.5%
5.50%
T+1
4620
4043
200
378
245
22
223
12.50%
5.53%
11.98%
7901
6963
274
664
432
38
394
12.50%
5.53%
11.73%
T+1
7901
6795
274
832
541
38
503
12.50%
5.53%
11.73%
3199
5859
7479
1620
Valuation for M&A 47
Breaking Up is Hard to Do
Copyright ©2000 Ian H. Giddy
Valuation for M&A 50
Implementation
Case Studies:
 Intraco
 Natsteel
Copyright ©2000 Ian H. Giddy
Valuation for M&A 51
Fish and Chips
Intraco's eclectic menu of products and services includes fish and
chips: It operates in telecommunications, commodities, foods (such
as saltwater fish), engineering, and semiconductors (chips). Its
Teledata subsidiary provides telecom services and products and
project management. Intraco Trading buys and sells plastics,
petrochemicals, and metals.
Intraco Foods deals in seafood, dairy products, fruit, and frozen food.
The engineering and projects unit has five divisions: electrical,
building materials, land transport, marine and port, and
environmental engineering. The semiconductor unit distributes
such products as DRAMs and AMD microprocessors. The firm has
shed its auto unit. NatSteel owns 22% of Intraco.
http://www.intraco.com.sg
Copyright ©2000 Ian H. Giddy
Valuation for M&A 52
Natsteal
Just as a metallurgist mixes metals to produce a strong alloy,
NatSteel mixes steelmaking and a variety of other activities to
make it one of Singapore's largest industrial groups. NatSteel's
range of operations includes electronics, building products
(cement and precast concrete), chemicals, engineering products
and services, and property development. Its steel division has
mini-mills in China, Malaysia, the Philippines, Singapore, and
Vietnam. Its electronics division consists of two contract
manufacturers.
The company has an e-commerce initiative to transform its steel
commodities into a value-added service business. NatSteel's
operations span 15 countries in Asia, Australia, and Europe.
http://www.natsteel.com.sg
Copyright ©2000 Ian H. Giddy
Valuation for M&A 53
The Gains From an Acquisition
Gains from merger
Synergies
Top line
Copyright ©2000 Ian H. Giddy
Bottom line
Control
Financial
restructuring
Business
Restructuring
(M&A)
Valuation for M&A 54
 www.giddy.org
giddy.org
Ian Giddy
NYU Stern School of Business
Tel 212-998-0332
Fax 917-463-7629
ian.giddy@nyu.edu
http://giddy.org
Copyright ©2000 Ian H. Giddy
Valuation for M&A 60