The Timken Company is one of the worldwide leaders in the bearing industry with operations spanning over the past 100 years. Timken has recently been experiencing sluggish earnings, forcing a consolidation of their workforce and a cut in their dividend payout. Timken has been in contact with Ingersoll-Rand, a globally diversified manufacturer of commercial and industrial equipment and components, with the potential to acquire one of their subsidiaries that specializes in the bearing industry, Torrington Company. The U.S. bearing industry has been experiencing a variety of problems recently, including pressure from foreign competitors that are able to offer products with similar quality at lower prices. The bearing market has hit its peak, and now Timken has found a way to edge out the foreign competition, through customization of their products to match customer needs. For Timken to be able to achieve their goals, they’ve identified Torrington Company as a perfect match to help them accelerate past foreign competition and grow their business sustainably. To estimate the price Timken should offer to IR, we used a variety of different methods, including the discounted cash flow method of Torrington, and an industry earnings multiple method. Based on our analysis, we believe it is best for Timken to offer a total of $893.46M to Ingersoll-Rand for Torrington, the majority being cash raised through a debt issuance, and the rest an agreed upon equity stake in Timken. The details and analysis are explained in the memo as follows.
The potential benefits of the Torrington acquisition for Timken are unquantifiable. The automotive industry has been fairly volatile recently, and a concern to management. Torrington offers a strong potential ...
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... in new debt and $400M in equity through a rights offering. By doing this, Timken can raise $800M in cash to offer Ingersoll-Rand. The increase in debt allows Timken to maintain acceptable coverage ratio’s within the BBB investment rating [Exhibit 6 & 7]. To minimize Ingersoll-Rand’s exposure to our stock price volatility, we recommend the remaining 93.46M of the deal be a stock-for-stock deal or 4.92Million shares at the current price of $19 a share. A risk with this is that historically with acquisitions, the acquiring firm’s stock price declines. If the market can realize the growth potential of the acquisition and how much it can benefit Timken, then their stock price should appreciate. Ingersoll-Rand should be inclined to accept because the majority is in a cash offer, and once they do, Timken shareholders stand to reap enormous benefits with the acquisition.
Robert Zimmerman, the senior vice president of business development, for American Cable Communications (ACC) was in the process of looking for a potential acquisition target for ACC. In December 2007, Zimmerman remember a presentation that was made recently by Rubinstein & Ross (R&R). R&R was a boutique investment bank that was well known for doing deals in the media and telecommunications area. During this presentation it was suggested that ACC buy out AirThread Connections (AirThread) which is a large regional cellular provider. The current industry of these companies were moving more toward bundled service offerings and by adding AirThread it would help ACC cover an area of service it does not currently offer. In order to determine if the acquisition should be done an analysis needs to be done.
First of all an analysis of the packaging machine investment’s hurdle rate is required. I will use comparable firm parameters approach to figure out the hurdle rate (WACC) of the firm using the information provided in Exhibit 5. The cost of debt should be calculated using the bond information given in footnote 2 of case under Exhibit 2. The cost of equity should be calculated using the Capital Asset Pricing Model.
Star Appliance is looking to expand their product line and is considering three different projects: dishwashers, garbage disposals, and trash compactors. We want to determine which project would be worth doing by determining if they will add value to Star. Thus, the project(s) that will add the most value to Star Appliance will be worth pursuing. The current hurdle rate of 10% should be re-evaluated by finding the weighted average cost of capital (WACC). Then by forecasting the cash flows of each project and discounting them by the WACC to find the net present value, or by solving for the internal rate of return, we should be able to see which projects Star should undertake.
Shareholders are more concerned with the company’s financial stability, productivity and cash flow projections versus other internal financial facets of Henley Manufacturing. Hence, it would be within reason to make recommendations based upon the information presented. Goals to be recommend incudes annual sales growth which is expected to increase by 15% in the next year, and the earning potential which is expected to grow by 20%. Additionally, shareholders would also be interested in the return on net tangible assets which is anticipated to increase by 16% and the return on common equity which is projected to increase by 20%. Furthermore, importantly, shareholders are also very interested in the company minimum profit margin which is expected to be 5% (Revsine, Collins, Johnson, Mittelstaedt, & Soffer, 2015). The profit margin informs shareholders how much proceeds earned from sales exceeds costs incurred in the
Over the past eight years, Andrews has performed fairly decent. Even though there are areas to improve on, the overall growth is outstanding. When the company first started out, our contribution margin was at 24.7% and at the end of the 8th year we are at 54.1%. When compared to rest of the industry it is almost 20% higher than the closest competitor. Every year, we have had a profit no matter what the sales were for the respective year. Currently our stock price is at $22.59/share; we started out at $16.01. Throughout the years, our stock
The $55 value is on the lower range of the analyst eztimates, with a best guess estimate of $67.94. Since the value of the stock had been below $45 for 4 months, the offer of 55 dollars represented a 29% premium to investors. Bollenbach knew that management would be resistant of any attempt to be acquired, regardless of price, because of failed previous attempts to negotiate a friendly merger at year end 1996. The 55-dollar benchmark created an expectation for ITT management to achieve that level, or higher and the premium is enough to demonstrate to investors it is a real offer. Their support will be key as they will have a vote deciding the fate of the poison pill provisions which need to be removed to make the deal necessary.
The average offer price per share as a multiple of EPS for recent railroad acquisitions is 17.22 times. If we multiply that by Conrail's expected EPS for 1997 of $5.69 we get an offer price per share of $97.98. This is substantially higher than the front-end cash offer from CSX of $92.50. We also looked at enterprise value as a multiple of EBITDA. The average for recent railroad acquisitions is and enterprise value of 10.58 times EBITDA. Conrail's EBITDA for the last four quarters is $1,017 million. This calculation gives us an enterprise value of $10,760 million. We calculated the two-tiered offer to be $8,185 million from CSX in Appendix 3. This is significantly lower than the estimated enterprise value calculated based on
In 1999, the Nissan was suffering under a decade of decline and unprofitability, in fact the company was on the verge of bankruptcy, with continuous loses for the past eight years resulting in debts of approx. $22 billion. Elements impacting Nissan’s performance prior to the global alliance with Renault
In mid September 2005, Ashley Swenson, the chief financial officer of this large CAD/CAM equipment manufacturer must decide whether to pay out dividends to the firm¡¦s shareholders or repurchase stock. If Swenson chooses to pay out dividends, she must also decide on the magnitude of the payout. A subsidiary question is whether the firm should embark on a campaign of corporate-image advertising and change its corporate name to reflect its new outlook. The case serves a review of the many practical aspects of the dividend and share buyback decisions, including(1) signaling effects, (2) clientele effects, and (3) finance and investment implications of increasing dividend payout and share repurchase decisions.
Important factors of a company’s outlook are its financial strength and weaknesses. These factors can be evaluated by reviewing the firm’s financial statements and using ratios to help measure a company’s liquidity, leverage, activity, profitability, and growth. Financial ratios are computed by using the information found in a company’s financial statements: primarily income statement and balance sheet. The calculations from the current year, previous years, and other companies in the industry are used as a basis to identify and ev...
As a result of increased number of merger and acquisition (M&A) over the years, there is nothing that companies feel pains more than controversial goodwill accounting. Goodwill is a special asset that only exists when an acquisition takes place. So why would firms choose to make deals over M&A and create headache? Usually, companies have options to grow internally through making better operation or diverse investment projects, but more often companies choose to expand externally to create synergy value. Companies agrees to pay more than a company’s perceived fair market value by little premium or even high premium to obtain control over the net assets, it is betting on the potential growth of the purchased companies. M&As are very complex and high risk processes due to many aspects.
Over ten year ago, the economy of the United States faced crisis because of the war of Iraq. The gas price went up to four dollars per gallon. No people want to buy automobiles. The result made many companies had been closed especially automobile factories because no jobs and have financial problems. The American tool and die company was one of many companies had trouble with financial. To solve this problems, the American tool and die company needed to create a group of decision making to help the company. Mr. Brofft considered the employee interest but his decision did not move anywhere while the decision of Mrs. Mueller was better but it was not considered the interest employees of the company. In order to reach the most effective decision, Mrs. Mueller and Brofft must careful consider the impact of changing the location of the American Tool and Die Manufacturer and try to find a solution that minimizes bankruptcy and protect the future of the manufacturer. Creating an emergency fund, investing in
This report identifies Jaguar Land Rover Automotive Ltd. (JLR) and its strategy as a global. After recording losses for many consecutive years, it has seen a huge improvement in general performance since acquisition by Tata Group of India, recently taking a profit in excess of £1.5bn in FY’12 (1).
What is the possible meaning of the change in stock prices for Berkshire Hathaway and Scottish Power plc on the day of acquisition announcement? Specifically, what does the $2.55 billion gain in Berkshire’s market value of equity imply about the intrinsic value of PacifiCorp?
Merging and acquiring companies without exploiting their comparative advantages offers little or no advantages. If Daimler Chrysler is to prosper in this very competitive industry, it should explore all potential comparative and strategic advantages to minimize costs while sharing its core competencies throughout the organization to increase market share and brand recognition.