What is the synergy worth? What is the maximum price Novell can pay for WordPerfect?
CulbertIn April 1994, Novell, Inc. announced its plan to acquire WordPerfect Corporation for
$1.4billion.
Atthetimeoftheacquisition,therelevantinformationaboutthetwo companies was as follows:
Novell | WordPerfect | |
Revenues | $1,200.00 | $600.00 |
Costof Goods Sold (w/o Depreciation) | 57.00% | 75.00% |
Depreciation | $42.00 | $25.00 |
Tax Rate | 35.00% | $25.00% |
CapitalSpending | $75.00 | $40.00 |
WorkingCapital(as%ofRevenue) | 40.00% | 30.00% |
Beta | 1.45 | 1.25 |
ExpectedGrowth Rate in Revenues/EBIT | 25.00% | 15.00% |
ExpectedPeriod of High Growth | 10years | 10years |
GrowthrateAfterHigh-GrowthPeriod | 6.00% | 6.00% |
BetaAfterHigh-Growthperiod | 1.10 | 1.10 |
Capital spending will be offset by depreciation after the high-growth period. Neither firm has any debt outstanding. The treasury bond rate is 7%.
a. Estimate the value of Novell, operating independently.
b. Estimate the value of WordPerfect, operating independently. c. Estimate the value of the combined firm, with no synergy.
d. As a result of the merger, the combined firm is expected to grow 24% a year for the high-growth period. Estimate the value of the combined firm with the higher growth.
e. Whatis thesynergyworth? Whatisthe maximumpriceNovell canpayfor WordPerfect?
11 years ago
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What is the synergy worth? What is the maximum price Novell can pay for WordPerfect?
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