merger and acquistion 2
Shinum 
PARTC.pptxPART C
Target Share Price History
Over the 52 weeks range , Kathmandu Holdings Ltd(AXS:KMD) has share price ranging from 0.960-1.545 NZD .
The share description is ordinary fully paid Foreign Exempt NZX.
It has an average volume trading of 922,357.
The free cash flow yield is 0.12%.
52 week share range
Series 1July August September October November December Janauary Febraury March May June 1.140000 1.140000 1.250000 1.250000 1.170000 1.280000 1.280000 1.280000 1.350000 1.440000 1.600000 Column1
July August September October November December Janauary Febraury March May June Column2
July August September October November December Janauary Febraury March May June
Target’s ownership structure
Sales
Sales
Individual Insiders(0.4%) Private Companies(3.9%) State or Government(5%) Public Companies(5.4) Institutions(38.9%) General Public(46.5%) 0.400000 3.900000 5.000000 5.400000 38.900000 46.500000
Top Shareholders
Yarra Funds Management Limited – 9.2%
Yarra Capital Management- 8.36%
Harbour Asset Management Limited- 7.02%
Jbwere Nominees Limited- 5.35%
Accident Compensation Asset Management Arm- 4.99%
Acquisition risks
Earning are forecast to grow over by an average of 20.5% per year for the next 3 years.
The current profit margin (2.7%) are lower than the last year (7.57%).
Debt level is low and rest considered a risk.
KMD doesn't have negative share holders equity.
Unstable divided track record.
Risk may be in expanding the sales of the targets.
Hurdle may be found in regulatory approval.
Bidding Strategy
Tax free Acquisition (stock for stock).
Target at least 80% ownership of target as a subsidiary to gain tax advantage.
Go for a friendly merge because of significant common ownerships.
Need to maintain former share holders of Kathmandu Holding Limited in majority.
Method of Acquisition
Should go for off-market takeover bid.
The offers are made by the bidder and the process can be largely controlled.
The bidder determines the offer period , offer terms and conditions and offer price.
No approvals required from court or target security holders in the off market takeover bid.
Funding
For short term, the common way to finance a merger or acquisition is exchanging stocks.
Another option is to agree on the debt of the sellers in exchange for paying stock or cash.
For long terms, issuance of bonds are quick and simple way to fund cash from current shareholders.
Effect of Acquisition financing on the bidders capital structure and gearing ratio
There may be an effect on the financial leverage or trading on equity
The financing can have an effect on the stability of sales.
The gearing ratio is the proportion of debt to equity.
The financing should go for low debt so that low gearing ratio is achieved which is less than 25%.
Control Premium
There are few suggestions that must be considered before making a bid for target company.
The price of bid must be below 2.1 NZD with upper bound of 2.3 NZD and lower bound of 1.4 NZD.
The analysis of discounted cash flows should be made before making the quotation for the company acquisition value.
For the risk assessment of the target company, the debt element must be checked.
Calculating control premium
Offer price- The price at which something is offered for sale.
Unaffected share price- It is the target company share price prior to any official announcement of merger and acquisition transaction.
Offer price per share= 2.1NZD
Unaffected share price= 1.67NZD
Control premium= Offer price/unaffected share price-1
=2.1/1.67-1
=25%
Term Sheet
Purchase Price
Total Deal Size
Implied price per Share
Resulting Kathmandu ownership of super Retail
Transaction fees
Exchange ratio-0.14(with 25% premium)
Cap
Accounting Issues
Form Purchase Accounting
Considerations 100% Stock
Super retail group will issues Shares for the
100% deal price
No. of shares to be issued
Tax Consideration Reverse Triangular Merger code section 368
Legal
Synergy value
