Question

Facebook (Acquirer) has current value of $1000 and seeks to acquire Messenger (Target) with a current market value of $500. The financial manager at Facebook believes that the two firms combined would be valued at $1,800. a. Calculate the gain (synergy) to the merger. b. Calculate the NPV of the merger if Facebook offers $550 for Messenger. c. Discuss the distribution of gains if Messenger will only accept an offer of $850. 

          Facebook (Acquirer) has current value of $1000 and seeks to acquire Messenger (Target) with a current market value of $500. The financial manager at Facebook believes that the two firms combined would be valued at $1,800.
a. Calculate the gain (synergy) to the merger.
b. Calculate the NPV of the merger if Facebook offers $550 for Messenger.
c. Discuss the distribution of gains if Messenger will only accept an offer of $850.
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Horngren’s Cost Accounting
Horngren’s Cost Accounting
Srikant M. Datar, Madhav V. Rajan 16th Edition
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Facebook (Acquirer) has current value of $1000 and seeks to acquire Messenger (Target) with a current market value of $500. The financial manager at Facebook believes that the two firms combined would be valued at $1,800. a. Calculate the gain (synergy) to the merger. b. Calculate the NPV of the merger if Facebook offers $550 for Messenger. c. Discuss the distribution of gains if Messenger will only accept an offer of $850.
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Transcript

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00:01 Okay, so we're given two firms here, a firm a and firm b.
00:11 Okay, the value of the first firm, which is firm a, is actually given as $200 million.
00:19 And the value of the second firm, firm b is given as $120 million.
00:25 Now, we understand that the cost saving from the combination of these firms, is going to be $30 million.
00:37 All right.
00:40 Then a purchases b.
00:42 So if firm a purchases, let's indicate there to be specific, firm a, purchases b, and we are given, this is done at the value of $130 million.
01:06 So the question is, how much are the shareholders of firm a going to gain from this transaction? well, the first thing that we need to look at is how much a shareholders would gain.
01:28 Okay, so to have a good look at this, we first of all need to find out how much they gain on cost saving.
01:36 So gain on cost saving equals.
01:44 $30 million...
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