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    Time Warner

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    Gl Aditya
    The proposed merger between Time and Warner would provide value-enhancing opportunities due to economies of scale from vertical integration and worldwide distribution of products. The exchange ratio of 0.465 Time shares per Warner share is attractive as it values Warner slightly higher than its current market value. However, Paramount's interest in acquiring Time threatens the proposed merger, so Time will need to employ defensive strategies like increasing its market capitalization or issuing poison pills to make itself a less attractive target and ensure the Warner merger can be completed.

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    Time Warner

    Uploaded by

    Gl Aditya
    229 views8 pages
    The proposed merger between Time and Warner would provide value-enhancing opportunities due to economies of scale from vertical integration and worldwide distribution of products. The exchange ratio of 0.465 Time shares per Warner share is attractive as it values Warner slightly higher than its current market value. However, Paramount's interest in acquiring Time threatens the proposed merger, so Time will need to employ defensive strategies like increasing its market capitalization or issuing poison pills to make itself a less attractive target and ensure the Warner merger can be completed.

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    The proposed merger between Time and Warner would provide value-enhancing opportunities due to economies of scale from vertical integration and worldwide distribution of products. The exchange ratio of 0.465 Time shares per Warner share is attractive as it values Warner slightly higher than its current market value. However, Paramount's interest in acquiring Time threatens the proposed merger, so Time will need to employ defensive strategies like increasing its market capitalization or issuing poison pills to make itself a less attractive target and ensure the Warner merger can be completed.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    229 views8 pages

    Time Warner

    Uploaded by

    Gl Aditya
    The proposed merger between Time and Warner would provide value-enhancing opportunities due to economies of scale from vertical integration and worldwide distribution of products. The exchange ratio of 0.465 Time shares per Warner share is attractive as it values Warner slightly higher than its current market value. However, Paramount's interest in acquiring Time threatens the proposed merger, so Time will need to employ defensive strategies like increasing its market capitalization or issuing poison pills to make itself a less attractive target and ensure the Warner merger can be completed.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    of 8

    Q1.How attractive is the merger of Time with Warner?

    Warner has cable franchise networks ( around 11 % of revenue in it) where as other possible merger partners
    like Columbia , Disney, 20th century fox ,MCA were having lack of cable franchise assets.
    • Their Film distribution was worldwide.
    • Buyout will be done through exchange of stocks and not the cash buyout where in the company has to take
    debt to pay out for the transaction.

    • Consistent growth in the operating income.


    • Low debt ratio of 0.07.
    Q1.a What are the value enhancement opportunities?
    • Economies of scale, vertical integration, create market and disseminate its product worldwide.
    • Opportunities to venture into music and entertainment.
    Q1. b Is the proposed exchange ratio of 0.465 per Warner share attractive?
    • Time shareholders offer a 59% stake in the merged firm to acquire Warner (through a stock swap)

    • MVT = $109.125 * 57M shares = $6,220,125 M


    • MVW = $45.875 * 178.5M shares = $8,188.6875 M
    • Assumes share prices at the data of the announcement
    • Completion of the acquisition requires shareholder approval; combined T-W value = $14.4B
    • Market value of T-W is $14.4B
    • Time pays 0.59 x 14.4B = $8.496B for Warner
    • For Time shareholders to be indifferent between holding Time and holding 41% of T-W must have
    a value of $15.17B.
    • $6.22B x 100% = Value T-W x 41%; Value T-W = $15.17B
    • Time-Warner must create an additional $771M in synergies beyond their cumulative market
    values.
    • This requires about $75M in additional annual cash flows.
    • Assuming a perpetuity with a 10% discount rate.
    • For Warner :
    Before merger:
    45.875X178.5= $8179.5125m
    After merger
    82.9 X 103.5 = $8580.15m
    • For Time:
    Before Merger:
    $109.125X57=$6220.125m
    After Merger:
    $103.5X57=$5899.5m
    Q3. What promoted Paramount’s interest in Time?
    • Times Distribution segment.
    • If time and warner gets merged , paramount will loose market and also the T-W will gain higher market
    power.
    Q4. What legal, financial, and restructuring options does Time have to combat the Paramount bid? To
    ensure that it is not a target in the future?

    • Increase market cap to $24 billion


    • Dividend policy
    • Increase shares by acquisition—Defense strategy from acquisition
    • Liquidation of non performing assets
    • Poison pill
    Q5.What would you do as Mr. Munro? How would you explain a decision to reject the Paramount offer at
    the annual shareholders’ meeting?
    • Debt will be 79 % for paramount after acquisition.
    • P1 S1 –times
    • P2 S2--- Warner
    Defense strategies
    • For defence time would buy paramount shares.
    • Going private by private equity
    • White Knight: Looking for someone to save you
    • Poison Pill: Give paramount a challenge to acquire by increasing shares
    and market capital.
    • Unissued capital is only a token restriction. When a company is incorporated a maximum number of shares is specified in the
    legal documentation. Most companies will make this an extremely large number so they never face that limitation.
    • You wouldn't necessarily expect the stock price to change. The reason a company issues new stock is as a way to raise capital.
    Although new stock is issued, the cash raised by the sale becomes an Asset on the company's balance sheet.
    • How company is formed?
    A Memorandum of Association (MOA) is a legal document prepared in the
    formation and registration process of a limited liability company to define its
    relationship with shareholders.
    The articles of association is a governing document that outlines the purpose
    of a company, the rights and responsibilities of its members and directors,
    and the way in which the company must operate as a whole
    This document binds the shareholders
    Charter amendments
    • Poison put: Eg If a company is acquiring adani ,lenders wont agree to that
    and want their debt payment done to avoid the deal, coz the risk will go up.
    • Lenders standard condition for Adani– If 51% of Adani shareholding isnot
    there then the loan has to be repaid.
    • Asset lockup
    • Litigation: Legally challenging Poison pill issuing of shares and share
    exchange agreement which would hamper competition
    • Leverage recapitalization: issue debt and pay shareholders huge one time
    dividend. Then Paramount would consider time to be a highly leveraged
    company and will reconsider its acquisition.
    • Share repurchase: levering the target firm and raising equity.
    • Reverse LBOs
    • Green Mail: The target buyback shares from the acquire at a premium to
    the current asking price.

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