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Copyright 2003 by Robert F. Bruner. All rights reserved. Use is subject to the terms and conditions given on the "Intro" page.
Cost Synergies
Year
1
2
3
4
5
6
7
8
9
10
11
12
13
100
2%
2%
6%
5%
$ 51 $ 104 $106 $ 108 $
(20)
(42)
(42)
(43)
31
62
64
65
$ (1,000)
(5)
(5)
20
20
10
(1,000)
51
82
68
60
$ (1,000) $ 51
$428
15%
$ 82
$ 68 $ 60
110
(44)
66
(6)
61
1,548
$ 1,609
Copyright 2003 by Robert F. Bruner. All rights reserved. Use is subject to the terms and conditions given on the "Intro" page.
Revenue Enhancements
The analysis of revenue enhancements is similar to cost savings. The analytic subtleties associated with revenue
enhancements are whether one incurs (a) additional operating costsand/or (b) additional investments, to achieve
these enhancements, and ( c) the selection of a discount rate associated with the uncertainty of these
enhancements.
Year
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
100 $
2%
200 $
2%
200 $
2%
200 $
2%
200
2%
102 $
(46)
(22)
34
(5)
10
39
208 $
(94)
(46)
69
(10)
5
63
212 $
(96)
(47)
70
(11)
59
216 $
(97)
(48)
71
(11)
61
221
(99)
(49)
73
(11)
62
531
593
3%
15%
5%
45%
(400)
(400)
(400) $
$50
18%
39
63
59
61
Financial Synergies
In a DCF framework, these synergies are most easily measured by changing the cost of capital of the buyer. As argued in the text of the
chapter, one must make a positive argument why the combination of buyer and target achieves financial synergies that investors cannot
duplicate on their own. This worksheet models two possible sources of financial synergies: (a) reduction in default risk on debt securities, and
(b) exploitation of low or negative covariance that investors cannot achieve. As the chapter suggests, claims about financial synergies are to be
approached skeptically and with caution.
6,000
612
###
674 $
0.05
0.07
12.0%
0.05
0.07
15.5%
4.8%
AA
7
8.0%
40.0%
4.8%
6.0%
BBB
7
10.0%
40.0%
6.0%
25%
75%
45%
55%
12.0%
1.00
0.83
Sum of
Buyer and
Target
(Before)
10.7%
15.5%
1.50
1.01
50%
50%
1,286