Assessment objective: This post assesses (1) your understandings of the calculation of stock returns and ability to analyse the Australian Mergers and Acquisitions (M&A’s) market (Topic 4 learning outcomes) and (2) your ability to calculate and compare percentage stock returns (Topic 5 Leaning Outcomes) and examine the companies acquisition performance (Topic 4 Learning Outcomes).
Background:
Almost all great companies grow through M&As, Let me give you an example If you like beer , chances are that have tried at least some beers from Anheuser – Busch InBev SA/NV (AB InBev) because this company accounts for one third of the worlds beer productions . Few however , know that AB Invev hailed from a small beer brewery in Leuven, Belgium, back in 1717. Since then this brewery gradually become the largest in the world through acquiring dozens of beer breweries , including Anheuser – Busch in 2009 and SAB Miller in 2015. Figure 1 lists the important M&As’ which lead to the current AB InBev and Figure 2 lists the brands manufactured by AB InBev.
You are a financial adviser at a private equity . Your company offers strategic financial services to high net worth clients. this assignment is intended t help you provide professional advice to the potential clients who are interested in understanding whether M&As’ present valuable investment opportunities.
Normally , in an M&A, you have one acquirer (sometimes referred to as the bidder , buyer, purchaser) using some cash , stocks, or a combination of both, to acquire the majority of the stocks of a target company.
Q1- How do M&A announcements affect stock returns of both the acquirer and the target? To answer this question you need to identify two completed acquisitions involving one ASX listed company acquiring another ASX listed company and both acquisitions were announced between 01/01/2010
(If you really want to analyse a takeover price to 2010, please choose one that was announced after 01/01/2000) and 01/01/2017, Note that some acquisitions take longer than others to complete.
Please make sure you pick the acquisitions that you are most interested in. for each acquisition , please obtain the following information:
1) Acquirer and Target company’s ticker on ASX;
2)The exact date of this acquisition announcement ;
3)The offer price;
4)Both companies stock prices (adjusted price the daily closing price) spanning from one calendar year before the announcement until the completion day.I if some cases , the target and/ or the acquirer only become ASX listed within one year of the announcement date , Please download the stock price information since the company ‘s IPO day.
Define the offer premium paid by the acquirer to the target company per share of stock.
Suppose we denote T as the announcement date,If the announcement happens from Friday evening to Sunday night,you can treat T as the immediate following trading day.
Please state clearly how you obtain acquirer’s office price , then calculate the offer premium and calculate the Acquirer and Target’s stock returns over the following intervals, respectively.
Q-2 : For the two acquirers ,please calculate the abnormal long term stock returns after the announcement of the takeovers, to this one end , examine the performance of the acquirer firms analysed in Question (1) 3years after they announced the take over (if you get less than 3 year data, please use the longest window possibel).
Please calculate the 3 year holding period return .
P3= the adjusted closing price on the 3 year anniversary of announcing the take over, if the 3 years anniversary is a non trading day, then use the adjusted closing price of the trading day immediately prior to the 3 year anniversary . P1 = the adjusted closing price the announcement day.
Next, calculate the 3 year holding period return for All Ordinaries Index by using the adjusted closing value in 1 march 2015 as P1 and adjusted closing value in its 3 years anniversary. Calculate the abnormal 3 years returns as the difference the acquirer’s 3 years return and the all ordinaries Index.
Describe the long term returns in Q2 in relation to the acquirer’s returns in Q1 c) and d). discuss why these two acquisitions crate or destroy acquirer value based on the long term stock returns. You are required to provide justification to support your analyst.
Now pick One target company , suppose if you were the acquirer’s CFO before the acquisition how would you go about making the offer price for the target? You can simply explain the reasoning / steps without using actual numbers.