Aol Case

Fall

20133

Fall

20133

08

Fall

08

Fall

Merger of AOL and TW Report

Table of Contents |

I. Stock price of TW as a stand-alone firm–scenario (a), (b) |

II. Stock price of TW with synergies –scenario (a), (b) |

III. Higher Valuation Method |

IV. Sensitivity analysis for long-term growth rate |

V. Projection suggestion for Exhibit 10 |

AppendixExhibit I – Simulation of scenario (a)Exhibit II- Simulation of scenario (b)Exhibit III- Sensitivity AnalysisExhibit IV- Expenses as % of Revenues of AOL and TW

|

Merger of AOL and TW Report

Table of Contents |

I. Stock price of TW as a stand-alone firm–scenario (a), (b) |

II. Stock price of TW with synergies –scenario (a), (b) |

III. Higher Valuation Method |

IV. Sensitivity analysis for long-term growth rate |

V. Projection suggestion for Exhibit 10 |

AppendixExhibit I – Simulation of scenario (a)Exhibit II- Simulation of scenario (b)Exhibit III- Sensitivity AnalysisExhibit IV- Expenses as % of Revenues of AOL and TW

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1. The estimate of Time Warner’s stock price as of January 2000 of Time Warner as a stand-alone firm:

a) If TW maintains a constant debt-equity ratio equal to 1999 D/E ratio, the stock price of TW is $83.54.

b) If TW maintains a constant debt level equal to 1999 debt, the stock price of TW is $75.80.

2. The estimate of price per share AOL should pay for TW including the anticipated synergies:

a) If TW maintains a constant debt-equity ratio equal to 1999 D/E ratio, the minimum per share price AOL should pay for TW is $100.78.

b) If TW maintains a constant debt level equal to 1999 debt, the minimum per share price AOL should pay for TW is $92.37.

+The valuation method for discounting the FCF in scenarios (a) of constant D/E ratio is the WACC method.

+The valuation method for discounting the FCF in scenarios (b) of constant debt level is the APV method.

+Refer to Exhibits I and II for figures and calculations.

3. The constant D/E ratio policy...