The Silverbird-Movimagic Merger – Case

GHANA TECHNOLOGY UNIVERSITY COLLEGE

Intended Module Learning Outcomes

On completion of this module the student should be able to:

1. Demonstrate a critical understanding and evaluation of the forefront of corporate finance theories and empirical evidence;

2. Evaluate alternative financing methods and distribution policies;

3. Critically evaluate alternative investment appraisals techniques; and decide appropriate actions accordingly;

4. Make sound financing, investment and asset valuation decisions with reference to the implications of the efficiency of capital markets.

Assessment Weight Learning Outcomes

1 2 3 4 5

3-hour unseen end-of-semester exam 70%

individual coursework with no more than 3,000 30% ü ü ü ü

THE SILVERBIRD-MOVIMAGIC MERGER – CASE

SILVERBIRD, Inc, has been in merger talks with MOVIMAGIC Company for the past six months. After several rounds of negotiations, the offer under discussion is a cash offer of $550 million for MOVIMAGIC. Both companies have niche markets in the MOVIE club industry, and both believe that a merger will result in synergies due to economies of scale in manufacturing and marketing, as well as significant savings in general and administrative expenses. Bryce Bichon, the financial officer for SILVERBIRD, has been instrumental in the merger negotiations. Bryce has prepared the following pro forma financial statements for MOVIMAGIC assuming the merger takes place. The financial statements include all synergistic benefits from the mergers.

2010 2011 2012 2013 2014

SALES $800,000,000 $900,000,000 $1,000,000,000 $1,125,000,000 1,250,000,000

PRODUCTION COSTS 562,000,000 630,000,000 700,000,000 790,000,000 875,000,000

DEPRECIATION 75,000,000 80,000,000 82,000,000 83,000,000 83,000,000

OTHER EXPENSES 80,000,000 90,000,000 100,000,000 113,000,000 125,000,000

EBIT $83,000,000 $100,000,000 118,000,000 139,000,000 167,000,000

INTEREST 19,000,000 22,000,000...