Vbm Report

Problem 2

1. The purpose of closing a deal of Merger and acquisition is to gain value for both parties.

Nestle sold Alcon to add value to Equity. This was one the main benefits for the shareholders and the parent company.

To achieve the value and benefits from such a deal with an asset without NPV Value are possible.

First of all Nestle seek after to eliminate peripheral activities while maintaining the core strategy.

The parent firm eliminated Alcon based on the fact that it was unrelated to its core business. One of the reason for the sell-off can be the fact that the market may be undervaluing the combination because of lack of synergy between the parent and subsidiary. In this case the primary goal of the divestiture is to eliminate negative synergies between the parent firm and the business unit.

Other benefits of the sell-off are reducing financial leverage with positive impact on the firm’s equity beta. This one is quite efficiency for our case of Alcon. The equity value increased according to the announcement of the deal and had additional benefits such as;

* Reducing agency costs of conflict between parent company and Daughter Company.

* Nestle also raised capital by selling Alcon. This provided the possibility to repay great amount of debt and to keep and maintain the rating level of AA.

* The sell-off for Alcon could be also an act for the buyback strategy of the parent company NESTLE to increase the value of the companies in future.

Adding value to the parent company by a sell off is possible as we can obtain from the deal.

2.

  | 1 | 0 |

  | 2009 | 2008 |

Net Income | 2007 | 2047 |

Interest expense | 10,4 | 33,15 |

Depreciation | 218 | 196 |

Capex | 491 | 325 |

Change in WC | 829 | 1066 |

Net Borrowing | -457 | -683,1 |

FCFE | 437,6 | 135,75 |

CV | 560,0 |   |

FCFE + CV | 997,6 | 135,75 |

D FCFE | 543,7 | 135,75 |

NPV | 679,4 |   |

3.

A company’s...