Finance

he Birdie Golf-Hybrid Golf Merger Case

Birdie Golf, Inc. has been in merger talks with Hybrid Golf Company for the past six months. After several rounds of negotiations, the offer under discussion is a cash offer of $550 million for Hybrid Golf. Both companies have niche markets in the golf club industry, and the companies believe a merger will result in significant savings in general and administrative expenses.

Bryce Bichon, the financial officer for Birdie, has been instrumental in the merger negotiations. Bryce has prepared the following pro forma financial statements for Hybrid Golf assuming the merging takes place. The financial statements include all synergistic benefits from the merger:

2008 2009 2010 2011 2012

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 24,000,000 25,000,000 27,000,000

Taxable Income 64,000,000 78,000,000 94,000,000 114,000,000 140,000,000

Taxes (40%) 25,600,000 31,200,000 37,600,000 45,600,000 56,000,000

Net Income 38,400,000 46,800,000 56,400,000 68,400,000 84,000,000

Bryce is also aware that the Hybrid Golf Division will require investments each year for continuing operations, along with sources of financing. The following table outlines the required investments and sources of financing.

2008 2009 2010 2011 2012

Investments:

Net working capital 20 mil 25,mil 25,mil 30,mil 30,mil

Fixed assets 15,mil 25,mil 18,mil 12,mil 7,mil

Total 35,mil 50,mil 43,mil 42,mi 37,mil

2008 2009 2010 2011 2012

Sources of financing:

New Debt 35,mil 16,mil...