Preface
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Three years ago, we proposed many potential deal structures for how we could acquire Robertson Tool Company. Although we made great efforts to get Roberton comfortable with a deal, they rejected our proposals. Now, however, Robertson has once again become a possible candidate to help diversify our company’s revenue streams. After reviewing the current financial situation, Monmouth should make an offer to acquire Robertson at $66.00 per share. A deal at this price would result in a positive NPV being created for our company.
Qualitative Reasons for Acquisition
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Robertson Tool …show more content…
Due to the current capital intensive structure of Robertson, higher sales growth actually reduces Free Cash Flow. There was also significant evidence that, although the company should be growing at 5%, it was actually growing closer to 2%. Because of this, when we run a 2% annual growth rate in our model, we arrive at a pre-merger valuation of $55.43 per share. This would lead us to a more intuitive “price floor” that investors would be willing to accept give up their stock. This is simply due to the fact that management could create more value by growing the company slowly, and stockholders might have that knowledge built into their decision to buy or sell.
Offer
Given the information previously discussed, an offer of $66.00 per share, or 50% premium above the current stock price, would likely gain control of Robertson. Thus, our valuation results in a Deal NPV of $30.12. This offer, at a very minimum, would acquire 30% of the company, from Simmons, and would likely sway the shareholders of at least 116,000 shares to sell as well. The reason we’re comfortable at this level is due to the fact that, even in an optimistic, post-merger situation, which we forecasted, we still leave room for $51.57 of share price
______________________________________________________________________________
Three years ago, we proposed many potential deal structures for how we could acquire Robertson Tool Company. Although we made great efforts to get Roberton comfortable with a deal, they rejected our proposals. Now, however, Robertson has once again become a possible candidate to help diversify our company’s revenue streams. After reviewing the current financial situation, Monmouth should make an offer to acquire Robertson at $66.00 per share. A deal at this price would result in a positive NPV being created for our company.
Qualitative Reasons for Acquisition
______________________________________________________________________________
Robertson Tool …show more content…
Due to the current capital intensive structure of Robertson, higher sales growth actually reduces Free Cash Flow. There was also significant evidence that, although the company should be growing at 5%, it was actually growing closer to 2%. Because of this, when we run a 2% annual growth rate in our model, we arrive at a pre-merger valuation of $55.43 per share. This would lead us to a more intuitive “price floor” that investors would be willing to accept give up their stock. This is simply due to the fact that management could create more value by growing the company slowly, and stockholders might have that knowledge built into their decision to buy or sell.
Offer
Given the information previously discussed, an offer of $66.00 per share, or 50% premium above the current stock price, would likely gain control of Robertson. Thus, our valuation results in a Deal NPV of $30.12. This offer, at a very minimum, would acquire 30% of the company, from Simmons, and would likely sway the shareholders of at least 116,000 shares to sell as well. The reason we’re comfortable at this level is due to the fact that, even in an optimistic, post-merger situation, which we forecasted, we still leave room for $51.57 of share price