Advanced corporate finance case study

Birdie Golf, Inc (Stock price is $108. Per share, 18,000,000 shares outstanding) has been in Merger talks with the Hybrid Golf Co. for 6 months. Hybrid has 8 million shares outstanding. Birdie has superior ,assymetric, marketing intelligence and has learned that the GOLF industry is picking up new and massive interest from teens through 30 year olds. Birdie has made a CASH offer for Hybrid agreeing to $300,000,000. Top line revenue growth (demand) is expected to increase since more youth players are anticipated and the prices of the combined products can also fetch higher price points. Meanwhile, thanks to long term fixed price agreements, the strength of the US$, we expect the cost of manufacture to only slightly increase. Bryce Bichon has calculated the new Dividends which are furnished below.. In addition, Hybrid has found a new funding source from Swiss FD Bank Corp. lowering its cost of debt. Hybrid will pay a $70,000,000 immediate cash dividend to Birdie. Birdie’s very capable tax advisors feel that Birdie can now additionally use Hybrid’s NOLs. The Total Net Operating Loss is $25,000,000 as of 2019. The Schedule for using the NOLs is spread evenly over the next 5 years. Hybrid will be kept as a captive corporation and thus can be sold at the end of 5 years. Birdie expects a constant Growth Rate on Dividends to be 2 3% going forward Dividends Calculated after TAXES from Hybrid; 2019 35,000,000 2020 40,000,000 2021 45,000,000 2022 50,000,000 2023 55,000,000 For WACC purposes: The capital structure at Hybrid is 40% debt and 60% equity. With the new Swiss Bank funding resulting with a Cost of Debt of 7 %. The Corporate Tax rate is 30% The BETA for Hybrid is 1.44, The Risk Free Rate is 3% and the Return on the Market is 8.5%

1-What is the Valuation of Hybrid Golf (NPV)? Should the shareholders of Birdie agree to this deal?

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2-What is the highest share price Birdie can pay per share of Hybrid?

3-Suppose Birdie decides to trade its shares in exchange for Hybrid stock. What exchange ratio would make the merger terms equivalent to a cash offer?

4-What is the highest exchange ratio Birdie should be willing to pay and still undertake the merger?

5-Discuss how a merger will impact all of the Cash Flows of a M & A deal, in particular; the change in Taxes and how can NOL’s be utilized. Is it difficult to utilize NOL’s?

6-Are Mergers beneficial to society based on academic literature? Who are often the winners?

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