...Q1-1) Discuss four different methods of valuation, with a focus on their advantages and limitations. Answer: There are several methods of valuations, below are just a few: Discounted cash flow analysis (DCF) – this is considered one of the most thorough methods to value a company due to the fact that relies on free cash flows. There are two ways using the DCF method one, using the adjusted present value or the weighted average cost of capital, which shows a company how much capital is required for future income flow. Using this method gives us a more realistic thing to an intrinsic stock value, ratios may not give investors a clear value if the market is over/under valued. Some disadvantages would be that it’s based on future projections and assumptions if analysis do not have the abilities to make confident and sound future projection then this method could lead to disastrous future results. This method also viewed as a moving target and only for short term investing, requiring constant analysis and modifications. Comparable Transaction Method – this method focuses on analyzing similar transactions in the past and the market values that are similar to the company that is being purchased or looking at being purchased. Companies can look at several transactions of similar companies to help them determine a value. This value is real data and not based on future projections. Some disadvantages of this method would be the lack of financial data among private companies and past...
Words: 856 - Pages: 4
...Case FIN561: Mergers and Acquisitions You decide: Merck Acquition of Medco Vikash Sharma In July 1993, Merck & Co., the largest pharmaceutical company in the world at that time, acquired Medco Containment Services for $6.6 billion. Medco was the largest prescription benefits management company. With the drug industry experiencing the effects of managed care, pharmaceutical companies had to adapt to new means of distribution. Merck realized that the decisions of what treatments and what drugs should be used in patients’ care were increasingly being influenced by the managed care environment rather than by physicians. In the world of managed care, it was no longer sufficient to market just to physicians. The successful pharmaceutical companies of the future would be companies that were able to adapt to the changed distribution system. This was a very strategic move my Merck and this vertical integration was a move that all its competitors were also targeting. In 1994 SmithKline acquired DPS for $2.2B and later that year Eli Lily acquired PCS for $4.1B. In order to understand why Merck acquired Medco, which was a pharmacy benefits management (PBM) company, we need to look at the role of this so-called PBM’s. These PBM’s have several functions * Process Pharmacy claims i.e. check for eligibility when an order is placed at the retail store, check for copayment etc * Set up Pharmacy benefit, which is to apply PBM codes to what drugs are covered under a particular...
Words: 973 - Pages: 4
...DuPont Divestiture of Conoco Student Name: Course ID: FIN561 Merger & Acquisition Assignment ID: Week 5 - You Decide Project Instructor: Jeffrey Hardin Date: November 29, 2013 Table of Content Executive Summary……………………………………………………………………………………………….3 Executive Summary 1.0 Background The divestiture of Conoco by DuPont also reflected changing conditions in the energy industry. As noted in a May 12, 1998, article in the New York Times: DuPont bought the oil company in 1981 as insurance against the pricing and supply tactics of the Organization of Petroleum Exporting Countries. But oil prices have been far less volatile than it feared, and DuPont continues to de-emphasize the petrochemical side of its business, so having Conoco as a captive source of raw material is of less strategic importance. (“DuPont to Spin Off 20% of Conoco, the Rest to be Sold Later,” p. D4.) The divestiture of Conoco by DuPont also entailed a two-stage transaction. The equity carve-out in October 1998 represented 30% of Conoco’s shares. The remaining 70% was subsequently divested in August 1999. The divestiture was accomplished via a variant of a spin-off called an exchange offer whereby DuPont shareholders had the choice of either maintaining their DuPont shares or exchanging their stock in the parent for shares in the subsidiary. Q1. WHY HAS DUPONT DECIDED TO SEPARATE CONOCO FROM THE REST OF DUPONT? As part of our increased focus on our materials and life sciences ...
Words: 2135 - Pages: 9
