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1- How attractive is the merger of Time with Warner? b) Is the proposed exchange ratio of 0.465 per Warner share attractive? Is Time Paying the right price for Warner? c) Does the merger make sense strategically?

a) What are the value enhancement opportunities?

Una fusión sólo tiene sentido económico, cuando la empresa fusionada vale más que las dos empresas por separado.
Generalmente hay tres razones principales que justifican una fusión. En el caso de Time- Warner y estos tres motivos están presentes:

1. fusión horizontal -se definen como "combinación de dos empresas en la misma línea de negocio". Time y Warner estan en la misma línea de negocio, la fusión puede ser considerada como horizontal. La razón principal de las fusiones horizontales es la explotación de economías de escala. "Los ahorros provienen de la consolidación de las operaciones y eliminar costos redundantes, [...] compartir servicios centrales como la gestión de oficina y contabilidad, control financiero, desarrollo directivo, y la gestión de nivel superior"
. Time y Warner también están siguiendo estos objetivos.

2. fusión vertical - "Una fusión vertical implica empresas en diferentes etapas de la producción. El comprador se expande de nuevo hacia la fuente de materias primas. La materia prima en nuestro caso es el contenido, es decir, películas y series. Una forma de lograr economías de escala es difundir los costos fijos en un mayor volumen de producción. Esta es la principal motivación de la fusión como Munro y NJ Nicholas escribió en su Carta a los accionistas: "Para [...] lograr las economías de escala necesarias, las empresas tendrán que crecer de forma espectacular. En el negocio de los medios de comunicación y entretenimiento del futuro, el ganador será el propietario de los derechos de autor a los productos creativos, así como las vías de distribución "

3. Recursos Complementarios - Otra razón de la fusión es cuando "las dos empresas tienen recursos complementarios - cada uno tiene lo que el otro necesita Este es exactamente el caso de Time y Warner. Warner tiene una enorme cantidad de contenido en su filial de Warner Brothers y hora tiene un fuerte canal de distribución con HBO y una posición fuerte en la franquicia de televisión por cable.

Junto Time y Warner pueden beneficiarse de sus recursos complementarios. Los costos de producción de las películas están aumentando rápidamente y parece menos arriesgado cuando una empresa sabe que puede obtener su dinero de vuelta mediante el uso de todos los diferentes canales de distribución.

(b) Is the proposed exchange ratio of 0.465 per Warner share attractive?

Time’s stock price before announcing: $109.125 Next trading day low: $106.5 Next trading day closing price: $107.5 Warner’s stock price before announcing: $45.875
Next trading day closing price: $48.25
Cost = N * P(AB) - PV(B)
= 82.9 million shares * $104.89 - $8.18 billion
= $8.695 billion - $8.18 billion = $515 million

PV (AB) = $106.5 * 57 million + $48.25 * 178.3 million
= $6.071 billion + $8.603 billion = $14.674 billion
P (AB) = $14.674 billion / 139.9 million shares = $104.89 / share
[Precio de las acciones de Warner después del anuncio de la fusión se utilizó para los cálculos porque el mercado ya incluía los efectos de la fusión en el precio de la acción anterior. Día de negociación de precios bajos del tiempo se utilizó para los cálculos debido a que el precio aumentó posteriormente debido a las especulaciones de la oferta.]

PV (B) = 178.3 million shares * $45,875 [=stand-alone stock price] = $8.18 billion
Gain = PV(AB) – (PV(A) + PV(B)) = $14.674 billion - ($6.22 billion + $8.18 billion)
= $14.674 billion - $14.4 billion
= $274 million

PV (A) = 57 million shares * $109,125 [=stand-alone stock price] = $6.22 billion

NPV = gain – cost
= $274 million - $515 million
= - $241 million c) Does the merger make sense strategically?

Conclusión: El tipo de cambio es muy atractiva para los accionistas de Warner, porque ellos recibirán $ 515 millones más que su valor original de la inversión. Por la misma razón la relación de canje es poco atractivo para los antiguos accionistas de tiempo, debido a que tienen que sufrir la pérdida de esta $ 515 millones. Por otra parte, el NPV total de la fusión es negativo. Como siguiente tabla muestra, tras la fusión los accionistas de Warner será relativamente mejor que los accionistas de Time. esto podría ser una razón por la cual los directivos de Warner han estado a punto de fusionarse con el tiempo y renunció a sus puestos de trabajo de gestión.

| Stand alove values | Riqueza de los accionistas despues de la fusión | Time | 6.22 | 6.02 | Warner | 8.18 | 8.66 | * En billones | | 14.67 |

3.- What legal, financial, and restructuring options does Time have to combat the Paramount bid?
To ensure that it is not a target in the future?

Las medidas financieras deberían tratar de evitar que Paramount consiguiera la mayoría de las acciones que circulaban en el mercado. ( Por ejemplo , comprar las acciones en circulación con exceso de efectivo , la emisión de nuevas acciones para diluir las acciones en circulación, incrementar la tasa de deuda ) una medida legal podría ser una legislación de antimonopoli para aplicarse a las empresas privadas
Las opciones de reestructuacion seria el fusionarse con otra compañía para ampliar el tamaño de la empresa lo cual aumentaría la dificultad para Paramount para hacer una oferta hostil a Time ya que el capital necesario tendría que ser mucho mayor .

4.- What would you do as Mr. Munro? How would you explain a decision to reject the Paramount offer at the annual shareholders’ meeting?

Como ya se ha mencionado en las pregunta 1 , una fusión vertical u horizontal entre dos empresas en la industria del entretenimiento con activos altamente complementarios lleva a una reducción del riesgo, costos más bajos y grandes sinergias. La capacidad de utilizar una amplia gama de canales de distribución para los contenidos de la empresa reduce el riesgo de fallar cuando un solo canal de distribución no tiene éxito. Además una empresa verticalmente integrado plenamente enfrenta a menores costos totales, ya que posee tanto, los contenidos y los canales de distribución. En consecuencia, la distribución puede ser personalizada para cada producto sin tener que negociar nuevas condiciones para cada producto, es decir se reducen los costos de transacción. Por otra parte el éxito del producto no depende de proveedores o distribuidores externos de control. Teniendo en cuenta los beneficios de una fusión en la industria del entretenimiento y la comparación de los beneficios potenciales de las dos fusiones posibles (Time y Warner, Time y Paramount), a la larga, la adquisición de Warner parece ser más atractivo para Time de ser comprado por Paramount. Un argumento importante a favor de la fusión de Time y Warner es el sistema de cable de esta última con más de 1,5 millones de suscriptores. Debido a que la televisión por cable está creciendo muy rápido y considerado como el vehículo dominante para la distribución de contenido, la fusión con Warner lleva a sinergias superiores.
La comparación de los intereses a corto y largo plazo de los accionistas en relación con las dos posibles fusiones, la oferta en efectivo por parte de Paramount de $ 175 por acción de time parece ser muy atractivo. Esto es cierto para los accionistas que están a favor de la rentabilidad a corto plazo. Sin embargo, en el largo plazo, espera que el crecimiento de la nueva compañía, que será la más grande de entretenimiento en el mundo, parece ser fuerte y por lo tanto promete un aumento de precio de las acciones, así como un alto rendimiento en el futuro.
A pesar de la baja recompensa financiera inmediata a los accionistas de Time, se espera que los rendimientos a largo plazo sean mayores que el beneficio a corto plazo para los accionistas derivados de oferta en efectivo de Paramount.
El Sr. Munro se preguntaba si el fallo de la Corte Suprema de Delaware obligaría Tiempo a subasta en sí al mejor postor, es decir, Paramount tendría éxito con su oferta pública de adquisición en efectivo por todas las acciones de Time. Sin embargo, la comparación de las dos opciones de fusión, fusión de Time Warner con maximiza el valor de los accionistas en el largo plazo. De ahí que el argumento de los directivos que tienen para subastar la empresa al mejor postor sólo se centra en los rendimientos actuales y sería descuidar la importancia del crecimiento de largo plazo. Para concluir, el Sr. Munro debe seguir adelante con el proyecto de fusión de Time y Warner y convencer a los accionistas de los beneficios a largo plazo descritos en los párrafos anteriores.

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