Corporate Valuation and Takeover

RobertAlanHill CorporateValuationandTakeover Downloadfreebooksat Download free eBooks at bookboon.com 2 R A Hill Corporate Valuation and Takeover Download free eBooks at bookboon.com 3 Corporate Valuation and Takeover © 2011 R A Hill & bookboon.com ISBN 978-87-7681-830-2 Download free eBooks at bookboon.com Click on the ad to read more 4 Corporate Valuation and Takeover Contents Contents About the Author 9 Part I: An Introduction 10 1 An Overview 11 Introduction 11 1.1 Some Observations on Traditional Finance eory 11 1.2 Some Observations on Stock Market Volatility 12 Summary and Conclusions 15 Selected References 17 Part II: Share Valuation eories 18 2 How to Value a Share 19 Introduction 19 2.1 e Capitalisation Concept 19 2.2 e Capitalisation of Dividends and Earnings 20 2.3 e Capitalisation of Current Maintainable Yield 23 Stand out from the crowd Designed for graduates with less than one year of full-time postgraduate work experience, London Business School’s Masters in Management will expand your thinking and provide you with the foundations for a successful career in business. 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For more information visit www.london.edu/mim/ email mim@london.edu or call +44 (0)20 7000 7573 Masters in Management London Business School Regent’s Park London NW1 4SA United Kingdom Tel +44 (0)20 7000 7573 Email mim@london.edu www.london.edu/mim/ Fast-track your career Download free eBooks at bookboon.com Click on the ad to read more 5 Corporate Valuation and Takeover Contents 2.4 e Capitalisation of Earnings 23 Summary and Conclusions 26 Selected References 27 3 e Role of Dividend Policy 28 Introduction 28 3.1 e Gordon Growth Model 28 3.2 Gordon’s ‘Bird in the Hand’ Model 31 Summary and Conclusions 34 Selected References 34 4 Dividend Irrelevancy 35 Introduction 35 4.1 e MM Dividend Irrelevancy Hypothesis 35 4.2 e MM Hypothesis and Shareholder Reaction 37 4.3 e MM Hypothesis: A Corporate Perspective 39 Summary and Conclusions 41 Selected References 42 Part III: A Guide to Stock Market Investment 43 5 How to Read Stock Exchange Listings 44 © UBS 2010. 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Download free eBooks at bookboon.com Click on the ad to read more 6 Corporate Valuation and Takeover Contents Introduction 44 5.1 Stock Exchange Listings 44 Summary and Conclusions 49 Selected References 50 6 Strategies for Investment (I) 51 Introduction 51 6.1 Dividends as Income 53 6.2 Dividends for Growth 55 6.3 e Price-Earnings Ratio: Past and Future 56 Summary and Conclusions 58 Selected References 59 7 Strategies for Investment (II) 60 Introduction 60 7.1 Corporate Information 60 7.2 “Beating” the Market 63 Summary and Conclusions 66 Selected References 66 Part IV: Valuation and Takeover 67 Download free eBooks at bookboon.com Click on the ad to read more 7 Corporate Valuation and Takeover Contents 8 A Stock Exchange Valuation 68 Introduction 68 8.1 Coming to the Market 69 8.2 Calculations and Assumptions 71 8.3 A Total Market Valuation 73 8.4 An Aggregate Flotation Value 74 8.5 e Number and Denomination of Shares 74 8.6 A Valuation per Share 74 Summary and Conclusions 75 9 Managerial Motivation and Corporate Takeover 77 Introduction 77 9.1 Objective Motivational Factors 77 9.2 Subjective Motivational Factors 80 Summary and Conclusions 83 Selected References 83 10 Acquisition Pricing and Accounting Data 84 Introduction 84 10.1 Takeover Valuation: e Case for Net Assets 86 10.2 Valuing the Assets 86 10.3 How to Value Goodwill 88 your chance to change the world Here at Ericsson we have a deep rooted belief that the innovations we make on a daily basis can have a profound effect on making the world a better place for people, business and society. 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To apply and for all current job openings please visit our web page: www.ericsson.com/careers Download free eBooks at bookboon.com Click on the ad to read more 8 Corporate Valuation and Takeover Contents Summary and Conclusions 92 11 Acquisition Pricing-Protability, Dividend Policy and Cash Flow 94 Introduction 94 11.1 Takeover Valuation: e Protability Basis 94 11.2 Takeover Valuation: Dividend Policy 98 11.3 Takeover Valuation: e Cash Flow Basis 103 Summary and Conclusions 106 Selected References 107 12 Takeover Activity, Investor Behaviour and Stock Market Data 108 Introduction 108 12.1 e Current Takeover Scene 109 12.2 Investor Behaviour 110 12.3 e “Golden Rules” of Investment 112 12.4 Acquisition Strategy and Stock Market Data 114 Summary and Conclusions 121 Selected References 122 Appendix: Stock Market Ratios 123 WHAT‘S MISSING IN THIS EQUATION? MAERSK INTERNATIONAL TECHNOLOGY & SCIENCE PROGRAMME You could be one of our future talents Are you about to graduate as an engineer or geoscientist? Or have you already graduated? If so, there may be an exciting future for you with A.P. Moller - Maersk. www.maersk.com/mitas Download free eBooks at bookboon.com 9 Corporate Valuation and Takeover About the Author About the Author With an eclectic record of University teaching, research, publication, consultancy and curricula development, underpinned by running a successful business, Alan has been a member of national academic validation bodies and held senior external examinerships and lectureships at both undergraduate and postgraduate level in the UK and abroad. With increasing demand for global e-learning, his attention is now focussed on the free provision of a nancial textbook series, underpinned by a critique of contemporary capital market theory in volatile markets, published by bookboon.com. To contact Alan, please visit Robert Alan Hill at www.linkedin.com. Download free eBooks at bookboon.com 10 Corporate Valuation and Takeover Part I: An Introduction [...]... eBooks at bookboon.com 17 Click on the ad to read more Corporate Valuation and Takeover Part II: Share Valuation Theories Download free eBooks at bookboon.com 18 Corporate Valuation and Takeover How to Value a Share 2 How to Value a Share Introduction he key to understanding the basic measures of stock market performance (price, yield, P/E ratio and cover) used by investors to analyse trading decisions... complement, reinforce and test your theoretical knowledge of the practicalities of corporate valuation and takeover at your own pace Download free eBooks at bookboon.com 14 Corporate Valuation and Takeover An Overview Summary and Conclusions he key to unlocking stock market analysis, irrespective of volatility, is an understanding of theories of share price determination that underpin its performance Traditional... but Et is substituted for Dt and Ke now represents an earnings yield, rather than a dividend yield hus, we can deine a parallel series of equations using: he single-period, earnings valuation model he inite-period, earnings valuation model he general earnings valuation model he constant earnings valuation model Download free eBooks at bookboon.com 23 Corporate Valuation and Takeover How to Value a Share... determine Ct and r respectively Rearranging Equation (2) with one unknown: (3) Ct = PV∞ r (4) r = PV∞ / Ct Download free eBooks at bookboon.com 19 Corporate Valuation and Takeover How to Value a Share Activity 1 he previous PV equations are vital to your understanding of the various share valuation models that follow hey also underpin the remainder of this study If you are unsure of their theory and application,... inancially equivalent Download free eBooks at bookboon.com 26 Corporate Valuation and Takeover How to Value a Share he relationship between an ex-div dividend and earnings valuation revealed why a few select metrics (based on price, dividend yield and the P/E ratio) published in the inancial press encapsulate a company’s stock market performance and provide a guide to future investment As we shall discover... Ke)2 + … + (Dn / 1 + Ke)n] + (Pn / 1 + Ke)n Download free eBooks at bookboon.com 20 Corporate Valuation and Takeover How to Value a Share Rewritten and simpliied this deines the inite-period dividend valuation model: n (6) P0 = Σ Dt / (1+Ke)t + Pn / (1 + Ke)n t=1 Likewise, given a forecast for periodic future earnings (Et) and a desired return (Ke) based on current earnings yields of equivalent risk: he... eiciency and stability, as well as the models upon which they are based, are now being seriously questioned by a new generation of academics and professional analysts So, where do we go from here? Download free eBooks at bookboon.com 12 Corporate Valuation and Takeover An Overview Post-modern theorists with their cutting-edge mathematical expositions of speculative bubbles, catastrophe theory and market... yield and vice versa And because investors are dealing with an absolute P/E value and not a percentage yield, there is no possibility of confusing a share’s dividend and earnings performance when reading share price listings, articles or commentaries from the press and media, analyst reports, or internet downloads Finally, having noted that low valuation multipliers correspond to high returns and that... Corporate Valuation and Takeover An Overview Selected References 1 Fisher, I., he heory of Interest, Macmillan, 1930 2 Fama, E.F., “he Behaviour of Stock Market Prices”, Journal of Business, Vol 38, 1965 3 Mackay, L.L D., (originally published in 1841), Extraordinary Delusions of Madness of Crowds, Farrar, Strauss and Giroux, 2011 4 Kindleberger, C.P .and Aliber, R.Z., Extraordinary Manias, Panics and. .. return on reinvestment and r.b equals the constant annual growth in dividends: Download free eBooks at bookboon.com 28 Corporate Valuation and Takeover (16) P0 = (1-b)E1 / Ke - rb The Role of Dividend Policy subject to the proviso that Ke > r.b for share price to be inite Today, in many Finance texts the equation’s notation is simpliied with D1 and g representing the dividend term and growth rate, now . RobertAlan Hill Corporate Valuation and Takeover Downloadfreebooksat Download free eBooks at bookboon.com 2 R A Hill Corporate Valuation and Takeover Download free eBooks at bookboon.com 3. 1841), Extraordinary Delusions of Madness of Crowds, Farrar, Strauss and Giroux, 2011. 4. Kindleberger, C.P .and Aliber, R. Z., Extraordinary Manias, Panics and Crashes: A History of Financial Crises,. www.linkedin.com. Download free eBooks at bookboon.com 10 Corporate Valuation and Takeover Part I: An Introduction Download free eBooks at bookboon.com 11 Corporate Valuation and Takeover An Overview 1 An Overview Introduction e