Mylan Case Essay

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1) Based on our model, the market believe the announcement of the merger will not create value to both firms due to the decline of share prices as well as total equity value of firms. We assume that the change of total value of the firm equals to the amount of changes in the equity since debt value is not subjected to the announcement of the merger. Therefore, the market considers that after the merger, both companies will together lose $836 million worthy equity. 2) The fair value of synergies, according to our calculations, is $3,702 million in with the expectation that after the merger, the new company would grow at approximately 15% in the 4-year duration and remain 3% long-term growth in the future. Sensitivity Analysis: Duration | 1 year | 4 years | 8 years | 12 years | 16 years | PV (In million dollars) | 1684 | 3702 | 10623 | 12015 | 17561 | Referring to the sensitivity of PV relative to the duration, we observe that if we expect the longer synergy involvement, the higher value we should evaluate it today. Moreover, the present value of synergies is very sensitive to the duration; we evaluate the synergy 10x higher if it exists for 16 years. Growth rate | 0.06 | 0.08 | 0.1 | 0.12 | 0.14 | PV(In million dollars) | 2346 | 2465 | 2589 | 2717 | 2850 | The present value of synergy jumps with the increase of growth rate, however, it is not as sensitive as it with longer duration. The sensitivity analysis demonstrates that the Myland Company should evaluate the synergy primarily based on the duration it can exist over focus on the short-term growth rate. 3) Based on the multiple analyses, we find out the equity value of the King equals to $5,897 million, and the Mylan makes the $4,000 million offer. The NPV of the merger is $3,807 million. Therefore, we might conclude that the Mylan appears to be underbidding the synergies between the two

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