In April 1994, Novell, Inc. announced its plan to acquire WordPerfect Corporation for $1.4billion.
Atthetimeoftheacquisition,therelevantinformationaboutthetwo companies was as follows:
|
Novell
|
WordPerfect
|
|
Revenues
|
$1,200.00
|
$600.00
|
|
Costof Goods Sold (w/o Depreciation)
|
57.00%
|
75.00%
|
|
Depreciation
|
$42.00
|
$25.00
|
|
Tax Rate
|
35.00%
|
$25.00%
|
|
CapitalSpending
|
$75.00
|
$40.00
|
|
WorkingCapital(as%ofRevenue)
|
40.00%
|
30.00%
|
|
Beta
|
1.45
|
1.25
|
|
ExpectedGrowth Rate in Revenues/EBIT
|
25.00%
|
15.00%
|
|
ExpectedPeriod of High Growth
|
10years
|
10years
|
|
GrowthrateAfterHigh-GrowthPeriod
|
6.00%
|
6.00%
|
|
BetaAfterHigh-Growthperiod
|
1.10
|
1.10
|
Capital spending will be offset by depreciation after the high-growth period. Neither firm has any debt outstanding. The treasury bond rate is 7%.
a. Estimate the value of Novell, operating independently.
b. Estimate the value of WordPerfect, operating independently. c. Estimate the value of the combined firm, with no synergy.
d. As a result of the merger, the combined firm is expected to grow 24% a year for the high-growth period. Estimate the value of the combined firm with the higher growth.
e. Whatis the synergy worth? Whatisthe maximum price Novell canpayfor WordPerfect?