并购中目标公司价值评估案例研究标准化工作室编码[XX968T-XX89628-XJ668-XT689N]分类号学号学校代码 10487 密级硕士学位论文并购中目标公司价值评估案例研究学位申请人：学科专业：工商管理指导教师：答辩日期：2011年12月Thesis Submitted in Partial Fulfillment of the Requirements For the Degree of Master of Finance in EnterpriseAdministrationValuation of Target Firms in Mergers andAcquisitions:A Case StudyCandidate :Major : Enterprise AdministrationSupervisor :Huazhong University of Science and TechnologyWuhan, Hubei 430074, P. R. ChinaApril, 2011摘要兼并和并购是可以使企业迅速获得成功的捷径之一，如今，在企业发展壮大过程中，兼并和并购已经成为最常用的方式。
通过兼并企业可以超越对手获得竞争优势，获得更大的市场份额，进入更多领域的市场。
企业也可藉此能提高管理运营效率，不仅提高了自己的竞争力，消费者也可获益。
2011年5月10日微软公司（纳斯达克股票代码“MSFT”）与世界上最大的网络语音电话业务（ＶＯＩＰ）通讯公司ＳＫＹＰＥ公司联合宣布双方已经签署协议，微软公司将以８５亿美元现金的代价从银湖（ＳＩＬＶＥＲＬａｋｅ）等投资者手中收购ＳＫＰＹＥ公司。
根据ＳＫＹＰＥ公司提交给证券交易所的报告，去年该公司营业额８．６亿美元，实现净利润２．６４亿美元，累计亏损６９０万美元。
本论文论据架立在相关理论、理论性研究以及对未来不确定的假定之上。
在分析贴现现金流模型和公司自由现金流模型 (FCFF)的基础上，本文意图逐步分析ＳＫＰＹＥ公司的固有价值，因为这家公司是一个私人公司，无法获得某些至关重要的信息。
假设未来5年内SKYPE公司营业额每年增长19%，在10年内逐渐降低到4%，那么该公司达到稳定期之后的营运利润将与行业平均水平（%）持平。
研究表明即便从非常乐观的角度去评判，微软公司付出的代价还是超过了SKPYE公司40亿美元的固有价值。
本文研究了微软公司和SKYPE公司的协同增效价值，认为潜力巨大。
本文没有注重采用传统的方式计算其协同价值，比如现金，税收优惠，财政协同价值等，因为这些方法不适合本案例。
本文展望了微软公司将SKPYE整合进入微软的XBOX、KINECT、Xbox Live, Window手机操作系统、 Lync 、 Outlook等设备和系统之后的前景，微软将在Windows手机操作系统和Xbox & Kinect等两个市场有潜在机会。
根据已有资料，本文同时对这些市场的前景进行了乐观地假设。
关键词：合并与收购，内在价值，协同，Microsoft, Skype.AbstractMergers and acquisitions have become the most popular used methods of growth for the company and it’s one of the best ways to make a shortcut to get the success. They create the larger potential market share and open it up to a more diversified market, increase competitive advantage against competitors. It also allows firms to operate more efficiently and benefit both competition and consumers. On May 10, 2011 –Microsoft Corporation (Nasdaq: “MSFT”) and Skype Global announced that they have entered into a deal under which Microsoft will acquire Skype, the largest VoIP communication company, for $ billion in cash from the investor group led by Silver Lake. Skype revenue totaling $860 million last year and operating profit of $264 million, the company lost $ million overall, according to documents filed with the SEC.In this thesis, solving problems is based on relevant theories, theoretical research as well as some assumptions about future with uncertainty. Based on the literature review about discounted cash flow model, specifically Free Cash Flow to Firm model (FCFF), the purpose of the thesis is to provide an analysis of Skype’s intrinsic value with specific steps. Especially, when the company you want to analyze is a private company with lack of assessing to essential or important information. Given that the continued revenue growth of 19% will be remained for the next 5 years and slowing down gradually to 4% in ten years. The operating margin of Skype’s is given being equal to the average industry %) after the company reaches to stable level. Research indicates that Microsoft overpaid for the Skype’s intrinsic value with even a very optimistic view of point. The intrinsic value of Skype is just about $4 billion.Research was to provide the synergy value between Microsoft and Skype and realized that it’s kind of promisingly potential. Research didn’t focus on the traditional ways to calculate the synergy value such as slack cash, tax benefits, and financial synergy because it’s not quite appropriate for this case study. This study envisions what will happen when Skype integrated into Microsoft devices and system such as Xbox and Kinect, Xbox Live, the Window Phoneoperating system, Lync and Outlook. There are two potential opportunities for Microsoft in the Window Phone and Xbox & Kinect markets. Research also made some assumptions about what will happen in these markets with optimistic view of point based on some information available.Key words: Mergers and Acquisitions, Intrinsic Value, Synergy, Microsoft, SkypeTable of ContentsList of TablesList of Figures1Introduction1.1BackgroundGlobalization is the worldwide trend of businesses expanding beyond the domestic boundaries. Companies, small or large, public or private, are increasingly engaged in the international competition now. These things make the world is becoming one connected economy in which companies do business and compete anywhere with anyone, regardless of national boundaries. Due to the forces of globalization which have caused economies to become integrated, there is a realization among firms that these traditional ways of achieving competitive advantage now have only limited profitability. As a result, mergers and acquisitions have become an increasingly popular strategic choice for organizations (Nahavandi and Malekzadeh, 1988; McEntrie and Bentley, 1996; Zhu and Huang, 2007).A merger occurs when one corporation is combined with another corporation. All mergers are statutory mergers, since all mergers occur as specific formal transactions in accordance with the law, or statues, of the states where they are incorporated. A corporate acquisition is the process by which the stock or assets of a corporation come to be owned by a buyer. The transaction may take the form of a purchase of stock or a purchase of assets. Acquisition is the generic term used to describe a transfer of ownership. Merger is a narrow,technical term for a particular legal procedure that may or may not follow an acquisition.The value of worldwide M&A totaled US$ billion during the first quarter of 2011, a % increase from comparable 2010 levels and the strongest quarter for worldwide M&A since the second quarter of 2008. By number of deals, M&A activity fell % compared to the last year with just over announced deals. First quarter M&A activity was driven by deals over US$5 billion, which totaled US$ billion and announced for % of quarterly activity, more than double activity seen during the first quarter of 2010.1.1.1Motives of Mergers and AcquisitionsThere are so many reasons to explain why corporation wants to choose Mergers and Acquisitions. Some main motives behind Mergers and Acquisitions: Traditionally, exploiting economies of scope and scale or taking advantage of market imperfections was deemed by firms a dominant way of achieving competitive advantage. As M&As are often seen as a means to acquire resources, advanced technology and managerial know-how, brand names and distribution networks, to complement ongoing internal product development, to reduce exposure to risks and to achieve economies of scale.However, there is a realization among firms that these traditional ways of achieving competitive advantage now have only limited profitability. According to Porter (1985), the primary reason for M&A is to achieve synergy by integrating two business units in a combination that will increase competitive advantage. The goals for many organizations converge around growth, diversification and achieving economies of scale (Cartwright and Cooper, 1993). In addition, obtaining a dominant position in the global market is also acknowledged to be another motive for organizations in choosing a merger or acquisitions.1.1.2Possible Problems Associated with M&AsMergers and acquisitions have established a sound position as primary means to quickly achieve a growth in revenues. Driven by globalization in general and boundaries to organic development, which every company sooner or later faces, they represent a valid strategic option. Mergers and acquisitions, although a common mean for attaining sustainable competitive advantages, seldom live up to the expectations and have failure rates up to 50 to 80 per cent (DePamphilis, 2005). After five years, 50 per cent of all acquisitions are perceived to be failures (Gancel et al., 2002).There are so many reasons that attribute to the high failure rates of Mergers and Acquisitions. According to Child et al. (2001, p. 22; Gancel et al., 2002) cultural differences between the acquired and the acquiring company are often covered insufficiently and can affect the achievement of potential benefits. Risberg (1997) states that culture is a very complex phenomenon with various dimensions and layers, which is not necessarily shared across an organization.Angwin (1999, cited in Child et al., 2002, p. 22) argues that “the post-acquisition phase (…) clearly mediates as between pre-acquisition characteristics and post-acquisition performance. “No matter how attracti ve and promising the business opportunity is, the value has to be actively transferred and jointly applied in the new corporation in order to fully deploy the competitive advantage (Salama et al., 2003). To meet this main challenge Galpin and Herndon (1999) identified three components of risk, namely the basic integration risk, the risk factors associated with organizational cultures and the capital-related risk.Moreover, McKinsey (1996) states that on average merged companies grow 4 per cent less than their peers in the three following years. In conjunction with M&As a high turnover rate is likely to occur, especially that of top management and key employees. This loss of knowledgeable, trained and developed employees can degrade the value of the target company significantly.1.1.3Creating added Value and OverpaymentThe general underlying reason for engaging in M&As is the potential value creation that is anticipated to occur. Salama (2003) observes that value creation is the most important target of a successful combination of operations. Synergies are often mentioned as motives of mergers and refer to “the strategic and operational advantages that neither firm can achieve on its own”. Synergies occur in the form of operating, as well as financial synergies. Financial synergies exist if the cost of capital is lowered by the combination of financial structures. This can be achieved if, for instance, financial economies of scale are reached off if investment opportunities are matched better with internal funds. Operational synergies, on the other hand, can be gained by usage of economies of scale and scope, which, if executed properly, lead to improved operating efficiency and improved results. These mean that if the acquiring companies have a high expectation on synergies between the acquiring company and the acquired company, they usually overpay for mergers and acquisitions.The overpayment hypothesis has been justified in existing literature using different arguments. In the first place, it has been proposed that the managers of the acquiring company tend to overpay because they overestimate the future profits to be derived from the operation (Roll, 1986). Secondly, the existence of several acquiring companies that compete for the target company makes the premium go up as successive offers are made and causes the company that finally gains control to pay an excessively high price (Ruback, 1982). Finally, the existence of agency problems could cause the managers to pay a high price for an operation because they seek their own personal gain without taking into account the profits to be derived from the operation (Shleifer & Vishny, 1997). In this case, a high premium would be a sign of the existence of agency problems, which would have a negative effect on the valuation the market makes of the operation.1.1.4Case StudyMicrosoft Corp and Skype Global S.à announced officially that they have just ended up agreement under which Microsoft will acquire Skype on Tuesday, May10 2001, the leading Internet communications company, for $ billion in cash. The agreement has been approved by the boards of directors of both Microsoft and Skype. This M&A activity is resulting in controversial discussions. Many analysts assume that Microsoft did overpay to acquire Skype, others think that’s appropriate price for what Microsoft will receive from Skype in the future because of synergy value…Originated from the price that Microsoft have already paid to acquire Skype, the author wants to study some methods to evaluate the valuation of the target firms in M&A and use it to calculate the intrinsic value and synergy value in this acquisition.1.2Research Purposes and Significance1.2.1Research PurposesValuation can be considered the heart of finance. Knowing what a company or a firm or an asset is worth and what determines that value is a perquisite for intelligent decision making – in choosing investments for a portfolio, in deciding on the appropriate price to pay or receive in a merger and acquisition or a takeover and in making investment, financing and dividend choices when running a business. Some assets are easier to value than others; the details of valuation vary from asset to asset, firm to firm and industry to industry, so on…the uncertainty associated with value estimates is different for different assets so the process of evaluating the value of a firm is quite sophisticated. Especially, it’s so sophisticated in Merger and A cquisition Activity. We not only find the intrinsic value of the firm but also find the synergy value.In general, there are three approaches to valuation. The first, discounted cash flow valuation that estimates the value of assets by discounted back the expected future cash flows on that assets at a rate that reflects the riskiness of those cash flows to find out the intrinsic value of that assets. The second, relative valuation, measures the value of an asset by looking at the pricing of “comparable” as sets by comparing common variable like earnings, book value,specific-sector industry.The final approach, contingent claim valuation, uses option pricing models to measure the value of assets that share option characteristics.In this research, we only f ocus on “discounted cash flow valuation” because the case study is to evaluate the value of Skype that hasn’t listed on the stock exchange resulting in the difficulty in using relative valuation and dividend discounted cash flow valuation.In discounted cash flow valuation, we begin with a simple proposition. We assume that every asset has an intrinsic value and we try to estimate that intrinsic value by looking at an asset’s characteristics. Consider it the value that would be attached to an asset by a detailed analysis with access to all information available and a valuation model.There are three ingredients of discounted cash flow models in practice. First, we have to estimate the expected cash flow in the future that will be calculated from FCFE or FCFF with the expected growth rate. Second, we try to find the expected growth rate of cash flow in the future. The expected growth rate can be stable or unstable depending on our assumptions. Third, we find the cost of equity if we use free cash flow to equity in the model and the cost of capital if we use free cash flow to firm in the model.There are two ways in which we can approach discounted cash flow valuation. The first is to value the entire business, and this is called firm valuation. The cash flow before debt payment and after reinvestment needs are termed free cash flows to the firm (FCFF), and the discount rate that reflects the composite cost of financing from all sources of capital is the cost of capital. The second way is to just value the equity stake in the business, and this is called equity valuation. The cash flows after debt payments and reinvestment needs are called free cash flows to equity, and the discount rate that reflects just the cost of equity financing is the cost of equity.I n addition, this prospectus attempts to solve some research questions as follows:Literature Review Discounted Cash Flow Model Synergy Value Extant Literature Introduction 1)How to use Discounted Cash Flow Valuation efficiently 2)Should we use Equity valuation or Firm valuation 3)Disadvantages and Advantages of both 4) Application of DCF in evaluating the valuation of Skype to answer the question “Did Microsoft overpay to acquire Skype”1.2.2 The Significance of the ResearchThis research has an outstanding significance of:1) Giving the detailed discounted cash flow model and synergy valuation. Using the case study to evaluate the efficiency of firm valuation. Understanding the essence of each approach.2) Applying this research’s results for: Academic purpose as well as the author’s viewpoint about the price that Microsoft paid for Skype to acquire it. The companies in technology industry to realize the synergy value between Microsoft and Skype in the future. Guessing the success of Microsoft in this M&As activity.1.3 Content and Methodology1.3.1 The Content of the ResearchFigure shows a brief presentation of contents of my dissertation. Chapter 2 will provide the review of literature in the area of mergers & acquisitions, theories of Valuation Models, Synergy Valuation. Chapter 3 presents the brief introduction to Skype and Microsoft. Chapter 4 deals with Discounted Cash Flow Model to estimate the intrinsic value of Skype based on some optimistic assumptions. Chapter 5 analyzes the synergy value between Skype and Microsoft by envisioning what will happen in the future with both companies.An Introduction to Skype and Microsoft Skype Microsoft Intrinsic ValueFigure 1.1 – Contents of Study 1.3.2 Methodology The price that you want to pay should play an important role in an acquisition analysis. The acquiring firm has to decide on how much it should pay for the target firm before making a bid, and the target firm has to determine a fair value for itself before deciding to accept or reject the offer. There are special factors to consider in takeover valuation. First, there is synergy; the effects of synergy on the combined value of the two firms (target plus bidding firm) have to be considered before a decision is made on the bid . Second, the fair value, how much the acquiring company should pay for acquired company There is a significant problem with bias in takeover valuations . Acquiring firms may be over-optimistic in estimating value, they often overpay for acquired firms because of their bias. Acquired firms sometimes undervalue by themselves so they accept the low-pricing offer.According to the book “are you paying too much for that acquisition”, Robert G. Eccles, Kersten L. Lanes, and Thomas C. Wilsonstate that the purchase price of an acquisition will nearly always be higher than the price of its stock before any acquisition intentions are announced. The key is to determine how much of that difference is “synergy value”. The more synergy value, the higher the price an acquirer is justified in paying. The authors argue that the price that acquiring company has to pay is greater than the fair value of acquired company.Figure 1.2 – Evaluating the value of mergers and acquisitionsSo we have:The purchase price ≤ the intrinsic value + the synergy value1.3.3 The Intrinsic ValueDamodaran (2003): To value an asset, we have to forecast the expected cash flows over its life. There are some problems when valuing a publicly traded firm Synergy Value Smartphone IndustryXbox Kinect + Skype = Magic Benchmarks (Proxies)because a publicly traded firm can have a perpetual life. In discounted cash flow models, we usually resolve this problem by estimating cash flows for a period and the cash flow of a terminal value at the end of the period. The most consistent way of estimating terminal value in a discounted cash flow model is to assume that cash flows will grow at a stable growth rate that can be sustained forever after the terminal year. In general terms, the value of a firm that expect to sustain extraordinary growth for n years can be written as:Value of a firm =()()1Ex erminalValue 11n t n t n i pectedCashFlow T r r =+++∑There are two ways in which we can approach discounted cash flow valuation. The first is to value the entire business, with both assets-in-place and growth assets; this is often termed firm or enterprise valuation . The second way is just value equity stake in the business, and this is called equity valuation.There are three components to forecasting cash flows. The first is to determine the length of the extraordinary growth period: different firms, depending upon where they stand in their life cycles, what kind of businesses they have, the competition they face, the market environment that they operates in, the political policy that also affects firms, will make different firms have different growth periods. The second is estimating the cash flows during the high growth period, using the measures of cash flows. The third is the terminal value calculation, which should be based upon the expected path of cash flows after the terminal year.EBIT EBIT (1-t)- Reinv = FCFF1.3.4 How to value synergySynergy is the additional value that is generated by combining two firms, creating opportunities that would not been available to these firms operating independently, is the magic ingredient that allows acquirers to pay billions of dollars in premiums in acquisitions. It is true that investors have historically taken a jaundiced view of synergy, both in terms of its existence and its value and the track record on the delivery of synergy that they have good reason for skepticism. In this paper, we will begin by considering potential sources of synergy and how best to value each of them. We will then also examine the problems that analysts often face in valuing synergy and why acquirers often to fail to deliver the synergy that they promised at the time of the acquisition. We will consider the potential of the combined firm and include economies of scale, increasing pricing power, and higher growth potential. They generally show up as higher expected cash flows. Financial synergies, on the other hand, are more focused and include tax benefits, diversification, a higher debt capacity and uses for excess cash. They sometimes show up as higher cash flows and sometimes take the form of lower discount rates.2Literature Review2.1Discounted Cash flowFollowing the stock market crash of 1929, discounted cash flow (DCF) analysis gained popularity as a valuation method for stocks. Irving Fisher in his 1930 book, “The Theory of Interest” and John Burr William’s 1938 t ext “The Theory of Investment Value” first formally expressed the discounted cash flow DCF method in modern economic terms.Later Gordon (1962) extended the William model by introducing a dividend growth component in the late 1950’s and early 1960’s. The d ividend DIV continues to be widely used to estimate the value of stock.In recent years, the literature for estimating the value of a firm and the value of equity has been expanded dramatically. Copeland, Koller and Murrin (1990, 1994, 2000), Rappaport (1988, 1998), Steward (1991), and Hackel and Livnat (1992) were current pioneers in modeling the free cash flow to the firm, which is widely used to derive the value of the firm.Today the discounted cash flow (DCF) model is the most commonly used tool among financial analyst when valuing a firm. It is documented that almost fifty percent of all financial analysts use a discounted cash flow (DCF) method when valuing potential objects to acquire (Hult, 1998). In a study Absiye & Diking (2001) found that all seven of their respondents, which were analysts, use the discounted cash flow (DCF) model when they were conducting a firm valuation, the other valuation models were just used as complements to the valuation done by the discounted cash flow (DCF) method. Quite a lot of other studies have been conducted on business valuation. Some of these focus on the different methods that are used to conduct valuations.Damodaran (1994, 2001) on Valuation offers systematic examination of the three basic approaches to valuation - discounted cash-flow valuation, contingent claim valuation, and relative valuation - and the variousmodels within these broad categories. The book illuminates the purpose of each particular model, its advantages and limitations, the step-by-step process involved in how to make the model work, and the kinds of firms to which it is best applied. Among the models and tools presented are designed to: Estimating the cost of equity - including the capital asset pricing model (CAPM) and arbitrage pricing model (APM). Value equity - focusing on the Gordon Growth Model and the two-and three-stage dividend discount model (DDM). , Value firms - including free cash flow to firm models (FCFF), which are especially suited to highly leveraged firms. Measure free cash flow to equity (FCFE) - cash flows that are carefully delineated from the dividends of most firms. Measure the value of assets that share option characteristics - including a comparative look at the classic Black-Scholes and simpler binomial models. Estimate the value of assets by looking at the pricing of comparable assets - with insight into the use and misuse of price/earnings and price/book value ratios, and underutilized price-to-sales ratios.Discounted cash flow (DCF) is a cash flow summary that it has to be adjusted to reflect the present value of money. Discounted cash flow (DCF) analysis identifies the present value of an individual asset or portfolio of assets. This is equal to the discounted value of expected net future cash flows, with the discount reflecting the cost of waiting, risk and expected future inflation. Discounted cash flow (DCF) analysis is applied to investment project appraisal and corporate valuation.Free cash flow is important because it allows a business to pursue opportunities that enhance shareholder value. One key measure of the value of a firm’s equity is considered the present value of all free cash flows. Opportunity cost is significant because any financial decision must bemeasure against a default low-risk investment alternative or the inflation rate.The most basic of these models can be written as follows.()()()()31223...1111n n CF CF CF CF P r r r r =++++++++ Where,P is the price of the stock;CF is the expected cash flow;R is a constant discount rate of investors.Most empirical studies pay much attention this model by using a finite ex-post approach to measure returns as opposed to the stock price . The results seem to depend on what model should be chosen and the time interval may be used and the way to measure the cash flow.Some empirical studies find out that as the time interval is expanded there is less errors and noise. Fama and French (1988) give some evidence relative to dividend that the variable explains more than 25% of the variance of four-five year as compared to the monthly and quarterly results of 5%.2.1.1 Capital Asset Pricing Model (CAPM)The Capital Asset Pricing Model postulates a simple linear relationship between expected rate of return and systematic risk of a security or portfolio. The model is an extension of Markowitz’s (1952) portfolio theory. The researchers who are commonly credited with the development of CAPM are Sharpe (1964), Linter (1965) and Black (1972), which is why CAPM is commonly referred to as SLB model.Markowitz (1952) developed a concept of portfolio efficiency in terms of the combination of risky assets that minimizes the risk for a given return or maximizes return for a given risk. Using variance of expected returns as themeasure of risk, he shows a locus of efficient portfolios that minimize risk for a given rate of return.The Capital Asset Pricing Model equation show the relationship between cost of capital and market returns and takes the following form,()af a m f r r r r β=+-Where:r a : Expected Rate of Returnr f : Risk Free Rate a β: Beta of As i setThe equation indicates that the expected rate of return on As i set is equal to the rate of return on the risk-free asset plus a risk premium. This is simply a multiple (beta) of the difference between the expected rate of the return of the market portfolio and the risk-free rate.Most empirical examinations of CAPM use realized returns to estimate the Beta coefficient.2.1.2 Weighted Average Cost of Capital (WACC)Miller and Modigliani (1958, 1963) demonstrated that the value of a company would be unaffected by either capital structure or dividend policy in the absence of taxes. Once corporate taxes are introduced the capital structure can influence the value of the company. Since interest payments can be deducted, the cost of external financing becomes cheaper. The assumptions used are similar to that of the frictionless world of CAPM, namely perfect information and perfect capital markets. The relevant formulas of the model are as follows. ()W **1e c E D ACC R T V V=+- Where:R e = cost of equity ？。