Analysis

We have conducted careful analysis and evaluation of the pre-merger scenarios of both Flinder
Valves and Controls Incorporation and RSE International Corporation and post-merger analysis of
the proposed merged company. First, we have analyzed the historical data and found out tren
ds in the financial statements of the Flinder Valves and concluded that in recent years.

The companys revenues have increased by an average rate of 9%, which seems pretty logical b
ecause of the recent strong performance. Based on the historical data, we found out the rate of
Cost of Goods Sold over Sales was around 70% (average). General and Admin. Expenses were
assumed to be around 6% of the sales. Other net income was 1% of the sales.

Historical data showed that the Income before taxes or EBIT remained 25% of the sales and tha
t trend was expected to continue in the future as well. Income tax prevailing in the country was
approximately 40%. Net operating profit after tax (NOPAT) or earnings after tax was assumed t
o be 14% (averaged) of the total revenues. Net increase or decrease in the working capital of t
he company and investment in the fixed assets were given in the question, which increased by
11% each year.

For the purpose of evaluating the future financial prospects of the company, we have calculated
the weighted average cost of capital (WACC) for the purpose of bringing future cash flows in
present terms. For the calculation of WACC, we have assumed the A credit ratings for the Flind
er Valves. On the other hand, we have assumed the 30-years US Treasury yields as a risk free r
ate of return and geometric average rerun as market premium for the calculation of cost of eq
uity. Through WACC, we have calculated the NPV of the future cash flows of the pre-merger es
timates of the Flinder Valves Company and the terminal value at the end of the projected life.
After that, we were able to calculate the enterprise value and the value per share on the basis
of DCF. Refer to computations.

A similar process has been performed for the pre-merger valuation of RSE Internationals and as
sumed the credit ratings of the company was Baa and assumed that the sales revenue of the c
ompany will grow by the constant rate of 8.8% and by calculating cost of equity, which led the
computation to find out WACC, we have analyzed the potentials of the RSE company and calcul
ated its present value and terminal value. Then we were able to compute enterprise value and t
he value of the shares on DCF basis. Then we have analyzed potential post-merger synergies an
d economies of scale and found that both the companies will enjoy a premium over their curre
nt share prices because of the merger, based on the expected 5% inflation rate prevailing in th
e market.

Recommendation

Based on the above analysis and appendices shown below, we can suggest to the companies to
go for the merger, as the post-merger benefits would be favorable of both the companies and
both would be able to grab the synergies and would grow further.

This is just a sample partial case solution. Please place the order on the website to order your
own originally done case solution.

Set in May 2008, this case represents a separate chief executive officers prospects Tom Elliott an
d Bill Flinder as we approach the negotiations RSE International Corporation purchased Flinder V
alves and Control Inc. task for the student is to complete the evaluation and analysis of the tar
get customer and agree on a price and exchange rate counterparties. The purpose of design f
or students who will be organized into groups and assigned to play the role of either valves or
Flinder RSE International in negotiations. Housing provides additional personal information for ea
ch of the parties. Thus, the only element in the case of negotiating the terms of the acquisition
under asymmetric information. The matter is relatively simple and provides the first exercise in
the negotiation of the acquisition. It could also be taught in the usual case, the discussion fashi
on to an estimated joint negotiation exercise Hide

by Michael J. Schill Source: Darden School of Business 14 pages. Publication Date: November 17,
2008. Prod. #: UV1062-PDF-ENG