1. What is the incremental value to shareholders projected in this merger? (Assu
ID: 2699195 • Letter: 1
Question
1. What is the incremental value to shareholders projected in this merger? (Assume the restructuring cost is $330 million in year 1, $50 million in year 2, and $20 million in year 3. Synergy savings are $125 million in year 1, $250 million in year 2, $350 million in year 3 and $350 million in year 4, and it will grow at 3% per year forever after year 4. The corporate tax rate is 40% and the discount rate is 11%.)
2. How will this value of synergies be shared between the two merging firms in the proposed transaction?
3. Given that options, on average, are worth about 31% of the underlying value of the stock on the date of grant, how much of incremental value created in this transaction will go to the CEOs of the two firms involved?
I'm looking for an answer to question number 3 based on this info:
For the current contract, Base Annual salary of CEOs is $1.5 million, Target Annual Bonus is $1.875 million + $1.05 million long-term incentive award, Maximum Annual Bonus is $3.750 million + $1.575 million long-term incentive, Annual Equity Award is $8.5 million.
For the Post Merger contract, Base Annual salary of CEOs is $1.5 million, Target Annual Bonus is $1.875 million, there is no maximum annual bonus, Annual Equity Award is $6.65 million and Special One Time Awards is Options on 1.0 million share ($15.00-$45.00 for cost savings).
Explanation / Answer
Sector: Retail Pharmacy Bartell Drugs has purchased the purchase of the pharmacies %u2014 in Everett and Marysville, Wash. %u2014 from The Everett Clinic. Bartell will begin operating them on June 10, bringing its total number of stores to 60. "The Everett Clinic is well-respected and shares many of our values regarding serving patients and customers," Bartell chairman and CEO George Bartell said. "The acquisition of these pharmacies allows both organizations to work together to strengthen their presence in Snohomish County." Snohomish County is to the north of King County, where Seattle is located, and together with King and Thurston counties is part of Washington state's Puget Sound region. Most of the pharmacists and technicians from The Everett Clinic will remain employed at the pharmacies following the transition.
Sector: Healthcare IT Healthland (Minneapolis, MN) acquired American HealthTech (Jackson, MS), an integrated software and electronic health records (EHR) solutions provider for post-acute facilities. Each company will continue operating under its own brand and serving its traditional markets, the companies will collaborate to link resources in order to expand offerings to customers. Together, the combined business will provide a shared health record covering the entire care continuum, including preventive, outpatient, inpatient, post-acute, and in-home care.
Sector: Pharma Actavis will acquire Warner Chilcott for $8.5 billion. Actavis said its acquisition of the Dublin-based company would result in combined sales of about $11 billion, with a focus on women's health, gastroenterology, urology and dermatology products. Actavis announced its intention to acquire Warner Chilcott two weeks ago, saying at the time that a deal had not been reached, though it announced last week that it had filed for approval of the deal with Irish regulators. As of Monday, the boards of directors of both companies have approved the deal, and it is expected to close by the end of this year.
Sector: Senior Living Chartwell Retirement Residences (TSX: CSH.UN) accepted an offer of $80.9 million from Brookdale Senior Living Inc. (NYSE: BKD). The price paid, $61 million in debt (mostly assumed) and the rest in cash, was for seven senior living communities located in Alabama (1), Arizona (2), Georgia (2), Louisiana (1) and Oklahoma (1). Brookdale has been managing all but the Alabama community since its September 2011 acquisition of Horizon Bay. The deal adds 613 units, with 493 assisted living, 80 independent living and 40 Alzheimer%u2019s units.
Sector: Healthcare Finance Fifth Street Finance Corp. (Nasdaq: FSC) announced that it has entered into a definitive agreement to acquire Healthcare Finance Group, LLC ("HFG") as a portfolio company. HFG is a specialty lender providing asset-based lending and term loan products to the healthcare industry. Since its founding, HFG has financed in excess of $21 billion in receivables. To effect the acquisition, Fifth Street anticipates investing approximately $110 million and intends to finance the purchase with available liquidity, including operating cash and borrowings under Fifth Street's existing credit facilities. HFG's senior management team has an average of 24 years of healthcare finance or related industry experience and will provide continuing leadership to HFG going forward. Fifth Street expects that the HFG acquisition will be accretive to net investment income. HFG's total outstanding loan portfolio, as of May 6, 2013, consisted of 57 loans with a value of approximately $270 million. Fifth Street believes that HFG's niche focus in the healthcare industry offers the potential for strong asset quality and attractive yields, even during challenging economic or debt capital market conditions. HFG has a quality track record of managing credit risk since inception in 2000.
Sector: Home Health Kindred has signed a definitive agreement to acquire Caring Hearts Home Health("Caring Hearts"), a provider of home health services that operates two locations in Big Spring, Texas and Odessa, Texas that serve the West Texas market. Caring Hearts currently generates annualized revenues of approximately $1.6 million. Kindred at Home, through its affiliate IntegraCare, currently provides Home Health or Hospice services in 46 cities in Texas, including the Company's Dallas Integrated Care Market. Terms of the transaction were not disclosed. The transaction is subject to several regulatory approvals and other conditions to closing and is expected to close in the second quarter of 2013.
Sector: Home Health Kindred has signed a definitive agreement to acquire QStaff Home Healthcare andAdvanced Care Hospice ("QStaff"). Terms of the transaction were not disclosed. QStaff is a high-quality provider of home health and hospice services that operates one location in the Houston, Texas market and provides services in five counties. QStaff currently generates annualized revenues of approximately $2 million. The QStaff operations will allow Kindred to expand its services in the Company's Houston Integrated Care Market, where it currently operates 13 Transitional Care Hospitals, two Inpatient Rehabilitation Hospitals and, through its RehabCare division, one hospital-based Acute Rehabilitation Unit. The transaction is subject to several regulatory approvals and other conditions to closing and is expected to close in the second quarter of 2013. The Company expects that the transaction will be slightly accretive to earnings in 2013.
Sector: DME Preferred Home Health Care & Nursing Services, Inc. (PHHC), a leader in providing home care to residents of New Jersey and Pennsylvania, announces the acquisition of Acelleron Medical Products, a durable medical equipment (DME) company that focuses on the distribution of nebulizers, breast pumps and other medical products. The acquisition of Andover, Massachusetts-based Acelleron will allow PHHC to expand its home care expertise and geographic reach into New England. "We are very happy to bring the Acelleron team into the Preferred family," said Joel Markel, President of PHHC. "We look forward to the opportunity to bring excellent home health care to many families and communities in New England." Preferred, which anticipates Acelleron's full integration by the third quarter of 2013, will export its home care expertise to the New England region, while simultaneously importing Acelleron's knowledge of medical equipment to its core home care markets of New Jersey and Pennsylvania. "We anticipate this acquisition to be truly symbiotic," remarked Todd Thiede, CFO of PHHC. "Our product lines complement each other, and Preferred can take one more step toward broadening our reach and meeting more of our clients' direct needs."
Sector: HME Sanomedics International, a medical technology holding company, has acquired Prime Time Medical, a Largo, Fla.-based HME provider, for $3 million, according to a press release. The acquisition is Sanomedics%u2019 third in the HME industry. %u201CPrime Time Medical is another step in our continual process of expanding our portfolio while we implement our growth strategy,%u201D stated Keith Houlihan, co-founder and president of Sanomedics. Sanomedics seeks to acquire sleep therapy operating businesses to develop a portfolio of products and services in this growing market. Its goal: to provide sleep apnea patients with an %u201Cend-to-end%u201D service platform, according to the release. Prime Time Medical, a provider of mobility devices, portable oxygen concentrators, compressors, diabetic supplies and respiratory products, posted about $5 million in revenue for 2012, according to the release.
Sector: HME Global Medical Equipment of America (GMEA) announced that it has acquired Allen Medical Supply in Opelousas, La. Allen Medical Supply offers durable medical and respiratory equipment, power wheelchairs and orthotics. It's the third acquisition for GMEA. Terms of the deal were not disclosed.
Sector: Ambulance Transport Emergency Medical Services Corp., the largest U.S. provider of ambulance services, has selected underwriters for a $750 million initial public offering. The Greenwood Village, Colorado-based company, is backed by private equity firm Clayton, Dubilier & Rice LLC. An IPO would bring EMSC back to the stock market just two years after it was taken private. Clayton, Dubilier & Rice acquired EMSC in 2011 for $2.9 billion. It also assumed $300 million of the company%u2019s debt. EMSC was founded in 2005 when Canadian private equity firm Onex Corp. (OCX.TO) acquired medical transportation company American Medical Response and physicians services provider EmCare and merged the two. EMSC went public that same year. EMSC reported adjusted earnings before interest, tax depreciation and amortization of $404.7 million in 2012, up from $345.4 million in 2011.
Sector: Sub-Acute Services Roper Industries Inc (Sarasota, FL) entered a definitive agreement to acquireManaged Health Care Associates Inc (MHA) (Florham Park, NJ) in a cash transaction valued at $1.0 billion. MHA provides services and technologies to support the needs of alternate site healthcare providers who deliver services outside of an acute care hospital setting, including long-term care pharmacies, assisted living facilities, long-term care facilities, infusion and specialty pharmacies, and other alternate site providers. Roper expects the acquisition of MHA to be immediately cash accretive and generate $95 million of EBITDA during the first year of ownership, excluding the impact of acquisition-related fair value accounting. The transaction should be completed within 30 days, subject to regulatory approval and customary closing conditions.
Sector: Pediatric Homecare Child Health Holdings, Inc. (d/b/a Pediatric Health Choice), has acquired The Children's Secret Garden, Inc. ("TCSG"). Headquartered in Dover, DE, TCSG operates a combined prescribed pediatric extended care ("PPEC")/Day Care facility for children with chronically ill and/or medically complex conditions. TCSG's founder, Pam Harper, will stay onboard as the facility's administrator. Going forward, the center will do business in Delaware as Pediatric Health Choice at The Children's Secret Garden. The closing of the TCSG transaction represents Pediatric Health Choice's first add-on acquisition under Clearview's ownership, and marks the Company's successful expansion into a fourth state. "The PPEC market is a highly fragmented, growing sector within the healthcare services industry and we will continue to actively pursue add-on acquisitions throughout the country, while maintaining rapid organic growth through de novo expansion."
Sector: Medical Device Argon Medical Devices has completed the acquisition of the Interventional Products Business of Angiotech Pharmaceuticals. The Interventional Products Business manufactures and markets disposable and re-usable biopsy products for the diagnosis of cancer, drainage catheter products, and vascular interventional products. The acquisition of the Interventional Products Business bolsters Argon's existing portfolio of interventional vascular products, adds additional biopsy product lines, and further leverages the company's sales force within core call points. As part of the transaction, Argon will also acquire three dedicated manufacturing facilities in Wheeling, Illinois, Gainesville, Florida, and Rochester, New York. Argon currently manufactures its products in facilities in Athens, Texas and Singapore.
Sector: MedSurg/Pharmacy McKesson Corp (San Francisco, CA) announced the completion of its acquisition of PSS World Medical Inc (Jacksonville, FL) for a total purchase price of approximately $2.1 billion. McKesson and PSS World Medical signed a definitive agreement for McKesson to acquire all outstanding shares of PSS World Medical at $29.00 per share, in cash in October 2012. Stanton McComb, president of McKesson's Medical Surgical business, will serve as president of the combined organization, and Gary Corless, president and CEO of PSS World Medical, will serve as COO.
What do these transactions mean for the market value of your business?
- V.GUNA SASANK REDDY [V.G.S.R.]
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