Thermo Fisher paid $76 per share for each outstanding share of Life Tech. What is the
maximum offer price Thermo Fisher could have made without ceding all of the synergy value
to Life Tech shareholders? (Hint: Using the Transaction Summary Worksheet, increase the
offer price until the NPV in the section entitled Valuation turns negative.) Why does the offer
price at which NPV turns negative represent the maximum offer price for Life Tech? Undo
changes to the model before answering subsequent questions.
2. Thermo Fisher designed a capital structure for financing the deal that would retain
its investment grade credit rating. To do so, it targeted a debt-to-total capital and
interest coverage ratio consistent with the industry average for these credit ratios.
What is the potential impact on Thermo Fisher’s ability to retain an investment grade
credit rating if it had financed the takeover using 100% senior debt? Explain your
answer. (Hint: In the Sources and Uses section of the Acquirer Transaction Summary
Worksheet, set excess cash, new common shares issued, and convertible preferred shares
to zero. Senior debt will automatically increase to 100% of the equity consideration plus
transaction expenses.48) Undo changes to the model before answering subsequent
questions.
3. Assuming Thermo Fisher would have been able to purchase the firm in a share for share
exchange, what would have happened to the EPS in the first year? Explain your answer.
(Hint: In the form of payment section of the Acquirer Transaction Summary Worksheet, set the percentage of the payment denoted by “% Stock” to 100%. In the Sources and Uses
section, set excess cash, new common shares issued, and convertible preferred shares to zero.)
Undo changes made to the model before answering the remaining question.
4. Mark Fisher, CEO of Thermo Fisher, asked rhetorically what if synergy were not realized as
quickly and in the amount expected. How patient would shareholders be if the projected
impact on earnings per share was not realized? Assume that the integration effort is far more
challenging than anticipated and that only one-fourth of the expected SG&A savings, margin
improvement, and revenue synergy are realized. Furthermore, assume that actual integration
expenses (shown on Newco’s Assumptions Worksheet) due to the unanticipated need to
upgrade and colocate research and development facilities and to transfer hundreds of
staff are $150 million in 2014, $150 million in 2015, $100 million in 2016, and $50 million in
2017. The model output resulting from these assumption changes is called the Impaired
Integration Case.
What is the impact on Thermo Fisher’s earning per share (including Life Tech) and the
NPV of the combined firms? Compare the difference between the model “Base Case” and
the model output from the “Impaired Integration Case” resulting from making the changes
indicated in this question. (Hint: In the Synergy Section of the Acquirer (Thermo Fisher)
Worksheet, reduce the synergy inputs for each year between 2014 and 2016 by 75%
and allow them to remain at those levels through 2018. On the Newco Assumptions
Worksheet, change the integration expense figures to reflect the new numbers for 2014,
2015, 2016, and 2017.)
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