Business valuation and pricing in merger and acquisition context : case study: Intel - Altera

Abstract

Merger and acquisition play an important role in business landscape, and are often considered as mechanisms of a market economy to become more efficient and effective. A typical merger or acquisition deal is, however, a very timeconsuming, complicated process with many phases, involving many parties and built on a very complex structure. Proper valuation is one of the crucial keys to the success of every merger or acquisition deal. This thesis discusses merger and acquisition and introduces the method and framework to effectively value and price a company in merger and acquisition context. In order to understand the logic underlying valuation methods, background knowledge on merger and acquisition will be provided. Later various factors which affect the valuation and price of the target company in M&A will be discussed, on which a financial model will be introduced to value the company within the context of M&A. The financial model is built on a sample transaction – Intel to acquire Altera, with most of the underlying assumptions are drawn from comprehensive analysis of both companies. The financial model largely employs the discounted cash flow method, based on 5 year forecasted financial data of both companies. All historical data is collected from the companies’ annual reports 10K SEC filings during the period 2010-2014. Data for the period 2015-2019 will be projected and presented in the model. In the end, the model shows the stand-alone value of the target company as of $13855 million, with the suggested offer price range from $13855 million to $21643 million. This study employs the deductive approach and quantitative research method. The thesis also uses various type of sources, from published books, journals and articles to many other miscellaneous internet sources, in order to provide background knowledge and explain the subject comprehensively.