Valuing an Acquisition with Specific Reference to Kraft Food Inc. & Cadbury Plc.

Aggarwal, Avi (2011) Valuing an Acquisition with Specific Reference to Kraft Food Inc. & Cadbury Plc. [Dissertation (University of Nottingham only)] (Unpublished)

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Mergers and Acquisitions have become a part and parcel of every business today. In order to survive in the corporate race, every small or large enterprise tries to take the shortcut to expansion by either acquiring a smaller firm or combining with a bigger firm. Efforts are made by every firm to be the most powerful one by trying to takeover other firms, expand and reposition themselves. But one of the most important and difficult task in any acquisition is to correctly value the target firm.

This dissertation outlines the literature on several valuation techniques used by the companies to value their stock. We proceed by discussing the two most commonly used methods

1- The Discounted Cash Flow Valuation approach.

2- The Relative Valuation approach.

Discounted cash flows are a way to determine the present value of a company with the help of future cash flows adjusted for time value. The discounted cash flow valuation approach is further studied under two measures i.e. the equity valuation which looks at cash flows that accrue to the equity shareholders alone and the firm valuation which deals with cash flows that accrue to the entire firm.

Another technique of valuation that has been studied in detail is the relative valuation technique that values companies relatively, i.e. on the basis of how similar the companies are valued by the market.

This paper also throws light on some specific issues related to acquisition valuation by analyzing the case study of Cadbury’s merger with Kraft Foods in 2010 as an example to demonstrate the computation of the various inputs that are utilized in determining value and how the value from these models vary from what is actually paid by the acquirer in the deal.

The acquisition valuation encircles the various types of acquisitions, motives for acquisitions the steps involved in valuing a target firm and how a deal is framed. An attempt has also been made to analyze who is the winner in the end of a M&A deal, the target firm or the acquiring firm.

Item Type: Dissertation (University of Nottingham only)
Depositing User: EP, Services
Date Deposited: 25 Apr 2012 14:42
Last Modified: 21 Dec 2017 02:03

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