Discuss five different defensive tactics that the target company can use to thwart this takeover attempt.  2) What are the possible cash flow benefits from this acquisition?    3)Should Genie go ahead with the acquisition using cash or stock acquisition?

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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  1. Discuss five different defensive tactics that the target company can use to thwart this takeover attempt. 

2) What are the possible cash flow benefits from this acquisition?   

3)Should Genie go ahead with the acquisition using cash or stock acquisition?

Statement of Comprehensive Income (in $000)
Sales
Cost of goods sold
Operating expenses
EBDIT
Depreciation
EBIT
Interest expense
Taxable income
Taxes
Net income
Cash
Inventory
Accounts receivable 167
Current assets
475
Most Recent Statement of Financial Position ($000)
$200 Accounts payable
108 Notes payable
Net fixed assets
Total assets
$2,000
1,300
Current liabilities
160
540
40
500
297
203
81
$ 122
Long-term debt
975
2000
Equity
5,000
7,500
$7,975 Total liabilities & equity $7,975
$ 500
475
Mr. Rich estimates that the synergistic benefits from this acquisition will be $300,000 per
year for the foreseeable future. His analysis also indicates that Genie can acquire Aladdin by
paying $7.75 million in cash, or by swapping one Genie share for three Aladdin shares.
Before Mr. Rich can take his recommendation to Genie's Board of Directors, he needs
answers to the following questions:
Transcribed Image Text:Statement of Comprehensive Income (in $000) Sales Cost of goods sold Operating expenses EBDIT Depreciation EBIT Interest expense Taxable income Taxes Net income Cash Inventory Accounts receivable 167 Current assets 475 Most Recent Statement of Financial Position ($000) $200 Accounts payable 108 Notes payable Net fixed assets Total assets $2,000 1,300 Current liabilities 160 540 40 500 297 203 81 $ 122 Long-term debt 975 2000 Equity 5,000 7,500 $7,975 Total liabilities & equity $7,975 $ 500 475 Mr. Rich estimates that the synergistic benefits from this acquisition will be $300,000 per year for the foreseeable future. His analysis also indicates that Genie can acquire Aladdin by paying $7.75 million in cash, or by swapping one Genie share for three Aladdin shares. Before Mr. Rich can take his recommendation to Genie's Board of Directors, he needs answers to the following questions:
Case 3: Mergers & Acquisitions
Genie Inc. is a manufacturer of kitchen appliances. After having been in business for 56
years, the firm is currently experiencing stable growth of 2 to 3% per year. Many industry
experts consider Genie Inc. as a mature company. Genie's current share price is $20, with
2,500,000 shares outstanding; weighted cost of capital (WACC) is 15%. The company's
most recent financial statements are shown below:
Statement of Comprehensive Income (in $000)
Sales
Cost of goods sold
Operating expenses
EBDIT
Depreciation
EBIT
Interest expense
Taxable income
Taxes (40%)
Net income
Statement of Financial Position (in $000)
Cash
Inventory
Accounts receivable
Current assets
Net fixed assets
Total assets
$10,000
7,000
1,000
2,000
200
1,800
1,342
458
183
$275
$ 8000 Accounts payable
583
Notes payable
833
9,417
Long-term debt
Current liabilities
20,000
Equity
$29,417 Total liabilities & equity
$
1,000
3,417
4,417
10,000
15,000
$29,417
Genie has accumulated cash reserves of $8 million, and its CEO, Mr. Lionel Rich, believes
that it is a good time to think about boosting Genie's sales growth by acquiring another
company that is younger, with better growth opportunities. Mr. Rich has narrowed down the
choice to one potential target: Aladdin Corporation.
Aladdin is a relatively young company; it has only been in business for five years. Its main
products are a line of extremely popular espresso machines. Its shares are selling at $7.50
per share. It has 1,000,000 shares outstanding, and a WACC of 18%. Aladdin's financial
statements are shown below:
Transcribed Image Text:Case 3: Mergers & Acquisitions Genie Inc. is a manufacturer of kitchen appliances. After having been in business for 56 years, the firm is currently experiencing stable growth of 2 to 3% per year. Many industry experts consider Genie Inc. as a mature company. Genie's current share price is $20, with 2,500,000 shares outstanding; weighted cost of capital (WACC) is 15%. The company's most recent financial statements are shown below: Statement of Comprehensive Income (in $000) Sales Cost of goods sold Operating expenses EBDIT Depreciation EBIT Interest expense Taxable income Taxes (40%) Net income Statement of Financial Position (in $000) Cash Inventory Accounts receivable Current assets Net fixed assets Total assets $10,000 7,000 1,000 2,000 200 1,800 1,342 458 183 $275 $ 8000 Accounts payable 583 Notes payable 833 9,417 Long-term debt Current liabilities 20,000 Equity $29,417 Total liabilities & equity $ 1,000 3,417 4,417 10,000 15,000 $29,417 Genie has accumulated cash reserves of $8 million, and its CEO, Mr. Lionel Rich, believes that it is a good time to think about boosting Genie's sales growth by acquiring another company that is younger, with better growth opportunities. Mr. Rich has narrowed down the choice to one potential target: Aladdin Corporation. Aladdin is a relatively young company; it has only been in business for five years. Its main products are a line of extremely popular espresso machines. Its shares are selling at $7.50 per share. It has 1,000,000 shares outstanding, and a WACC of 18%. Aladdin's financial statements are shown below:
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