8-2 Short Paper: Electrolux and GE Merger


FIN 630 Module Eight Short Paper Guidelines and Rubric
8-2 Short Paper: Electrolux and GE Merger
Overview: For this assignment, you will read the Electrolux and GE Appliances case study, which offers an analysis of the Electrolux’s valuation process during its acquisition of GE Appliances in August of 2014. The Electrolux team was tasked with completing a valuation and crafting a final offer for the GE appliance division. In your short paper, you will describe the circumstances of the deal for these two companies, conduct basic valuation calculations, and make a recommendation that would be communicated to senior management.
Prompt: Specifically, the following critical elements must be addressed:
I. Provide a detailed overview of the scenario, including the parties involved, the history, and the specifics of the deal.
II. Calculate the total value of GE Appliances and Electrolux.
Hint: We are looking for the Total Value from Electrolux’s point of view. Look at PV values in exhibits 7 through 9: Total Value = GE Appliances + Mabe Interest + Synergies
Total Value = 3,175 + 480 + 1,019 = $5,674
III. Using the projected seven-year valuation, calculate the range of values for GE Appliances.
IV. Do the terminal values support the merger? Looking at the numbers in the exhibit, do you think the merger should happen? Is it a good investment? Support your answer with a full explanation of why (or why not), with supporting financial information.
Hint: There will be three calculations: a preliminary calculation based on the case study, an expanded year valuation from four to seven years, and an expanded calculation from four to seven years including NWC.
Summary of Exhibit 7 Valuation of GE Appliances
Revenue Growth
In Case No TV
No Capex No NWC No TV
No Capex NWC Terminal Value Capex NWC
4 Years 7 Years 7 Years 7 Years
-1.00% $457 -$80 -$12 -$3,863
0.00% $718 $524 $563 -$2,102
1.00% $984 $984 $1,158 -$249
2.00% $1,254 $1,800 $1,776 $1,700
3.00% $1,531 $2,475 $2,416 $3,752
4.00% $1,812 $3,175 $3,079 $5,909
Summary of Exhibit 8 Valuation of GE Interest in Mabe
Revenue Growth In Case No Terminal Values Terminal Values
7 Years 7 Years
1.00% $60 -$28 -$394
2.00% $128 $135 $114
3.00% $198 $304 $648
3.80% $254 $445 $1,096
4.00% $268 $480 $1,211
Extension of Exhibit 9 Value of Synergies
Revenue Growth In Case No Terminal Values Terminal Values
0.00% $509 $1,019 $2,558
IV. In reference to the tables above, if you were presenting to senior management and had to give one number for each final valuation, what would those numbers be, and how would you arrive at the numbers? Explain your answers.
Hint: Think of final valuation as the conservative number. For GE, you should look at 7-year TV, Capex, and NWC. For Mabe, use No TV and slightly higher revenue growth, and for synergies, use the case numbers.
V. In the end, did the merger go through or not? Research the outcome and explain what happened.
Guidelines for Submission: Your paper should be 2–3 pages long, double spaced, with 12-pt. Times New Roman font, one-inch margins, APA citations, and at least two references.
Instructor Feedback: This activity uses an integrated rubric in Blackboard. Students can view instructor feedback in the Grade Center. For more information, review these instructions.