Determining the new equity value


Huntington Corporation is acquiring target Orlando Inc. in a merger. Both companies are publicly listed. Orlando market valuation in the merger is $14 billion and its equity value on its balance sheet before any adjustments is $9 billion. During the merger process, Orlando inventories will be written down by $700 million and its receivables will be written down by $500 million on the other hand under fair value accounting its plant and equipment will increase in value by $1.5 billion and its patents and trademarks will increase in value by $800 million.

A) What is the new equity value of Orlando on its balance sheet.

B) How much goodwill will Orlando enter on its balance sheet as a result of this merger?

C) If the prevailing market value of Orlando was $11 billion on the NASDAQ before the merger announcement, what is the premium over the market value that Huntington paid for Orlando in dollars and %?

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Finance Basics: Determining the new equity value
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