Review the proposed merger of ATT and T-Mobile from 2011 via online articles / news reports. Given your research, respond to the following:
1) From a financial manager's perspective, WHY would this merger have been a value creating proposition? In other words, why are the two firms worth more together than apart?
2) Aside from the FCC rejecting the merger, what other reasons did you find that made this merger unattractive?
3) From what you learned in chapter 26, why would this have been a merger instead of ATT performing a leveraged buyout or straight out acquisition? Make sure you fully defend your response with your research / comments from the author.
B) Kansas City Deck Supply, a small residential builder of decks, is considering purchasing a lumber supplier (Midwest Pine). KC Deck's analysts project that the merger will result in the following incremental free cash flows, tax shields, and horizon values:
|
Year
|
1
|
2
|
3
|
4
|
|
Free cash flow
|
$1
|
$3
|
$3
|
$7
|
|
Unlevered horizon value
|
|
|
|
|
|
Tax shield
|
1
|
1
|
2
|
3
|
|
Horizon value of tax shield
|
|
|
|
32
|
Assume that all cash flows occur at the end of the year. Midwest Pine is currently financed with 30% debt at a rate of 10%. The acquisition would be made immediately, and if it is undertaken, Midwest Pine would retain its current $15 million of debt and issue enough new debt to continue at the 30% target level. The interest rate would remain the same. Midwest Pine's pre-merger beta is 2.0 and its post-merger tax rate would be 34%. The risk-free rate is 8% and the market risk premium is 4%. What is the value of Midwest Pine to KC Deck?