WELLPOINT AND ANTHEM MERGER IN 2003
Standard ratio analysis should be used to supplement the discussion of strength and weakness.
The following ratios are most often used by practitioners:
(a) Growth Rates: PEG Ratio and 10 year or 5 year compound growth rates (CAGR) in Sales and EPS of the two companies prior to the merger.
(b) Liquidity Ratios
(c) Leverage Ratios:
(i) Book Value of Total Debt/Book Value of Equity
(ii) Book Value of Long-term Debt/Book Equity
(iii) Book Value of Total Debt/Market Value of Equity
(iv) Interest and other fixed charge Coverage Ratio
(d) Operating Characteristics:
(i) Total Asset Turnover
(ii) Average Collection Period
(iii) Gross Profit Margin
(iv) ROE and ROA
(e) Investment Characteristics:
(i) Capital Expenditure as a percentage of Total Asset
(ii) R&D as a percentage of Total Assets
Most of these ratios are available from Bloomberg, Standard and Poor's Industry Survey, or similar sources. You may also access WRDS for relevant information.
Description of the deal, analysis of abnormal returns & premium
(a) Describe the transaction structure, mode of payment, and financing.
(b) Give your comment/assessment of the structure and discuss why this structure was adopted and whether you would recommend a different structure. For example, if it was a stock transaction with a fixed exchange ratio, then explain why no collars or options were used.
(c) Discuss valuation: DCF, Comparables, 52-week High, Sum of Parts, etc.
(d) Show announcement period abnormal returns, price run-up and total premium.