# Cash Stock Deal

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```							Tutorial: How Do You Analyze an M&A Deal?

In this online tutorial, we walk through the application of several M&A analytical tools:

What Are Three Common Ways To Pay For an M&A Deal?

Before we continue, we must define three common ways to pay for an M&A deal:
Inputting the Data For An M&A Analysis

In the case studies we develop in Chapter 10, these data points are as follows:

Name of Acquirer
Shares outstanding (in millions)
Stock price pre-announcement (\$, per share)
Name of Target
Shares outstanding (in millions)
Stock price pre-announcement (\$, per share)

Cash offered for each Target Share (\$, per share)

Cash offered for each Target Share (\$, per share)
Cash offered for each Target Share (\$, per share)

Calculating Shareholder Value at Risk (SVAR) and Premium at Risk

We highlight seven interesting results:
Percent of postmerger company owned by Seller, Inc. shareholders assuming no synergies (%)
Percent of postmerger company owned by Buyer, Inc. shareholders assuming no synergies (%)
Seller, Inc.'s Premium At Risk (%)
Buyer, Inc.'s Hypothetical Shareholder Value At Risk (SVAR) assuming an all-cash deal (%)
Buyer, Inc.'s Actual Shareholder Value At Risk (SVAR, %)

Calculations Anticipating the Market's Initial Reaction
In addition to the two calculations above, we highlight four interesting results:

Percent of postmerger company owned by Seller, Inc. shareholders (%)
Percent of postmerger company owned by Buyer, Inc. shareholders (%)

Calculations After the Market's Initial Reaction

To perform this analysis, we need to use our initial inputs as well as one more data point:

The spreadsheet makes the following calculations:
Using these numbers, this analysis generates five interesting results:

Percent of postmerger company owned by Seller, Inc. shareholders (%)
Percent of postmerger company owned by Buyer, Inc. shareholders (%)
Seller, Inc.'s Postannouncement Premium At Risk (%)
Buyer, Inc.'s Actual Postannouncement Shareholder Value At Risk (SVAR, %)
Tutorial: How Do You Analyze an M&A Deal?

In this online tutorial, we walk through the application of several M&A analytical tools:

Shareholder Value at Risk (SVAR). SVAR is a "bet your company" index. It shows you what percentage
of the acquiring company's value is at risk if the combination doesn't product any postacquisition
synergy.
Premium at Risk. This measure helps selling shareholders assess the risk that they will lose a portion of
the premium they have been pledged if no synergies materialize.
Anticipating the market's initial reaction. The value change from an M&A deal equals the present value
of synergies minus the acquisition premium. You can use this formula to anticipate the market's initial
reaction to an M&A deal. This tool offers far superior predictive power than the more commonly used
M&A earnings accretion/dilution analysis.
Postannouncement analysis. This analysis updates the SVAR and Premium at Risk metrics after the
deal is announced and the market has reacted. Such analysis enables you to judge the
postannouncement attractiveness of the acquirer's and the seller's shares.

We will use the hypothetical deals in which Buyer, Inc. acquires Seller, Inc. for various amounts of cash or
stock as case studies for this tutorial.

What Are Three Common Ways To Pay For an M&A Deal?

Before we continue, we must define three common ways to pay for an M&A deal:

1. Cash. If Buyer, Inc. uses cash in its bid, it will offer shareholders in Seller, Inc. a specific amount of cash
for each share of Seller, Inc.

2. Fixed-Value Stock. Buyer, Inc. may offer "fixed-value stock"--with a guarantee fixing the value of the
shares it will pay--for each Seller, Inc. share. Put simply, in a fixed-value stock deal, the value of Buyer,
Inc. shares offered to Seller, Inc. shareholders is completely fixed, while the number of shares offered
fluctuates depending on Buyer, Inc. share price at closing date. This means that Buyer, Inc. shareholders
bear all the price risks and rewards during the preclosing period. Seller, Inc. shareholders face no price
risk or reward, as they receive a fixed value of Buyer, Inc. shares.

3. Fixed-Shares Stock. Buyer, Inc. may offer "fixed-shares stock"--with a guarantee fixing the number of
the shares it will pay--for each Seller, Inc. share. Put simply, in a fixed-share stock deal, the number of
Buyer, Inc. shares offered to Seller, Inc. shareholders is completely fixed, while the value of shares offered
fluctuates depending on Buyer, Inc. share price at closing date. This means that Buyer, Inc. and Seller,
Inc. shareholders share the risk and rewards of changes in Buyer, Inc. stock price during the preclosing
period. In a fixed-shares stock deal, Seller, Inc. shareholders can face significant risk that their newly
issued shares in Buyer, Inc. will trade at a discount to the pre-deal price of Buyer, Inc shares.

Please note that a particular M&A deal may have more than one of the three components as part of its
offer. For example, acquirers often make an offer using a combination of cash, and either fixed-value
to analyze these more complicated transactions.
Inputting the Data For An M&A Analysis

Entering the data for these analyses is very simple. Here are the data points you need and where to enter

1. Company Name. Enter the name of the Acquirer in cell C6 of the "Inputs" worksheet. Enter the name of
the Seller in cell C12 of the "Inputs" worksheet.

2. Shares outstanding (in millions). Enter the number of Acquirer shares outstanding (in millions) in cell C7
of the "Inputs" worksheet. Enter the number of Target shares outstanding (in millions) in cell C13 of the
"Inputs" worksheet. You can obtain these from a press release, news article, or recent SEC filing.

3. Stock price pre-announcement (\$, per share). Enter the pre- announcement closing price of Acquirer's
shares (\$, per share) in cell C8 of the "Inputs" worksheet. Enter the pre- announcement closing price of
Target's shares (\$, per share) in cell C14 of the "Inputs" worksheet.

In the case studies we develop in Chapter 10, these data points are as follows:

Name of Acquirer
Shares outstanding (in millions)
Stock price pre-announcement (\$, per share)
Name of Target
Shares outstanding (in millions)
Stock price pre-announcement (\$, per share)

Next, we need to enter the terms of the M&A transaction. In the book, we present three hypothetical deal
examples:

1. All cash. In this case, Buyer, Inc. offers \$100 per Seller, Inc. Share. Here, we would enter \$100 (\$, per
share) in cell C18 of the "Inputs" worksheet. Cell C20 and Cell C22 should be empty:

Cash offered for each Target Share (\$, per share)

Amount of Acquirer stock offered in Fixed-Value offer (\$, in millions)

Exchange ratio for stock portion of Fixed Shares offer (Number of Acquirer Shares offered for each Target
Share)

2. All fixed-value stock. In this case, Buyer, Inc. offers \$4 billion in fixed-value stock to acquire all
outstanding Seller, Inc. shares. Here, we would enter \$4,000.0 (\$, in millions) in cell C20 of the "Inputs"
worksheet. Cell C18 and Cell C22 should be empty:

Cash offered for each Target Share (\$, per share)

Amount of Acquirer stock offered in Fixed-Value offer (\$, in millions)

Exchange ratio for stock portion of Fixed Shares offer (Number of Acquirer Shares offered for each Target
Share)
3. All fixed-shares stock. In this case, Buyer, Inc. offers to exchange one Buyer, Inc. share for each Seller,
Inc. share outstanding. Here, we would enter 1.000 in cell C20 of the "Inputs" worksheet. Cell C18 and
Cell C20 should be empty:

Cash offered for each Target Share (\$, per share)

Amount of Acquirer stock offered in Fixed-Value offer (\$, in millions)

Exchange ratio for stock portion of Fixed Shares offer (Number of Acquirer Shares offered for each Target
Share)

Calculating Shareholder Value at Risk (SVAR) and Premium at Risk

Using the inputs described above, the accompanying spreadsheet will calculate the Buyer's Shareholder
Value at Risk (SVAR) and the Seller's Premium at Risk for any given type of deal. The results for these
calculations can be seen in the worksheet "SVAR and Premium at Risk" in the spreadsheet accompanying
this tutorial.

We highlight seven interesting results:

Percent of postmerger company owned by Seller, Inc. shareholders assuming no synergies (%). This
gives us the percent of the postmerger company owned by Seller, Inc. shareholders, assuming no
synergies are reflected in Buyer, Inc.'s stock price at closing date. This metric is calculated in cell C48 of
worksheet "SVAR and Premium at Risk."
Percent of postmerger company owned by Buyer, Inc. shareholders assuming no synergies (%). This
gives us the percent of the postmerger company owned by Buyer, Inc. shareholders, assuming no
synergies are reflected in Buyer, Inc.'s stock price at closing date. Note that Buyer, Inc.'s stock price
affects postclosing ownership percentages only in fixed-value stock deals. This metric is calculated in
cell C49 of worksheet "SVAR and Premium at Risk."
Post-deal return to Seller, Inc.'s shareholders assuming no synergies (%). This metric calculates the
expected share price performance earned by Seller, Inc. shares assuming no synergies are reflected in
Buyer, Inc.'s stock price at closing date. This metric is calculated in cell C60 of worksheet "SVAR and
expected share price performance earned by Buyer, Inc. shares assuming no synergies are reflected in
Buyer, Inc.'s stock price at closing date. This metric is calculated in cell C61 of worksheet "SVAR and

Seller, Inc.'s Premium at Risk (%). To entice Seller, Inc. shareholders to sell their shares, Buyer, Inc.
must offer a premium over Seller's preannouncement share price. In a deal with a fixed-share stock
component, Seller, Inc. shareholders face the risk that some of this premium will be lost in the event that
Buyer, Inc.'s stock price at closing date does not reflect any synergies. Seller, Inc.'s Premium At Risk
refers to the percent of Seller, Inc.'s premium that would be lost if there are no synergies. This metric is
calculated in cell C63 of worksheet "SVAR and Premium at Risk."
Buyer, Inc.'s Hypothetical Shareholder Value at Risk (SVAR) assuming an all-cash deal (%). In a cash or
fixed-value stock deal, Buyer, Inc. shareholders bear all the potential price risk and reward from
announcement to closing date. This metric calculates the Buyer, Inc.'s SVAR in the hypothetical case
that the deal is financed entirely by cash or fixed-value stock. It offers a useful way to measure the
ceiling of the potential SVAR of a deal at a certain price. This metric is calculated in cell C65 of
worksheet "SVAR and Premium at Risk."
Buyer, Inc.'s Actual Shareholder Value At Risk (SVAR, %). If a deal has a fixed-share component, the
potential risk and reward will be shared among both Buyer, Inc. and Seller, Inc. shareholders. Thus, the
Buyer, Inc.'s SVAR will be less than SVAR for a deal financed entirely with cash or fixed-value stock.
This metric--Buyer, Inc's actual SVAR--is calculated in cell C67 of worksheet "SVAR and Premium at
Risk."

These seven results will vary according to the structure of the M&A deal. Below, we present them for our
three case studies: an all-cash deal, a deal in fixed-value stock, and a deal in fixed-share stock.

Percent of postmerger company owned by Seller, Inc. shareholders assuming no synergies (%)
Percent of postmerger company owned by Buyer, Inc. shareholders assuming no synergies (%)
Seller, Inc.'s Premium At Risk (%)
Buyer, Inc.'s Hypothetical Shareholder Value At Risk (SVAR) assuming an all-cash deal (%)
Buyer, Inc.'s Actual Shareholder Value At Risk (SVAR, %)

Calculations Anticipating the Market's Initial Reaction

We can estimate the market's initial reaction to a deal by using the inputs described above, along with two
more data points:

Expected annual synergies from M&A deal (\$, in millions). This is equal to the annual synergies--
resulting from higher sales, lower costs, and lower investments--expected to occur from two companies
coming together as one entity. For example, if we expected \$50 million in annual synergies from the
merger of Buyer, Inc. and Seller, Inc., we would enter \$50.0 (\$, in millions) in cell C24 of the "Inputs"
worksheet.
Weighted Average Cost of Capital (WACC, %). This is equal to the weighted average cost of capital (%)
for the postmerger company. For example, if we estimated WACC to be 10%, we would enter 10% in
cell C25 of the "Inputs" worksheet.

The results for these calculations can be seen in the worksheet "Pre-Market Reaction Analysis" in the

Using these inputs, the accompanying spreadsheet calculates the expected "Post-deal return" for both
Buyer, Inc. and Seller, Inc. shareholders. The spreadsheet calculates this by assuming that the value
change from an M&A deal equals the present value of synergies minus the present value of the acquisition
premium. Specifically, we make the following calculations:

Present value of synergies. We calculate this by assuming estimated annual synergies continue into the
future, and thus equate to a perpetuity. This means the present value of synergies equals estimated
annual synergies divided by the weighted average cost of capital. In the example of a \$50 million in
expected annual synergies and a 10% WACC, the present value of estimated synergies equals \$50 million
divided by 10%, or \$500 million.
Note: Valuing synergies as a perpetuity may be aggressive in some cases. Thus, we would suggest that
this calculation serves as a first approximation of the value impact of a deal. This calculation can also help
investors determine whether the synergies expected by management are consistent with the premium that
they paid.
Premium offered. This is the difference between the value of cash and stock offered for all Seller, Inc.
shares--equal to \$4.0 billion in our case studies--and the pre-deal value of Seller, Inc.--equal to \$2.8
billion. Thus, the premium offered equals \$1.2 billion.
In addition to the two calculations above, we highlight four interesting results:

Percent of postmerger company owned by Seller, Inc. shareholders (%). This gives us the percent of the
postmerger company owned by Seller, Inc. shareholders, assuming estimated synergies are reflected in
Buyer, Inc.'s stock price at closing date. This metric is calculated in cell C45 of worksheet "Pre-Market
Reaction Analysis."
Percent of postmerger company owned by Buyer, Inc. shareholders (%). This gives us the percent of the
postmerger company owned by Buyer, Inc. shareholders, assuming estimated synergies are reflected in
Buyer, Inc.'s stock price at closing date. This metric is calculated in cell C46 of worksheet "Pre-Market
Reaction Analysis."
Post-deal return to Seller, Inc.'s shareholders (%). This metric calculates the expected share price
performance earned by Seller, Inc. shares assuming estimated synergies are reflected in Buyer, Inc.'s
stock price at closing date. This metric is calculated in cell C55 of worksheet "Pre-Market Reaction
Analysis."
performance earned by Buyer, Inc. shares assuming estimated synergies are reflected in Buyer, Inc.'s
stock price at closing date. This metric is calculated in cell C56 of worksheet "Pre-Market Reaction
Analysis."

These four results will vary according to the structure of the M&A deal. Below, we present them for our
three case studies--an all-cash deal, a deal in fixed-value stock, and a deal in fixed-share stock--assuming
\$50 million in annual synergies and a 10% cost of capital:

Percent of postmerger company owned by Seller, Inc. shareholders (%)
Percent of postmerger company owned by Buyer, Inc. shareholders (%)

Calculations After the Market's Initial Reaction

The final part of the M&A assessment updates the analysis after the deal is announced and the market
has reacted. Such analysis enables us to judge the postannouncement attractiveness of the acquirer's
and the seller's stock for cash and stock transactions.

To perform this analysis, we need to use our initial inputs as well as one more data point:

Buyer, Inc.'s postannouncement share price (\$, per share). This equals the value of Buyer, Inc.'s shares
after the market has reacted to the deal. In the book, we set this number equal to \$90. In the
spreadsheet, we enter \$90.00 into cell C30 of the "Inputs" worksheet.

The results can be seen in the worksheet "Post-Market Reaction Analysis" in the spreadsheet
accompanying this tutorial.

The spreadsheet makes the following calculations:
preannouncement share price multiplied by the number of Buyer, Inc. shares outstanding, or \$5.0 billion.
You can see this calculation in cell C14 of worksheet "Post-Market Reaction Analysis."

postannouncement share price multiplied by the number of Buyer, Inc. shares outstanding, or \$4.5
billion. You can see this calculation in cell C18 of worksheet "Post-Market Reaction Analysis."

Postannouncement Market Value Change (\$, in millions). This equals the difference between the
preannouncement market capitalization--here, equal to \$5.0 billion--and the postannouncement market
capitalization--here, equal to \$4.5 billion. Thus, the postannouncement market value change equals
\$500 million. You can see this calculation in cell C20 of worksheet "Post-Market Reaction Analysis."
Total premium offered for Seller, Inc. (in millions). As before, this is the difference between the value of
cash and stock offered for Seller, Inc. shares--equaled to \$4.0 billion in our case studies--and the pre-
deal value of Seller, Inc.--equal to \$2.8 billion. Thus, the premium equals \$1.2 billion. You can see this
calculation in cell C36 of worksheet "Post-Market Reaction Analysis."
Synergy risk that remains for the continuing shareholders of Buyer, Inc. or other investors who purchase
Buyer, Inc. shares at the current price (\$, in millions). This equals the difference between the total
premium offered for Seller, Inc.--here, equal to \$1.2 billion--and the positive postannouncement value
change--here, equal to \$500 million. Thus, the remaining synergy risk for Buyer, Inc. shareholders
equals \$700 million. You can see this calculation in cell C40 of worksheet "Post-Market Reaction
Analysis."

Using these numbers, this analysis generates five interesting results:

Percent of postmerger company owned by Seller, Inc. shareholders (%). This gives us the percent of the
postmerger company owned by Seller, Inc. shareholders, given Buyer, Inc's new share price. This metric
is calculated in cell C49 of worksheet "Post-Market Reaction Analysis."
Percent of postmerger company owned by Buyer, Inc. shareholders (%). This gives us the percent of the
postmerger company owned by Buyer, Inc. shareholders, given Buyer, Inc's new share price. This metric
is calculated in cell C50 of worksheet "Post-Market Reaction Analysis."
Seller, Inc.'s Postannouncement Premium at Risk (%). After the market reacts to the deal, Seller, Inc.'s
Premium At Risk--the percent of Seller, Inc,'s premium that would be lost if there are no synergies
reflected in Buyer, Inc.'s stock price at closing date--will change. This metric is calculated in cell C59 of
worksheet "Post-Market Reaction Analysis."
Buyer, Inc.'s Hypothetical Postannouncement Shareholder Value at Risk (SVAR) assuming an all-cash
deal (%). After the market reacts to the deal, the Buyer, Inc.'s hypothetical all-cash SVAR will change.
This metric is calculated in cell C61 of worksheet "Post-Market Reaction Analysis."
Buyer, Inc.'s Actual Postannouncement Shareholder Value At Risk (SVAR, %). After the market reacts
to the deal, the Buyer, Inc.'s actual SVAR will change. This metric is calculated in cell C63 of worksheet
"Post-Market Reaction Analysis."

These five results will vary according to the structure of the M&A deal. Below, we present them for our
three case studies--an all-cash deal, a deal in fixed-value stock, and a deal in fixed-share stock--assuming
no synergies and a fall in Buyer, Inc.'s share price from \$100 to \$90:

Percent of postmerger company owned by Seller, Inc. shareholders (%)
Percent of postmerger company owned by Buyer, Inc. shareholders (%)
Seller, Inc.'s Postannouncement Premium At Risk (%)
Buyer, Inc.'s Hypothetical Postannouncement Shareholder Value At Risk (SVAR) assuming an all-cash
deal (%)
Buyer, Inc.'s Actual Postannouncement Shareholder Value At Risk (SVAR, %)
50
\$100.00
Seller, Inc.
40
\$70.00

\$100.00

\$4,000.00
1.000
Fixed-    Fixed-
Value     Share
Cash Deal       Deal      Deal
0.00%    51.30%    44.40%
100.00%     48.70%    55.60%
42.90%    42.90%    23.80%
-24.00%   -24.00%   -13.30%
0.00%     0.00%    44.40%
24.00%    24.00%    24.00%
24.00%    24.00%    13.30%
Fixed-    Fixed-
Value     Share
Cash Deal       Deal      Deal
0.0%     48.2%     44.4%
100.0%      51.8%     55.6%
42.9%     42.9%     31.7%
-14.0%    -14.0%      -7.8%
Fixed-    Fixed-
Value     Share
Cash Deal      Deal      Deal
0.00%    47.10%    44.40%
100.00%    52.90%    55.60%
0.00%    27.50%    44.40%
15.60%   15.60%   15.60%
15.60%    8.20%    8.60%
M&A Deal Analysis

Inputs from Acquirer Pre-Announcement:

Shares outstanding (in millions)                                      50.0
Stock price pre-announcement (\$, per share)                    \$   100.00

Inputs from Acquirer Pre-Announcement:

Name of Target                                                   Seller, Inc.
Shares outstanding (in millions)                                       40.0
Stock price pre-announcement (\$, per share)                    \$     70.00

Inputs from M&A Transaction:

Cash offered for each Target Share (\$, per share)
Amount of Acquirer stock offered in Fixed-Value offer (\$, in
millions)                                                      \$    4,000.0
Exchange ratio (number of Acquirer Shares per Target
Share) for stock portion of Fixed Shares offer

Expected annual synergies from M&A deal (\$, in millions)       \$       50.0
Weighted Average Cost of Capital (WACC, %)                            10.0%

Inputs for Post-Market Reaction Analysis:

Buyer, Inc.'s share price post-announcement (\$, per share)     \$      90.00
Shareholder Value At Risk (SVAR) and Premium at Risk Calculations

Structure of Deal:

Cash                                                                                                                                        NO
Fixed-Value Stock Offer                                                                                                                     YES
Fixed-Shares Stock Offer                                                                                                                    NO

Prior-to-Deal Calculations:

Buyer, Inc.'s pre-announcement shares oustanding (in millions)                                                                               50.0
Buyer, Inc.'s pre-announcement stock price (\$, per share)                                                                            \$    100.00
Buyer, Inc.'s pre-announcement market capitalization (\$, millions)                                                                      \$    5,000.0

Seller, Inc.'s pre-announcement shares oustanding (in millions)                                                                              40.0
Seller, Inc.'s pre-announcement stock price (\$, per share)                                                                           \$      70.00
Seller, Inc.'s pre-announcement market capitalization (\$, millions)                                                                     \$    2,800.0

Post-Deal Calculations:

Cash offered for each Seller, Inc. share                                                                                             \$       -
Fixed-Value stock offered for each Seller, Inc. share (\$, per share)                                                                 \$    100.00
Fixed-Shares stock offered for each Seller, Inc.share (\$, per share)                                                                 \$       -
Total value offered in cash and stock for each Seller, Inc. share (\$, per share)                                                        \$    100.00

Total cash offered to Seller, Inc. shareholders (\$, in millions)                                                                     \$        -
Total value of Fixed-Value stock offered to Seller, Inc. shareholders (\$, in millions)                                               \$    4,000.0
Total value of Fixed-Shares stock offered to Seller, Inc. shareholders (\$, in millions)                                              \$        -
Total value of cash and stock offered to Seller, Inc. shareholders                                                                      \$    4,000.0

Total premium offered for Seller, Inc. (\$, in millions)                                                                                 \$    1,200.0
Implied premium offered for Seller, Inc. shares (%)                                                                                            42.9%

Percent of offer in cash (%)                                                                                                                0.0%
Percent of offer in Fixed-Value stock (%)                                                                                                 100.0%
Percent of offer in Fixed-Shares stock (%)                                                                                                  0.0%

Number of Fixed-Value shares issued to Seller, Inc. shareholders assuming no synergies (in millions)                                        52.6
Number of Fixed-Shares shares issued to Seller, Inc. shareholders assuming no synergies (in millions)                                        -
Number of shares Buyer, Inc. shareholders originally owned (in millions)                                                                    50.0
Total postmerger shares outstanding                                                                                                           102.6

Percent of postmerger company owned by Seller, Inc. shareholders from Fixed-Value shares assuming price at closing date
reflects no synergies (%)                                                                                                                  51.3%
Percent of postmerger company owned by Seller, Inc. shareholders from Fixed-Share shares assuming price at closing date
reflects no synergies (%)                                                                                                                   0.0%
Percent of postmerger company owned by Seller, Inc. shareholders assuming price at closing date reflects no synergies                         51.3%
Percent of postmerger company owned by Buyer, Inc. shareholders assuming price at closing date reflects no synergies                          48.7%

Share price of postmerger company assuming no synergies (\$)                                                                             \$     76.00

Value of shares issued to Seller, Inc. shareholders as Fixed-Value shares assuming price at closing date reflects no synergies (\$,
in millions)                                                                                                                         \$    4,000.0
Value of shares issued to Seller, Inc. shareholders as Fixed-Share shares assuming price at closing date reflects no synergies (\$,
in millions)                                                                                                                         \$        -
Value of Buyer, Inc. shares assuming price at closing date reflects no synergies (\$, in millions)                                    \$    3,800.0
Total value of postmerger company assuming price at closing date reflects no synergies                                                  \$    7,800.0

Post-deal return to Seller, Inc.'s shareholders assuming price at closing date reflects no synergies (%)                                          42.9%

Seller, Inc.'s Premium At Risk (%)                                                                                                                   0.0%

Buyer, Inc.'s Hypothetical Shareholder Value At Risk (SVAR) assuming an all-cash deal (%)                                                        24.0%

Buyer, Inc.'s Actual Shareholder Value At Risk (SVAR, %)                                                                                         24.0%
M&A Analysis Prior to Market Reaction

Structure of Deal:

Cash                                                                                                 NO
Fixed-Value Stock Offer                                                                              YES
Fixed-Shares Stock Offer                                                                             NO

Prior-to-Deal Calculations:

Buyer, Inc.'s pre-announcement shares oustanding (in millions)                                         50.0
Buyer, Inc.'s pre-announcement stock price (\$, per share)                                      \$     100.00
Buyer, Inc.'s pre-announcement market capitalization (\$, millions)                               \$    5,000.0

Seller, Inc.'s pre-announcement shares oustanding (in millions)                                        40.0
Seller, Inc.'s pre-announcement stock price (\$, per share)                                     \$      70.00
Seller, Inc.'s pre-announcement market capitalization (\$, millions)                              \$    2,800.0

Post-Deal Calculations:

Cash offered for each Seller, Inc. share                                                       \$       -
Fixed-Value stock offered for each Seller, Inc. share (\$, per share)                           \$    100.00
Fixed-Shares stock offered for each Seller, Inc.share (\$, per share)                           \$       -
Total value offered in cash and stock for each Seller, Inc. share (\$, per share)                 \$    100.00

Total cash offered to Seller, Inc. shareholders (\$, in millions)                               \$        -
Total value of Fixed-Value stock offered to Seller, Inc. shareholders (\$, in millions)         \$    4,000.0
Total value of Fixed-Shares stock offered to Seller, Inc. shareholders (\$, in millions)        \$        -
Total value of cash and stock offered to Seller, Inc. shareholders                               \$    4,000.0

Total premium offered for Seller, Inc. (\$, in millions)                                          \$    1,200.0
Implied premium offered for Seller, Inc. shares (%)                                                     42.9%

Expected annual synergies from M&A deal (\$, in millions)                                         \$      50.0
Present value of capitalized annual synergies starting next year (\$, in millions)                \$     500.0

Number of Fixed-Value shares issued to Seller, Inc. shareholders (in millions)                           46.5
Number of Fixed-Share shares issued to Seller, Inc. shareholders (in millions)                            -
Number of shares Buyer, Inc. shareholders originally owned (in millions)                                 50.0
Total postmerger shares outstanding                                                                        96.5

Percent of postmerger company owned by Seller, Inc. shareholders from Fixed-Value shares (%)         48.2%
Percent of postmerger company owned by Seller, Inc. shareholders from Fixed-Share shares (%)          0.0%
Percent of postmerger company owned by Seller, Inc. shareholders                                       48.2%
Percent of postmerger company owned by Buyer, Inc. shareholders                                        51.8%

Share price of postmerger company (\$, per share)                                                 \$     86.00

Value of shares issued to Seller, Inc. shareholders as Fixed-Value shares (\$, in millions)     \$    4,000.0
Value of shares issued to Seller, Inc. shareholders as Fixed-Share shares (\$, in millions)     \$        -
Value of Buyer, Inc. shares (\$, in millions)                                                   \$    4,300.0
Total value of postmerger company (\$, in millions)                                               \$    8,300.0

Post-Announcement Shareholder Value At Risk (SVAR) and Premium at Risk Calculations

Structure of Deal:

Cash                                                                                                                                 NO
Fixed-Value Stock Offer                                                                                                              YES
Fixed-Shares Stock Offer                                                                                                             NO

M&A Analysis Calcualtions:

Buyer, Inc.'s preannouncement shares outstanding (in millions)                                                                         50.0
Buyer, Inc.'s preannouncement stock price (\$, per share)                                                                       \$     100.00
Buyer, Inc.'s preannouncement market capitalization (\$, millions)                                                                \$   5,000.00

Buyer, Inc.'s preannouncement shares outstanding (in millions)                                                                         50.0
Buyer, Inc.'s postannouncement stock price (\$, per share)                                                                      \$      90.00
Buyer, Inc.'s postannouncement market capitalization (\$, millions)                                                               \$    4,500.0

Postannouncement Market Value Change (\$, in millions)                                                                            \$     500.0

Seller, Inc.'s preannouncement shares outstanding (in millions)                                                                       40.0
Seller, Inc.'s preannouncement stock price (\$, per share)                                                                     \$      70.00
Seller, Inc.'s preannouncement market capitalization (\$, millions)                                                               \$    2,800.0

Cash offered for each Seller, Inc. share                                                                                      \$       -
Fixed-Value stock offered for each Seller, Inc. share (\$, per share)                                                          \$    100.00
Fixed-Shares stock offered for each Seller, Inc.share (\$, per share)                                                          \$       -
Total value offered in cash and stock for each Seller, Inc. share (\$, per share)                                                 \$    100.00

Total cash offered to Seller, Inc. shareholders (\$, in millions)                                                              \$        -
Total value of Fixed-Value stock offered to Seller, Inc. shareholders (\$, in millions)                                        \$    4,000.0
Total value of Fixed-Shares stock offered to Seller, Inc. shareholders (\$, in millions)                                       \$        -
Total value of cash and stock offered to Seller, Inc. shareholders                                                               \$    4,000.0

Total premium offered for Seller, Inc. (\$, in millions)                                                                          \$    1,200.0
Implied premium offered for Seller, Inc. shares (%)                                                                                     42.9%

Synergy risk that remains for the continuing shareholders of Buyer, Inc. or other investors who purchase Buyer, Inc. shares at
the current price (\$, in millions)                                                                                               \$     700.0

Number of Fixed-Value shares issued to Seller, Inc. shareholders (in millions)                                                          44.4
Number of Fixed-Share shares issued to Seller, Inc. shareholders (in millions)                                                           -
Number of shares Buyer, Inc. shareholders originally owned (in millions)                                                                50.0
Total postmerger shares outstanding                                                                                                        94.4

Percent of postmerger company owned by Seller, Inc. shareholders from Fixed-Value shares (%)                                         47.1%
Percent of postmerger company owned by Seller, Inc. shareholders from Fixed-Share shares (%)                                          0.0%
Percent of postmerger company owned by Seller, Inc. shareholders                                                                       47.1%
Percent of postmerger company owned by Buyer, Inc. shareholders                                                                        52.9%

Share price of postmerger company (\$, per share)                                                                                 \$     90.00

Value of shares issued to Seller, Inc. shareholders as Fixed-Value shares (\$, in millions)                                    \$    4,000.0
Value of shares issued to Seller, Inc. shareholders as Fixed-Share shares (\$, in millions)                                    \$        -
Value of Buyer, Inc. shares (\$, in millions)                                                                                  \$    4,500.0
Total value of postmerger company (\$, in millions)                                                                               \$    8,500.0

Seller, Inc.'s Postannouncement Premium At Risk (%)                                                                                      27.5%

Buyer, Inc.'s Hypothetical Postannouncement Shareholder Value At Risk (SVAR) assuming an all-cash deal (%)                               15.6%

Buyer, Inc.'s Actual Postannouncement Shareholder Value At Risk (SVAR, %)                                                                    8.2%

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