Year 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 EBIT (378) 542 569 598 627 659 692 726 763 801 841
Tax at 33% 179 188 197 207 217 228 240 252 264 277
Earnings after tax (378) 363 381 400 420 441 463 487 511 537 563 +Depreciation 770 785 801 817 833 850 867 884 902 920 939
-Capital expenditures (466) 0 0 0 0 0 0 0 0 0 0
-Increase in NWC 923 0 0 0 0 0 0 0 0 0 0
Free Cash Flow 1781 1148 1182 1217 1253 1291 1330 1371 1413 1457 1502 PV(at 8.95%) of FCFs years 09-17 7655
Terminal value estimates 2018 Perpetual growth at 3% (FCFy10/(Kw-g))
25250
Best guess terminal value
PV of Terminal value 9835 Estimated value of firm 17489 Value of firm 17489 Value of liabilities 7927 Value of equity 9562 Shares outstanding 754 million
Year
2009
2010
2011
2012
2013
EBIT
8555
8983
9432
9904
10399
Tax at 33%
2823
2964
3113
3268
3432
Earnings after tax
5732
6019
6320
6636
6967
+Depreciation
1976
2075
2179
2287
2402
-Capital expenditures
63
555
583
612
643
-Increase in NWC
435
1426
1497
1572
1651
Free Cash Flow
7210
6112
6418
6739
7075
PV(at 8.19%) of FCFs years 09-17
49604
Terminal value estimates 2018
Perpetual growth at 3%
(FCFy10/(Kw-g))
Best guess terminal value
PV of Terminal value
62722
Estimated value of firm
112326
Value of firm
112326
Value of liabilities
10300
Value of equity
102026
Shares outstanding
4983 million
2014
2015
2016
2017
2018
2019
10919 11465 12038 12640
13272
13936
3603
3783
3973
4171
4380
4599
7316
7681
8066
8469
8892
9337
2522
2648
2780
2919
3065
3219
675
709
744
782
821
862
1733
1820
1911
2006
2107
2212
7430
7800
8191
8600
9030
9582
161034
Year
2009
2010
2011
2012
EBIT
8177
9525
9985
10467
Tax at 31%
2481
2953
3095
3245
Earnings after tax
5696
6572
6889
7222
+Depreciation
2746
2860
2980
3105
-Capital expenditures
63
555
583
612
-Increase in NWC
435
1426
1497
1572
Free Cash Flow
7944
7451
7789
8143
PV(at 8.19%) of FCFs years 2010-2019
$54,280
Terminal value estimates 2018
Perpetual growth at 3% (FCFy10/(Kw-g))
101666
PV of Terminal value
101666
Estimated value of firm
155,946
Value of firm
155,946
Value of liabilities
$30,253
Value of equity
$125,693
Shares outstanding
5302 mn
2013
2014
2015
2016
2017
2018
2019
10974
11505
12063
12648
13262
13907
14583
3402
3567
3740
3921
4111
4311
4521
7572
7939
8323
8727
9151
9596
10062
3235
3372
3515
3665
3822
3986
4157
643
675
709
744
782
821
862
1651
1733
1820
1911
2006
2107
2212
8514
8902
9310
9737
10185
10654
11146
214759
Company: Oracle Cost of Debt: (using Moody’s A2 bond rating) 5% Corporate Tax rate: (from Oracle’s income statement) 30%
Equity Beta (from Yahoo Finance ) 1.05
Equity Value today (market cap) $92.93 billion Value of Debt (from Balance sheet) $10.3 billion Risk free rate (10 year Treasury –note) 3.45%
Market risk Premium 5%
Cost of Debt after tax 5% (1-30%) = 3.5%
Cost of Equity 3.45% +1.05*5% = 8.71%
Debt Ratio D/(D+E) 10.3/(10.3+92.93) = 10%
Equity Ratio E/(D+E) 92.93/(10.3+92.93) = 90% WACC for Oracle 3.5% * 0.1 + 8.71% * 0.9 =8.19%
Sun 30% 1.1 3.45% 5% w 3.45%+1.1*5% = 8.95% Debt is negligible
What Oracle paid
Equity
7.4
Cash
0
Total
7.4
Sun current market cap
share price
$8.52
no of shares
754
Market cap
6.4
What is Sun actual worth
Projected share price
$12.31
no of shares
754
Projected Market cap
9.3
What oracles shareholders get
Before merger share price
22.4
Post merger share price
27.64
no of shares
4983
synergy
26.11092
Goodwill paid to Sun Sun's acquisition price - Sun's market cap ( as it is a 100% equity deal)
7.4-6.4=1bn
Financial Synergies
(a+b)-((a)+(b))-goodwill paid
Financial Synergy
Synergy/share
(V1+V2) = Post merger Firm
V1 = Sun
V2= Oracle
Goodwill
Financial Synergy :
Synergy/ Share :
billion
billion
billion
9.5
22.4
million
billion
Swap Ratio
Number of shares
319.777
million
billion
2
5
6
9
5302.776786
3
6
4
8
3
3
18
31
Sun's acquisition price - Sun's market cap ( as it is a 100% equity deal)
125693
125.7
-9562
-9.6
-102026
-112
-1000
-1
13104.8
3.5
2.471304809
0.002471305
135.9 billion
9.6 billion
112.1 billion
1 billion
13.8 billion
4.4 $
Ratio Analysis Oracle 2009 2008 2007 2006 2005 Profit Margin 24.05 24.61 23.75 23.51 24.46 Asset Turnover 0.49 0.55 0.57 0.58 0.71 Assets/Equity 1.89 2.05 2.04 1.93 1.91 ROE 22.27 27.75 27.62 26.32 33.17 P/E 14.4 18.27 19.78 17.78 18.82 P/Sales 4.27 5.23 5.57 5.14 5.57 IBM 2008 2007 2006 2005 Profit Margin 11.9 10.55 10.38 8.71 Asset Turnover 0.9 0.88 0.87 0.84 Assets/Equity 8.13 4.23 3.62 3.19 ROE 87.07 39.27 32.69 23.34 P/E 9.42 15.14 16.03 15.93 P/Sales 1.1 1.56 1.63 1.44 Profit Margin 15.96 18.58 19.92 17.58 Asset Tunover 0.96 1.04 1.01 1.02 Assets/Equity 1.94 1.57 1.55 1.57 ROE 29.72 30.34 31.18 28.15 P/E 16.28 22.46 26.38 31.7 P/Sales 2.59 4.18 5.27 5.57
Profitability
2009 2008 2007 2006 2005
Gross Margin 79.38 77.79 76.61 77.5 77.53
Operating Margin 36.79 35.71 34.08 34.48 37.1
Net Profit Margin 24.05 24.61 23.75 23.51 24.46
ROA 11.81 13.49 13.44 13.6 17.26
ROE 22.27 27.75 27.62 26.32 33.17
ROIC 17.12 19.94 19.9 20.47 27.29
Earnings Per Share 1.09 1.06 0.81 0.64 0.55
P/E Ratio 14.4 18.27 19.78 17.78 18.82
FCF per share 1.52 1.39 1.01 0.83 0.65
