askivy_assessment_center_case_study

One important point to understand is the owners of the target no longer own
the target, but instead, they have swapped their ownership in the target for an
ownership in the acquirer: basically 100% in the target in exchange for 23% of
the acquirer.
o Issuing Equity has pros and cons: The pro of the equity is that it is an effective
way to acquire companies if you have already too much debt. Also, with equity,
you don’t have to pay interest. The major con is that using equity, you give up
some ownership in your company (this is called “diluting” your ownership), which
many owners will not be ready to do. Also, issuing equity usually involve higher
fees to be paid to banks.
o You can use a mix of debt and equity: it is quite common for companies to use a
mix of debt and equity to buy targets. Maybe it is because they cannot afford to
borrow the whole amount, or maybe they don’t mind giving up a small portion of
their ownership. In this case, the calculations are the same as described above,
and you just need to adjust the share of debt and equity you want to use.
Assignment: Using the key Vodafone Plc information and Avea Additional Information
provided below and balance sheet data from Vodafone Plc annual report (assume both
companies have same financial year end), write the “content” key points and form an opinion
on whether to buy the target or not. You can then go to the Appendix 2 to see our worked out
solution.
Lira million
Vodafone
Turkey 2010 2011 2012F Avea 2010 2011 2012F
Subscribers 16.7 15.7 16.3 Subscribers 12.2 11.8 12.7
Revenue 2,815 2,730 2,757 Revenue 2,113 2,504 2,650
EBITDA 429 136 303 EBITDA 446 354 358
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