Lumber company A has had a devil of a time negotiating with the Lumberjack Union, but it buys company B so that they can go from five million acres to eight million acres of forest to kill, digest, and turn into scratchpads.
With a highly unionized labor force, both lumberjack companies had only 10% margins, and few resources to invest in technology. Combined, however, with their enormous new scale, it makes financial sense to replace two-thirds of their lumberjacks with robots, a.k.a., the Tree Slayers.
The would-be acquired lumberjack company B knows the math, because they've taken a couple of awesome finance courses on Shmoop, and while as a stand-alone company they might be worth 14x earnings, as they key to unlock the Tree Slayer and a new era of high-margin tree cutting, lumberjack company B will be smart enough to demand a big acquisition premium.
That is, instead of their steady state 14x earnings valuation, they'll ask for and probably get something closer to 20x earnings or more, as the acquisition premium here is warranted in the creation of this new behemoth tree cutting company, which everyone is happy about.
Except the trees. And the squirrels who lived in them. And the birds. And the atmosphere...
Related or Semi-related Video
Finance: What is Control Value?15 Views
Finance allah shmoop what is control value dance on a
fifty shades thing Well there's a partnership a semi evil
one there was once a tv siri's It was exorbitantly
expensive to produce but everyone wanted to make it So
it ended up being made not by one studio but
by three viacom paramount disney and then news corp fox
Before it was disney news corp fox well each of
the three partners put in a third of the money
and split all the money distributions equally The problem on
the show ended up being hugely successful when it ran
for the first time on network tv so that was
great but now it's in reruns and because all three
competitors generally hate each other he's financially if their job
too none are willing to run the show a lot
on their cable network or broadcast network because then they
generate revenues for their hated competitors so they don't run
the tv series even though people want to see it
And this is a big fat bummer to the actors
writers and producers of the show who were banking on
rerun royalties to pay for their divorces if one of
the studios owned the siri's I'ii controlled it let's call
that siri's sunlight ing well then the siri's would heir
a ton more and presumably generate a ton more desperately
needed revenues What do you think divorce lawyers work for
free Well the control value of owning that asset then
is huge because if it were owned by one player
well then that player could run it again and again
and again and again on their network like think big
bang on tbs and then monetize that asset and massively
so there's Incremental control value with the well controlling a
property And yet it's not to be confused with remote
control value which is about a buck twenty five on 00:01:51.209 --> [endTime] ebay
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