In addition to the case study the group should prepare a teaching note which will address questions specific to the case. The teaching note will
In addition to the case study the group should prepare a teaching note which will address questions specific to the case. The teaching note will include an exercise to identify the value of the acquisition. The acquisition is meant to create synergy values for the combined firm. Below are the steps necessary to complete the teaching note:
1. Perform a DCF analysis of the target, with free cash flow projections for ten years past the merger year and a terminal value = [final projected year free cash flow*(1+cash flow growth rate)]/[discount rate – cash flow growth rate], and compare that with the acquirer offer. You will need to clearly identify any assumptions used when calculating NPV; specifically growth rates, inflation rates, and required return. Present at least two NPV values, one of which utilizes a required return calculated with your version of beta based on three-year monthly returns.
2. Present alternate strategies for the merger and evaluate the validity and likelihood of those choices.
3. Provide an epilogue to explain what actually occurred with the combined firm or in the case of unsuccessful acquisitions the surviving target. This should include stock market performance post-merger/failed merger.
T-mobile 2020 Balance sheet
| in millions, except share and per share amounts) | December 31, 2020 | December 31, 2019 | |||||
| Assets | |||||||
| Current assets | |||||||
| Cash and cash equivalents | $ | 10,385 | $ | 1,528 | |||
| Accounts receivable, net of allowance for credit losses of $194 and $61 | 4,254 | 1,888 | |||||
| Equipment installment plan receivables, net of allowance for credit losses and imputed discount of $478 and $333 | 3,577 | 2,600 | |||||
| Accounts receivable from affiliates | 22 | 20 | |||||
| Inventory | 2,527 | 964 | |||||
| Prepaid expenses | 624 | 333 | |||||
| Other current assets | 2,496 | 1,972 | |||||
| Total current assets | 23,885 | 9,305 | |||||
| Property and equipment, net | 41,175 | 21,984 | |||||
| Operating lease right-of-use assets | 28,021 | 10,933 | |||||
| Financing lease right-of-use assets | 3,028 | 2,715 | |||||
| Goodwill | 11,117 | 1,930 | |||||
| Spectrum licenses | 82,828 | 36,465 | |||||
| Other intangible assets, net | 5,298 | 115 | |||||
| Equipment installment plan receivables due after one year, net of allowance for credit losses and imputed discount of $127 and $66 | 2,031 | 1,583 | |||||
| Other assets | 2,779 | 1,891 | |||||
| Total assets | $ | 200,162 | $ | 86,921 | |||
| Liabilities and Stockholders' Equity | |||||||
| Current liabilities | |||||||
| Accounts payable and accrued liabilities | $ | 10,196 | $ | 6,746 | |||
| Payables to affiliates | 157 | 187 | |||||
| Short-term debt | 4,579 | 25 | |||||
| Deferred revenue | 1,030 | 631 | |||||
| Short-term operating lease liabilities | 3,868 | 2,287 | |||||
| Short-term financing lease liabilities | 1,063 | 957 | |||||
| Other current liabilities | 810 | 1,673 | |||||
| Total current liabilities | 21,703 | 12,506 | |||||
| Long-term debt | 61,830 | 10,958 | |||||
| Long-term debt to affiliates | 4,716 | 13,986 | |||||
| Tower obligations | 3,028 | 2,236 | |||||
| Deferred tax liabilities | 9,966 | 5,607 | |||||
| Operating lease liabilities | 26,719 | 10,539 | |||||
| Financing lease liabilities | 1,444 | 1,346 | |||||
| Other long-term liabilities | 5,412 | 954 | |||||
| Total long-term liabilities | 113,115 | 45,626 | |||||
| Commitments and contingencies (Note 18) | |||||||
| Stockholders' equity | |||||||
| Common Stock, par value $0.00001 per share, 2,000,000,000 shares authorized; 1,243,345,584 and 858,418,615 shares issued, 1,241,805,706 and 856,905,400 shares outstanding | — | — | |||||
| Additional paid-in capital | 72,772 | 38,498 | |||||
| Treasury stock, at cost, 1,539,878 and 1,513,215 shares issued | -11 | -8 | |||||
| Accumulated other comprehensive loss | -1,581 | -868 | |||||
| Accumulated deficit | -5,836 | -8,833 | |||||
| Total stockholders' equity | 65,344 | 28,789 | |||||
| Total liabilities and stockholders' equity | $ | 200,162 | $ | 86,921 | |||
Sprint 2019 Balance Sheet
| 2019 | 2018 | ||||
| (in millions, except share and per share data) | |||||
| ASSETS | |||||
| Current assets: | |||||
| Cash and cash equivalents | $ | 6,982 | $ | 6,610 | |
| Short-term investments | 67 | 2,354 | |||
| Accounts and notes receivable, net | 3,554 | 3,711 | |||
| Device and accessory inventory | 999 | 1,003 | |||
| Prepaid expenses and other current assets | 1,289 | 575 | |||
| Total current assets | 12,891 | 14,253 | |||
| Property, plant and equipment, net | 21,201 | 19,925 | |||
| Costs to acquire a customer contract | 1,559 | — | |||
| Intangible assets | |||||
| Goodwill | 4,598 | 6,586 | |||
| FCC licenses and other | 41,465 | 41,309 | |||
| Definite-lived intangible assets, net | 1,769 | 2,465 | |||
| Other assets | 1,118 | 921 | |||
| Total assets | $ | 84,601 | $ | 85,459 | |
| LIABILITIES AND EQUITY | |||||
| Current liabilities: | |||||
| Accounts payable | $ | 3,961 | $ | 3,409 | |
| Accrued expenses and other current liabilities | 3,597 | 3,962 | |||
| Current portion of long-term debt, financing and capital lease obligations | 4,557 | 3,429 | |||
| Total current liabilities | 12,115 | 10,800 | |||
| Long-term debt, financing and capital lease obligations | 35,366 | 37,463 | |||
| Deferred tax liabilities | 7,556 | 7,294 | |||
| Other liabilities | 3,437 | 3,483 | |||
| Total liabilities | 58,474 | 59,040 | |||
| Commitments and contingencies | |||||
| Stockholders' equity: | |||||
| Common stock, voting, par value $0.01 per share, 9.0 billion authorized, 4.081 billion and 4.005 billion issued at March 31, 2019 and 2018 | 41 | 40 | |||
| Paid-in capital | 28,306 | 27,884 | |||
| Accumulated deficit | (1,883 | (1,255 | |||
| Accumulated other comprehensive loss | (392 | (313 | |||
| Total stockholders' equity | 26,072 | 26,356 | |||
| Noncontrolling interests | 55 | 63 | |||
| Total equity | 26,127 | 26,419 | |||
| Total liabilities and equity | $ | 84,601 | $ | 85,459 |
DCF Analysis
| (in millions) | Year 0 | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | Year 6 | Year 7 | Year 8 | Year 9 | Year 10 | |
| Revenue | ||||||||||||
| Cost of Goods Sold | ||||||||||||
| SG&A | ||||||||||||
| Depreciation | ||||||||||||
| Net Working Capital | ||||||||||||
| Net PPE | ||||||||||||
| EBIT | ||||||||||||
| Less Taxes (21%) | ||||||||||||
| NOPAT (EBIT*(1-T)) | ||||||||||||
| Investments |
WACC Calculate
| Risk Free Rate (30-Year Treasury Yield) | 1.29% |
| Beta | -0.89 |
| Market Risk Premium | 5.60% |
| Cost of Equity (K) | |
| Market Value of Equity | |
| Market Value of Debt | |
| Enterprise Value (E+D) | |
| Cost of Equity | |
| Cost of Debt | |
| Tax Rate | 21% |
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