Company Valuation In mergers and acquisitions

Abstract

Mergers and acquisitions are one of the popular topics in business today, since they characterize the new economy: pressure of global competition, development of technology and disappearance of country boundaries. The purpose of this thesis is to study the valuation processes and approaches in mergers and acquisitions by analyzing the AT&T/McCaw case. Free cash flow approach is emphasized. CAPM and WACC are applied to calculate the cost of capital. The method to translate business environment into future financial performance and translate financial performance into value are presented in this thesis. The result is that the historical net income has no effect on it future cash flow. On the contrary, McCaw's potential profitability and its business environment such as the change in technology, growth rate of market size (subscribers), market share of McCaw are the determinants for McCaw's economic value.