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Finance MPF 753 Finance Trimester

Deakin Business School is accredited by AACSB. Department of Finance MPF 753 Finance Trimester 3, 2019 Assignment 2 DUE DATE AND TIME: 5PM, MONDAY, 17 January 2020 PERCENTAGE OF FINAL GRADE: 30% HURDLE DETAILS: NIL Learning Outcome Details Unit Learning Outcome (ULO) Graduate Learning Outcome (GLO) ULO 2: Students will use the given assignment project to demonstrate their level and depth of learning in terms of both appropriateness as well as accuracy of the financial analysis tools/techniques used. GLO 1: Discipline specific knowledge ULO 4: Students will have to use information sources such as online financial databases, and also use electronic spreadsheets and other technologies as appropriate to collate, analyse and disseminate project output. GLO 3: Digital Literacy General Instructions 1. Extension: A request for a time extension must be made in writing to the Unit Chair, Xiaoyang Li (xiaoyang.li@deakin.edu.au) at least two days before the due date. This request must include documentary evidence, such as a medical note. Please note: since students will have several weeks to complete this assignment and are expected to make good use of this time, being unfit on the due date or just one or two days prior to the due date, may not be an acceptable ground to get an extension. In accordance with University’s policy, the following marking penalties will apply if you submit an assessment task after the due date without an approved extension: 5% will be deducted from available marks for each day up to five days, and work that is submitted more than five days after the due date will not be marked. You will receive 0% for the task. ‘Day’ means calendar day for electronic submissions. The Unit Chair may refuse to accept a late submission where it is unreasonable or impracticable to assess the task after the due date. Extensions can only be approved by the Unit Chair. Extensions can be granted for documented serious illness Page 2 of 8 (not just on the day when the assignment is due.) or for compassionate reasons under extenuating circumstances. The unit chair can ask to see how much work has been completed before granting an extension. Work or holiday reasons are NOT grounds for an extension – you are expected to manage these issues as part of your studies. You are strongly encouraged to start early and to continually backup your assignment as you progress. Computer crashes or corrupted files will NOT be accepted as valid reasons for an extension of any length. For further information about Special Consideration, visit http://www.deakin.edu.au/students/assessments/special-consideration 2. This assignment must be completed in a group of two (or individually, if prior permission has been obtained from the Unit Chair). For all students, the first page of your assignment report must clearly show the full names and student ID numbers of both group members. 3. The word limit is 2,500 words (excluding tables, figures, appendices and reference list). 4. Marked assignments and feedback will be returned within 15 working days (10 February 2020) of the due date or extended due date of the assignment if an extension was granted. Assignment Submission via the CloudDeakin site 1. Your assignment must be submitted via the CloudDeakin site. Please DO NOT submit your assignment by email or send us a hard copy under any circumstances. 2. Please sign-up to a group via CloudDeakin from 2 December 2019 to 16 January 2020, 4:59pm (AEST). Please click on the “More” tab and then select “Groups”. You can register as a group of 1 or 2 students. 3. Make sure you and your group partner register correctly. If you make a mistake or wish to change the group, then please email the details (e.g., name, student ID number, wrongly registered group number) to Xiaoyang Li (xiaoyang.li@deakin.edu.au). 4. Do not join someone’s group unless you have prior permission to do so. You will be removed from a group at the request of the other student! How to submit your file 1. Name your Microsoft (MS) Word document using your student number(s). For example, 1234566.doc or – if your group has two members – 1234508_1234509.doc 2. Submit your assignment as a SINGLE MS Word document only (not PDFs or other file formats). Workings in Excel must be embedded into the word file (‘embedded’ means the marker can click on your table, which will then open in Excel, so we can check your workings). Do not submit separate files. Steps of embed excel file into word: Choose insert -> object -> create from file -> browse your file and choose the one you want to embed –> click ‘display as icon’ 3. You must use the Harvard style of referencing style, as set out in the Deakin guide to Harvard referencing, and include a comprehensive list of references for both your data sources and intext citations. Page 3 of 8 4. There is no official assignment cover sheet. Before submitting your assignment report, read the plagiarism and collusion declaration section in the assignment submission dropbox. 5. All submissions will be checked for potential plagiarism using Turnitin© software. If plagiarism is suspected, the assignment will automatically be referred to the Faculty’s Academic Progress Committee. Turnitin: once you upload your paper as a submission, you can access the originality report. Use the feedback to revise and improve your document. You can still make changes to the document, as the dropbox accepts further submissions until the due date (each attempt overrides previous attempts). 6. Plagiarism and collusion constitute extremely serious breaches of academic integrity. They are forms of cheating, and severe penalties are associated with them, including cancellation of marks for a specific assignment, for a specific unit or even exclusion from the course. If you are ever in doubt about how to properly use and cite a source of information, consult your lecturer or the Study Support website http://www.deakin.edu.au/students/study-support/referencing  Plagiarism occurs when a student passes off as the student’s own work, or copies without acknowledgement as to its authorship, the work of any other person or resubmits their own work from a previous assessment task.  Collusion occurs when a student obtains the agreement of another person for a fraudulent purpose, with the intent of obtaining an advantage in submitting an assignment or other work. Work submitted may be reproduced and/or communicated by the university for the purpose of assuring academic integrity of submissions (http://www.deakin.edu.au/students/study-support/referencing/academic-integrity 7. When you make the submission of Assignment 2 report at CloudDeakin, you will be asked to confirm the following declaration relating to academic honesty: “By clicking the SUBMIT button above or below, you are declaring that the attached work is entirely your own (or where submitted to meet the requirements of an approved group assignment, is the work of the group), except where material quoted or paraphrased is acknowledged in the text. You are also declaring that it has not been submitted for assessment in any unit or course.” Page 4 of 8 Case study: Mergers and Acquisitions (30 marks: 10+10+10) A written report limited to a maximum of 2500 words (excluding tables, figures and references) Due by: 5PM, Friday, 17 January 2020 PART A: Background of M&As Assessment objective: This part assesses (1) your understanding of the calculation of stock returns and ability to analyse the Australian Mergers and Acquisitions (M&As) market (Topic 4 Learning outcomes) and (2) your ability to calculate and compare percentage stock returns(Topic 5 Learning Outcome) and examine the companies’ acquisition performance (Topic 4 Learning Outcome). Background Almost all great companies grow through M&As. Let me give you an example. If you like beer, chances are that you have tried at least some beers from Anheuser-Busch InBev SA/NV (AB InBev) because this company accounts for one third of the world’ beer production. Few, however, know that AB InBev hailed from a small beer brewery in Leuven, Belgium, back in 1717. Since then, this brewery gradually became the largest in the world through acquiring dozens of beer breweries, including AnheuserBusch in 2008 and SAB Miller in 2015. Figure 1 lists the important M&As which lead to the current AB InBev and Figure 2 lists the brands manufactured by AB InBev. Figure 1&2: List of M&As by AB InBev and beer brands by AB InBev Page 5 of 8 Page 6 of 8 You are a financial adviser at a private equity. Your company offers strategic financial services to high net worth clients. This assignment is intended to help you provide professional advices to the potential clients who are interested in understanding whether M&As present valuable investment opportunities. Normally, in an M&A, you have one acquirer (sometimes referred to as the bidder, buyer, purchaser) using some cash, stocks, or a combination of both, to acquire the majority of the stocks of a target company. Q1. How do M&A announcements affect stock returns of both the acquirer and the target? To answer this question, you need to identify two completed acquisitions involving one ASX-listed company acquiring another ASX-listed company and both acquisitions were announced between 01/01/2010 (If you REALLY want to analyze a takeover prior to 2010, PLEASE choose one that was announced after 01/01/2000!) and 01/01/2017. Note that some acquisitions take longer than others to complete. Please make sure you pick the acquisitions that you are most interested in. For each acquisition, please obtain the following information: 1) Acquirer and Target company’s ticker on ASX; 2) The exact date of this acquisition announcement; 3) The offer price; 4) Both companies’ stock prices (adjusted price for the daily closing price) spanning from one calendar year before the announcement until the completion day. If in some cases, the target and/or the acquirer only become ASX-listed within one year of the announcement date, please download the stock price information since the company’s IPO day. Define the offer premium paid by the acquirer to the target company per share of stock. Suppose we denote T as the announcement day. If the announcement happens from Friday evening to Sunday night, you can treat T as the immediate following trading day. Please state clearly how you obtain acquirer’s offer price, then calculate the offer premium and calculate the Acquirer’s and target’s stock returns over the following intervals, respectively: Page 7 of 8 a) one calendar year interval before the takeover announcement, i.e., sum of daily returns from T-365 to T-1 (if one company was listed less than one year before the acquisition announcement, the earliest possible date is also fine) b) one calendar month before the takeover announcement; , i.e., sum of daily returns from T-30 to T-1; c) three trading days after the takeover announcement, i.e., sum of THREE daily returns from T to T+2; (if T, T+1, or T+2 is a non-trading day, please use the following trading day return) d) one calendar month after the takeover announcement, i.e., sum of daily returns from T to T+30 Please describe the offer premium and the two companies’ stock returns in a) to d) and explain what you learn from these results. Anything intuitive, counter-intuitive? For instance, you can describe the relation between offer premium and target’s returns in c) and d). You can also discuss the two companies’ return trends in a) to b). You choose two takeovers, are the patterns of returns similar to each other? Q2. For the two acquirers, please calculate the abnormal long-term stock returns after the announcement of the takeovers. To this one end, examine the performance of the acquirer firms analysed in Question (1) 3 years after they announced the takeover (if you get less than 3-year data, please use the longest window possible). Please calculate the 3-year holding period return using: Three-year holding period return = [(P3 – Pt)/Pt] * 100 P3 = the adjusted closing price on the 3-year anniversary of announcing the takeover. If the announcement day is March 1, 2015, then the 3-year anniversary is March 1, 2018; if the 3-year anniversary is a non-trading day, then use the adjusted closing price of the trading day immediately prior to the 3-year anniversary. Pt = the adjusted closing price on the announcement day. Next, calculate the 3-year holding period return for All Ordinaries Index by using the adjusted closing value on 1 March 2015 as Pt and adjusted closing value on its 3-year anniversary. Calculate the abnormal 3-year returns as the difference between the acquirer’s 3-year return and the All Ordinaries Index. Describe the long-term returns in Q2 in relation to the acquirers’ returns in Q1 c) and d). Discuss why these two acquisitions create or destroy acquirers’ value based on the long-term stock returns. You are required to provide justification(s) to support your analysis. Now pick ONE target company, suppose if you were the acquirer’s CFO before the acquisition, how would you go about making the offer price for the target? You can simply explain the reasoning/steps without using actual numbers. (10 marks) Page 8 of 8 PART B: The gains and losses of acquirer’s and target’s shareholder wealth Assessment objective: This part assesses your understanding of the corporate financial policy implications (pros and cons) and ability to identify, compare and contrast the stock returns using the results of empirical studies (Topic 4 and 5 Learning Outcome). According to Andrade, Mitchell, and Stafford (2001), between 1973 and 1998, mergers in the USA seem to create shareholder value, with most of the gains accruing to the target company whereas the evidence on value creation for acquiring firm shareholders is not clear cut. One simple reason why most of the gains accruing to the target is because acquirers pay a sizeable offer premium. Please explain why acquirers on average pay a sizeable offer premium to the target company. Please explain why on average acquirers’ stock returns are much lower and sometimes even negative. Please conduct a review of relevant financial academic literature and outline your argument. (Maximum 1200 words for part B) (10 marks) References Andrade, G., M. Mitchell, and E. Stafford, 2001, ‘New evidence and perspectives on mergers’, The Journal of Economic Perspectives, vol. 15, no. 2, pp. 103–120.
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