M&A Synergy Potential and Premium Calculation

| Deb Sahoo | MBA, Finance, University of Michigan | MS, EE, University of Southern California | B-Tech, EE, IIT |
Analysis Date

February 19, 2013

Market Inputs
Current riskfree rate (Rf)
Risk Premium (Rm - Rf)

1.71%
5.00%
Office Depot (ODP)

Office Max (OMX)

After Merger

Terminal Year

3.52
1.71%
40.00%
70%
50%
5
$4,010,780,000
$485,330,000

2.68
1.71%
40.00%
90.00%
50.00%
5
$4,069,280,000
$1,699,320,000

2.37
1.71%
40.00%
60.00%
50.00%
5
$8,080,060,000
$2,184,650,000

$8,080,060,000
$2,184,650,000

Sales
Cost of Sales

$10,695,652,000
$7,448,070,000

$7,121,170,000
$5,311,990,000

$17,816,822,000
$12,760,060,000

$17,816,822,000
$12,760,060,000

Gross Profit
SG&A and Other Expenses
Research & Development
Depreciation/Amortization
Unusual Expense
Other Operating Expenses

$3,247,582,000
$3,208,200,000
$0
$0
$0
$0

$1,809,180,000
$1,690,970,000
$0
$0
$11,200,000
$20,530,000

$5,056,762,000
$4,899,170,000
$0
$0
$0
$0

$5,056,762,000
$4,899,170,000
$0
$0
$0
$0

Operating Income (EBIT)

Other Non Operating Income
Interest Expense

$39,382,000
$0
$8,282,472

$86,480,000
$0
$29,000,000

$157,592,000
$0
$37,282,472

$157,592,000
$0
$37,282,472

EBT
Income Tax

$31,099,528
$12,439,811

$57,480,000
$22,992,000

$120,309,528
$48,123,811

$120,309,528
$48,123,811

Net Income (NI)

$18,659,717

$34,488,000

$72,185,717

$72,185,717

$23,629,200
0.17%
2.67
41%
170%

$51,888,000
0.48%
1.75
47%
190%

$94,555,200
0.41%
2.21
38%
160%

$94,555,200
0.41%
2.21
38%
160%

General Input
Levered (Equity) Beta
Pre-tax cost of debt
Tax rate
Debt to Equity (D/E)
Reinvestment Rate (b)
Length of growth period
Assets
Long Term Debt

2.61
1.71%
40.00%
60.00%
50.00%

Income Statements

Calculations
NOPAT
Profit Margin (NI/Sales)
Asset Turnover (Sales/Assets)
Debt to Asset (D/D+E)
Asset/Equity

ROE
Sustainable Growth Rate (ROE*b) =
Unlevered (Asset) Beta
Cost of Equity (Re)=
After-tax cost of Debt =
Cost of capital, WACC =

0.79%
0.40%
2.48
19.31%
1.02%
11.78%

1.61%
0.81%
1.74
15.11%
1.02%
8.44%

1.43%
0.71%
1.74
13.54%
1.02%
8.85%

$110,222,516
$204,612,436
$227,480,413

$261,432,442
$640,253,125
$688,490,891

$471,348,819
$1,019,918,540
$1,138,907,533

Valuation
PV of FCFF in high growth =
Terminal Value =
Value of firm today =
Value of Potential Synergy
Value of independent firms
Value of combined firm
Value of synergy
Premium for control

$915,971,304
$1,138,907,533
$222,936,230
24.34%

1.43%
0.71%
1.92
14.76%
1.02%
9.61%