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Technology Stocks : Internet Analysis - Discussion
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To: kjhwang who wrote (405)3/4/2000 11:32:00 PM
From: Chuzzlewit  Read Replies (1) of 419
 
Since estimation of the WACC depends on the market line, the results ought to be the same (assuming the EMH). The real question to be asked is: do real synergies and cost savings emerge from the merger, or, as is frequently the result of friendly mergers, will there be a failure to realize the potential cost savings because G&A budgets are bloated? The decline in the market cap for the combined company argues against the realization of the benefits of the combination.

I think that an interesting analytical question arises surrounding the merger. If you use AOL's pre-merger WACC as a hurdle rate, did the merger makes sense? Put another way, how much annual increase in the CF of the combined entity is required to make economic sense for the merger.

TTFN,
CTC
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