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Thermo Fisher paid $76 per share for each outstanding share of Life Tech. What is the

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maximum offer price Thermo Fisher could have made without ceding all of the synergy value

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to Life Tech shareholders? (Hint: Using the Transaction Summary Worksheet, increase the

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offer price until the NPV in the section entitled Valuation turns negative.) Why does the offer

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price at which NPV turns negative represent the maximum offer price for Life Tech? Undo

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changes to the model before answering subsequent questions.

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2. Thermo Fisher designed a capital structure for financing the deal that would retain

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its investment grade credit rating. To do so, it targeted a debt-to-total capital and

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interest coverage ratio consistent with the industry average for these credit ratios.

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What is the potential impact on Thermo Fisher’s ability to retain an investment grade

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credit rating if it had financed the takeover using 100% senior debt? Explain your

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answer. (Hint: In the Sources and Uses section of the Acquirer Transaction Summary

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Worksheet, set excess cash, new common shares issued, and convertible preferred shares

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to zero. Senior debt will automatically increase to 100% of the equity consideration plus

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transaction expenses.48) Undo changes to the model before answering subsequent

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questions.

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3. Assuming Thermo Fisher would have been able to purchase the firm in a share for share

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exchange, what would have happened to the EPS in the first year? Explain your answer.

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(Hint: In the form of payment section of the Acquirer Transaction Summary Worksheet, set the percentage of the payment denoted by “% Stock” to 100%. In the Sources and Uses

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section, set excess cash, new common shares issued, and convertible preferred shares to zero.)

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Undo changes made to the model before answering the remaining question.

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4. Mark Fisher, CEO of Thermo Fisher, asked rhetorically what if synergy were not realized as

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quickly and in the amount expected. How patient would shareholders be if the projected

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impact on earnings per share was not realized? Assume that the integration effort is far more

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challenging than anticipated and that only one-fourth of the expected SG&A savings, margin

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improvement, and revenue synergy are realized. Furthermore, assume that actual integration

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expenses (shown on Newco’s Assumptions Worksheet) due to the unanticipated need to

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upgrade and colocate research and development facilities and to transfer hundreds of

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staff are $150 million in 2014, $150 million in 2015, $100 million in 2016, and $50 million in

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2017. The model output resulting from these assumption changes is called the Impaired

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Integration Case.

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What is the impact on Thermo Fisher’s earning per share (including Life Tech) and the

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NPV of the combined firms? Compare the difference between the model “Base Case” and

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the model output from the “Impaired Integration Case” resulting from making the changes

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indicated in this question. (Hint: In the Synergy Section of the Acquirer (Thermo Fisher)

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Worksheet, reduce the synergy inputs for each year between 2014 and 2016 by 75%

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and allow them to remain at those levels through 2018. On the Newco Assumptions

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Worksheet, change the integration expense figures to reflect the new numbers for 2014,

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2015, 2016, and 2017.)

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