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8/13/2019 General Mills Pillsbury (1)
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DCF Value of cost synergies
Year 2001 2002 2003
0 1 2 3
Pretax Cost Savings (Constant $) 25 220 400
Expected Inflation 2% 2% 2%
Growth of FCF (Nominal) in perpetuity 2%Discount rate 9.30%
Pretax cost savings, current $ 26 229 424
Tax @40% -10.2 -91.5552 -169.793
After tax cost savings 15 137 255
TV
FCF 15 137 255
NPV $3,049.40
Discount rate
cost of equity 9.30%
Rf 5.70%
beta 0.65
Risk premium 0.055
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2004 2005
4 5
400 400
2% 2%
433 442
-173.189 -176.653
260 265
3702.452
260 3967
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Gives Gets
141 million common stocks Pillsbury
$5.124 billion of Pillsbury Debt Synergies
Clawback Contingent payment
Accept the deal if
General Mills
Pillsbury (alone) + Synergies + Clawback >,= Stock paid + debt assumed
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S K r sigma T d1 d2
long call July 35.5 38.00 0.0522 0.2490 1.00 0.0608 -0.1882
December 41.0 38.00 0.0522 0.2490 1.00 0.6393 0.3903
short call July 35.5 42.55 0.0522 0.2490 1.00 -0.3934 -0.6424
December 41.0 42.55 0.0522 0.2490 1.00 0.1851 -0.0639
S K r sigma T d1 d2
49.0 42.00 0.0800 0.2480 1.00 1.0682 0.8202
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N(d1) N(d2) Ke^(-rt) C
0.5243 0.4254 36.0673 3.2690
0.7387 0.6518 36.0673 6.7759 1.4628
0.3470 0.2603 40.3859 1.8062 2.4296
0.5734 0.4745 40.3859 4.3463
N(d1) N(d2) Ke^(-rt) C
0.8573 0.7939 38.7709 11.2249
Value of Contingent
Payment Per share
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Terms of Payment by General mills
GM Gives July December
35.5 41
value of 141 million shares 5005.5 5781
Value of Pillsbury Debt 5142 5142
Fee to ML 55 55
Total 10202.5 10978
Val of Pillsbury to General mills Low High
Standalone value
Evercore 8400 10500
Merril Lynch 9184 11204
Average 8792 10852
Value of synergies Evercore 2900 3700
Merril Lynch 2652 2285
DCF 3049 3049
Average 2867 3011
Value of Claw back 206 343
Total 11865 14206
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Short call X= 42.55 Long Call X = 38
St X X
31 42.55 0 38 0 0
32 42.55 0 38 0 0
33 42.55 0 38 0 0
34 42.55 0 38 0 0
35 42.55 0 38 0 036 42.55 0 38 0 0
37 42.55 0 38 0 0
38 42.55 0 38 0 0
39 42.55 0 38 1 1
40 42.55 0 38 2 2
41 42.55 0 38 3 3
42 42.55 0 38 4 4
42.55 42.55 0 38 4.55 4.55
43 42.55 -0.45 38 5 4.55
44 42.55 -1.45 38 6 4.55
45 42.55 -2.45 38 7 4.55
46 42.55 -3.45 38 8 4.55
47 42.55 -4.45 38 9 4.55
48 42.55 -5.45 38 10 4.55
49 42.55 -6.45 38 11 4.55
50 42.55 -7.45 38 12 4.55
51 42.55 -8.45 38 13 4.55
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