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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