Discuss,Is this a horizontal, vertical, or diversifying acquisition for Ace?

Finance 533

Spring, 2016

Merger & Acquisition 1

The purpose of this assignment is to evaluate an acquisition.  On July 1, 2015, Ace Ltd. agreed to acquire Chubb.  Additional information can be found on Yahoo Finance and CSIMarket.com.  The assignment is to analyze the acquisition and discuss the following questions.

In your own words, what is the business of each company?

What is the total purchase price?  How is this calculated?

What is the PE multiple for the acquisition using 2014 earnings?

How will Ace finance the acquisition?

Is this a horizontal, vertical, or diversifying acquisition for Ace?

Explain your reasons.

Calculate the IRR for the acquisition assuming a 10, 20, and 30 year horizon.  Use 2015 as CF0.

Calculate the value of the company using the EBITDA approach from the December, 2014 financial statements and the sources given below.

Calculate the enterprise value from the sources given below.

Show the results of these 3 questions in a spreadsheet.

Using these results is the purchase price of Chubb high, low, or reasonable?  Why?

What are Ace’s reasons for the acquisition?

What are Chubb’s reasons to agree to the acquisition?

Would you advise Ace to acquire Chubb?  Why or why not?

Do you think the acquisition will be profitable for Ace?  Why or why not?

The assignment is due by 6:00 pm on May 12, 2016.  Late submissions will not be accepted without prior permission.  The assignment is worth 40 points.  The assignment is to be 1-3 pages, typed and single spaced.  Grammar, spelling, and punctuation will be graded along with the content of the assignment.

The responses are to be sent in a plain, simple, easy-to-read Word and Excel file.  Include your name at the top of each document.

There is to be no discussion of the assignment or cooperation with others, individually or jointly as in study groups.  If such discussions or consultations occur, all involved students may get as low as ZERO for the assignment or an “F” for the course.

The assignments are to be submitted using Safe Assign in Blackboard.

Go to assignment 7 in the Content section.

Click on Browse My Computer button.

Locate the document.

Upload the document.

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Ace buying Chub in cash-and-stock deal valued at $28.3B

http://news.yahoo.com/ace-buying-chubb-cash-stock-deal-valued-28-113706393–finance.html

Merger agreement  DCF p. 104 no numbers, financing p. 106

http://www.sec.gov/Archives/edgar/data/20171/000119312515318547/d36120ddefm14a.htm#toc

10-K  February, 2015

http://www.sec.gov/Archives/edgar/data/20171/000119312515065654/d725314d10k.htm

Chubb press release

http://www.chubb.com/corporate/chubb20706.pdf

Transaction closed  January 14, 2016

http://finance.yahoo.com/news/ace-completes-acquisition-chubb-adopts-230200441.html

 

December, 2014 financial statements

http://www.sec.gov/cgi-bin/viewer?action=view&cik=20171&accession_number=0001193125-15-065654&xbrl_type=v

 

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