Mergers, Acquisitions, Divestitures, and Other Restructurings, + Website

Chapter 14Accretion/Dilution

At this point in the analysis, the merger seems highly accretive—well over 50 percent accretive. This may seem unusual, but there are a few major variables at play. In this chapter, we will discuss the major variables that affect this merger and we will estimate the impact of each variable to truly home in on the upper and lower boundaries of this analysis.

Fairness Opinions

To get additional guidance, it is always helpful to consult a fairness opinion. A fairness opinion is a professional evaluation by an investment bank or other third party as to whether the terms of a merger, acquisition, buyback, or spin-off are “fair.” This analysis of the business can be found in the preliminary proxy report. By performing a word search on “opinions” in the S-4 report, you will find the section on page 88 entitled “Opinions of Financial Advisors.” The following is the first of several fairness opinions, one by Peter J. Solomon Company, retained by Office Depot. Scrolling several pages down, you will find some multiples and a discounted cash flow analysis performed by the advisor. We are looking in particular for guidance on accretion dilution—just to see if we happen to be in line. Remember, these advisors could be using different drivers or variables, so this is just a proxy. Scrolling further to page 95 reveals the “Pro-Forma Analysis” section. The section reads as follows:

PJSC performed an illustrative pro forma transaction analysis of the potential financial ...