Tse International Corporation

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Also, Yeats’ share price had witnessed a recent rise, after the rumours of the merger surfaced. TSE international had to figure out whether this rise in price was to continue in future, and to factor this point in the determination of a fair value. The shares of Yeats traded on NASDAQ, whereas those of TSE International traded on the American Stock Exchange.

The valuation exercise will have to include the effects of synergy that would accrue to the combined entity. TSE’s higher purchasing power would lower the purchasing price and hence the cost of materials and components. TSE also had a six sigma control program in place to lower costs.

- Financing of the acquisition

As per the discussion on the social terms of the agreement, TSE International had wanted YVC to remain an entity under TSE itself. The next challenge was to determine the exact structure of the deal – would it be a merger, or an acquisition – and of what? From the point where negotiations had begun, this had been a crucial agenda for both parties and the merits of both the ways had been considered by each of them. TSE International was open for a straight common-for-common stock exchange, under the assumption that the shareholders of YVC would be desirous of deferring taxes from this deal.

In addition, in case the deal was structured as a cash offer, TSE had to look for a source to supply that immediate cash amount. TSE could potentially raise the entire amount through a debt route. But for that, the financial capacity of the firm would have to be evaluated considering the amount to be borrowed. Alternatively, TSE could also issue additional equity in the market to raise funds for the acquisition.

- Determination of Exchange Ratio

If the deal goes forward successfully and is structured as a share-for-share exchange, TSE International would need to propose an offer based on the ratio of the number of TSE shares offered per YVC share. One possible way to proceed is to assess the relative contribution of YVC to Newco and derive a range of possible offering ratios. In the process of doing so, it had to be ensured that the exchange ratio would not exceed the maximum that TSE could afford to pay. At the same time, it had to be ensured that the ratio did not go below the minimum that Yeats would accept – that would cause a setback to the ongoing discussions.

- Dilution and Contr

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