Damodaran on Valuation_ Security Analysis for Investment and Corporate Finance ( PDFDrive )

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The higher reinvestment rate pushes up expected growth
during the high-growth period and generates a value for
synergy of $24.02 million.


Finally,assumethatthesynergytakestheformofstrategic
barrierstoentrythatwillkeepcompetitionoutforalonger
period,thoughthereturnoncapitalandreinvestmentratedo
not change during the period. In the following table, we
estimatethevalueofsynergyfromextendingtheperioduntil
thecompanywillbecomeastable-growthcompanyfrom 5 to
10 years:


The value of synergy from being able to sustain excess
returns for a longer period is $45.72 million.


ILLUSTRATION15.3:ValuingCostandGrowthSynergies:
Procter & Gamble and Gillette


To consider valuing synergy in the more complicated
real-worldscenariowheretherearemanypossiblesourcesof
synergy,welookatProcter&Gamble(P&G)’sacquisitionof
Gillettein2004.Tovaluesynergy,wefirstvaluedP&Gasa
stand-alone firm, with the following assumptions.

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