In Chapter 13, we deconstruct the control premium, often
usedtojustifylargepremiumsinacquisitions,andarguethat
thevalueofcontrolwillvaryacrosscompaniesandwillbe
far greater at poorly managed companies.
InChapter14,weconsiderwhetherweshouldbediscounting
thevalueofilliquidassets,andifso,byhowmuch.Welook
ataspectrumofassetsfrompubliclytradedbondsandstocks
to private businesses in making this judgment.
In Chapter 15, we take apart another commonly provided
rationaleforacquisitions,whichissynergy,andconsiderhow
to value itin allits forms.We also examinewhether the
acquiringfirmshouldpayapremiumforsynergyand,ifso,
how much.
InChapter16,wecomparefirmsthataresimpletovalueto
complex firms and argue that transparency matters in
valuation.Wepresentdifferentwaysofestimatingafirm’s
complexity and bringing these measures into conventional
valuation models.
InChapter17, weclosethesection byexamininghowwe
deal with the possibility thata firmmay cease operations
becauseof financialdistressin conventionalvaluation,and
argue that we often overvalue distressed companies. We
present alternative ways that offer more promise in
incorporating the cost of distress.
The common theme across all these chapters is that
garnishing valuations by applying arbitrary or constant
premiums and discounts is a bad practice.