Q1. What is the approximate, net of tax, present value of the cost savings synergies created by the deal if the relevant cost of capital (discount rate) is 7%?
A1. Given: Cost of Capital = 7%
Assumption: Tax rate (US Corporate Tax Rate) = 33%
Annual Cost Saving ($ Mio)
One Time Charge ($ Mio)
Net Cost Saving ($ Mio)
After Tax Cost Saving ($ Mio)
Present Value of Cost Savings
Net Present Value ($ Mio)
Q2. Will synergy cash flows allow the banks to increase their debt? A2. As seen above the synergy cash flow will lead to a cost saving for the bank which will push up its profit. This increase in profit will be reflected in the reserves and surplus and thus will increase the equity and decrease the leverage of the bank. This decrease in leverage will open up the possibility for an increase in debt for the bank. Q3. Under the terms of proposed deal, what fraction of the synergies will be captured by Mellon legacy shareholders? By BNY legacy shareholders? (“Legacy” shareholders are the former shareholders of BNY or Mellon, after they become shareholders of the new company. A3.
Number of shares of Mellon Financials
Number of shares of Bank of NewYork
Total synergy derived out of the transaction
Synergy to Mellon Shareholders
Synergy to Bank of Newyork Shareholders
Q5. In the absence of synergies, what exchange ratio would keep the earnings attributed to each legacy share in Q4 2007 equal before and after the merger? When synergies don’t exist, the following...
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