FIN423Philip Morris Incorporated, Seven-Up AcquisitionComparing past acquisitions completed by Philip Morris, you start to notice a trend of purchasing large companies who have an established place in the market but who also have plenty of room to grow. Philip Morris’s intentions to acquire the Seven-up Company is a major effort to diversify their consumer goods since they rely heavily in the consumer market industry. Philip Morris’s. Looking at Seven-Up’s financial data, we can see that they the diversification and growth potential that Philip Morris looks for. Philip Morris targets large and strong compa-nies within various markets and industries. These companies should be able to greatly contribute to Philip Morris as a whole. They derive most of its business from the cigarette industry, which generates large and steady cash flows for the company. This allows them to acquire companies that may not have high returns in the beginning, but seem to have a hopeful long term potential.Philip Morris’smain concern is with the declining trend of cigarets which is their main stream of income. By expanding into other consumer product businesses, Philip Morris has the opportunity to offset these increasing losses. In regards to the third part of Philip Morris’s acqui-sition strategy, Seven-up does not expect to shrink anytime soon, however they dohave the po-tential to grow significantly in the long term. Phillip Morris has the ability to acquire Seven-upbut a main question could be if Seven-Up can grow to Philip Morris’s expectations. This how-ever can only be found out over time and if Seven-Up can take more market share then they cur-rently posses. A major key to Seven-Up’s growth can come from Philip Morris’s amazing mar-keting. They were able to acquire Miller who controlled only a small market share and turn them into a major player in the market.Philip Morris seeks companies within consumer goods market in order to synergize marketing expertise with the hopes of expansion. However, an aspect that is just as big as seeing if Seven-Up is a right fit for Philip Morris is to find the cost on acquiring Seven-Up and how much Seven-Up thinks they are worth.The minimum price that Seven-Up should accept should be the fair market value (FMV) of their own company. In order to calculate the FMV you would need to find; their growth rate toproject their own sales, free cash flows, WACC, and the terminal value. Then you would need to calculate the WACC of Seven-up. To do this, the total debt and equity (which is given in the case), the risk free rate, the risk premium, and the interest rate on their debt will be needed. Onceyou calculate your total WACC, you will need to find the free cash flows for the company. By now using the WACC, you can find the present value for each free cash flow. You can now calcu-late the terminal value using free cash flows and WACC. Once all calculations have been made, the fair market value for Seven-Up can be found.Now to find the final price Philip Morris should pay relies on mixing it up a bit. You will need to calculate the fair market value of Seven-Up but this time using Philip Morris’s expected growth rate. This helps Philip Morris calculate the expected future sales for Seven-Up once they have been acquired. By using the new growth rate, you can follow the same method used previ-ously when solving for Seven-Up’s fair market value and terminal value all with the changed free cash flows. Once all is calculated, you should end up with the maximum price Philip Morris should be willing to pay to acquire Seven-Up.
Do you have a similar assignment and would want someone to complete it for you? Click on the ORDER NOW option to get instant services at essayloop.com
Do you have a similar assignment and would want someone to complete it for you? Click on the ORDER NOW option to get instant services at essayloop.com. We assure you of a well written and plagiarism free papers delivered within your specified deadline.