Theoretical explanations for premiums paid include controls premiums, synergies, and supply and demand of the target stock. However, target shareholders may also expect a premium for minority interest transactions in certain situations, such as parent-initiated going-private transactions. Premiums paid analysis is more technical and not as fundamental as the other valuation methods discussed previously, as it has no direct relation to the company outlook or business prospects.
When performing such analysis, note the following possible criteria for selecting transactions comparable to the one being analyzed:
- Transaction type (acquisition, MOE, going-private, etc.)
- Transactions status (completed/announced)
- Consideration (cash, stock, cash/stock)
- Industry/geography (e.g. U.S. industrial deals)
- Time (e.g. last 3 years)
- Size (e.g. deals > $100mm)
- Approach (friendly/hostile)
The goal should be to get a number of transactions that is statistically significant (number of deals ~30) so that the analysis is meaningful. Completed transactions are recommended, as they represent deals that have gone through all the procedures to get approved by shareholders, whether through a vote or tender process.
Securities Data Corporation (SDC) runs include announcement dates but not announcement times. In order to determine the proper announcement date, manually check the time of day for public announcements using Bloomberg. If a public announcement is made on 8/4/22 before 8:00am EST for a U.S. target, the pre-announcement date is 8/3/22. If a public announcement is made on 8/4/22 after 5:00pm EST, the pre-announcement date is 8/4/22. By cross-checking the time of the first public disclosure of the deal and comparing it to the volume of trading, you will be able to identify the last day of trading prior to announcement, as there will be a spike in volume during the first day of trading post-announcement.
The following is premiums paid analysis for the relevant deals as shown to the board of UGS with respect to the offer from EDS. Note that for transactions that have footnote (c) next to the date, the announcement date provided by SDC was adjusted manually.
The following is a section of the disclosure in SEC filing 14D-9 which describes the premiums paid analysis performed by an investment bank:
Exhibit – Premiums Paid Analysis
[Investment bank] reviewed the premiums paid for 26 selected going-private transactions, where cash was used as consideration, for transactions greater than $100mm since 1998. [Investment bank] calculated the premium per share paid by the acquirer for each respective deal, as compared to the average share price of the target one day, 7 calendar days, 30 calendar days, and 90 calendar days prior to the announcement of each selected transaction. The analysis provided the following premium ranges:
|
|
|
|
|
|
|
| Low |
|
9.9% |
|
13.2% |
|
13.1% |
|
13.5% |
| High |
|
140.0% |
|
136.9% |
|
113.3% |
|
116.0% |
| Mean |
|
47.0% |
|
48.6% |
|
50.2% |
|
44.1% |
| Median |
|
41.5% |
|
43.4% |
|
48.6% |
|
42.3% |
|
| UGS Share Price |
|
$21.31 |
|
$20.56 |
|
$18.83 |
|
$19.07 |
| Offer Price |
|
52.5% |
|
58.0% |
|
72.6% |
|
70.4% |
Based on the range of premiums, this analysis included a range of equity values per share of $27.48 to $31.33. The offer price of $32.50 per share is above this range.
In addition, [investment bank] reviewed the premiums paid for 22 full acquisitions in the technology sector, for cash or stock transactions with sizes between $500mm and $3bn, which were announced between July 1, 2007 and June 30, 2008. [Investment bank] calculated the premium per share paid by the acquirer, using the acquirer’s closing stock price one day prior to the announcement for each respective stock deal, compared to the average share price of the target company one day, 7 calendar days, 30 calendar days, and 90 calendar days prior to the announcement. This analysis produce the following premium ranges:
|
|
|
|
|
|
|
| Low |
|
-3.9% |
|
-5.9% |
|
-7.6% |
|
8.8% |
| High |
|
94.1% |
|
105.8% |
|
96.2% |
|
64.6% |
| Mean |
|
42.2% |
|
42.6% |
|
43.3% |
|
40.8% |
| Median |
|
41.2% |
|
42.4% |
|
46.1% |
|
48.3% |
|
| UGS Share Price |
|
$21.31 |
|
$20.56 |
|
$18.83 |
|
$19.07 |
| Offer Price |
|
52.5% |
|
58.0% |
|
72.6% |
|
70.4% |
Based on the range of premiums, this analysis included a range of equity values per share of $26.84 to $30.30. The offer price of $32.50 per share is above this range.
