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Acquisition Premium

  

Lumber company A has had a devil of a time negotiating with the Lumberjack Union, but it buys company B so that they can go from five million acres to eight million acres of forest to kill, digest, and turn into scratchpads.

With a highly unionized labor force, both lumberjack companies had only 10% margins, and few resources to invest in technology. Combined, however, with their enormous new scale, it makes financial sense to replace two-thirds of their lumberjacks with robots, a.k.a., the Tree Slayers.

The would-be acquired lumberjack company B knows the math, because they've taken a couple of awesome finance courses on Shmoop, and while as a stand-alone company they might be worth 14x earnings, as they key to unlock the Tree Slayer and a new era of high-margin tree cutting, lumberjack company B will be smart enough to demand a big acquisition premium.

That is, instead of their steady state 14x earnings valuation, they'll ask for and probably get something closer to 20x earnings or more, as the acquisition premium here is warranted in the creation of this new behemoth tree cutting company, which everyone is happy about.

Except the trees. And the squirrels who lived in them. And the birds. And the atmosphere...

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Finance: What is Control Value?15 Views

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Finance allah shmoop what is control value dance on a

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fifty shades thing Well there's a partnership a semi evil

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one there was once a tv siri's It was exorbitantly

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expensive to produce but everyone wanted to make it So

00:18

it ended up being made not by one studio but

00:22

by three viacom paramount disney and then news corp fox

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Before it was disney news corp fox well each of

00:29

the three partners put in a third of the money

00:31

and split all the money distributions equally The problem on

00:35

the show ended up being hugely successful when it ran

00:38

for the first time on network tv so that was

00:41

great but now it's in reruns and because all three

00:43

competitors generally hate each other he's financially if their job

00:47

too none are willing to run the show a lot

00:50

on their cable network or broadcast network because then they

00:53

generate revenues for their hated competitors so they don't run

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the tv series even though people want to see it

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And this is a big fat bummer to the actors

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writers and producers of the show who were banking on

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rerun royalties to pay for their divorces if one of

01:08

the studios owned the siri's I'ii controlled it let's call

01:12

that siri's sunlight ing well then the siri's would heir

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a ton more and presumably generate a ton more desperately

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needed revenues What do you think divorce lawyers work for

01:23

free Well the control value of owning that asset then

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is huge because if it were owned by one player

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well then that player could run it again and again

01:33

and again and again on their network like think big

01:36

bang on tbs and then monetize that asset and massively

01:40

so there's Incremental control value with the well controlling a

01:45

property And yet it's not to be confused with remote

01:48

control value which is about a buck twenty five on 00:01:51.209 --> [endTime] ebay

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