A finished FIN-660 Topic 7 synergy evidence and payment memo example, grading claimed synergies by evidence, finding 280 of the 350 premium supported and putting half of any higher bid in stock. Searches like "fin 660 topic 7 assignment example", "fin660 topic 7 sample" and "fin-660 topic 7 example" land here.
What a finished FIN-660 Topic 7 synergy evidence and payment memo looks like
The target's 50 million shares trade at 20 in the finished memo's illustrative case, a standalone value of 1,000 million that the memo checks against its own forecast; the bid of 27 pays a premium of 350. The bankers' 60 a year arrives as one line, so the memo rebuilds it by source and grades each by evidence. Savings backed by supplier contracts and two overlapping plants are worth about 285 after tax and phasing. Headcount savings not yet mapped to roles add 40. Cross-selling revenue, the bankers' own estimate, adds 110. Integration costs take 45. Net synergy is 240 on firm evidence, 280 with the headcount savings and 390 only if every revenue claim holds, so the premium needs about 64 percent of that revenue to appear.
How a FIN-660 Topic 7 example is structured
Standalone value, synergy build, premium test and payment are the memo's four parts. The standalone section sets the unaffected price beside a forecast built for the target alone, so the premium is measured from a figure the board can trust. The build section lists every claimed synergy with its source, its timing, its tax and its evidence grade: contracted or mapped, estimated but unplanned, or asserted. Integration costs get their own line. The premium test sets the 350 against what each evidence grade supports, following Mark Sirower's point that a premium is a promise of performance beyond what the target's price already expects, and notes Richard Roll's hubris argument about bidders who trust their own estimates. The payment section compares all cash with all stock at several synergy outcomes. It closes by recommending an all-cash ceiling of 25.60 and at least half in stock above it.
Standalone value fixed before synergy
The unaffected price of 20 is checked against the target's own forecast, so the 350 premium is measured from a base the board can defend.
One banker's line rebuilt by source
Supplier contracts and two overlapping plants support about 285, unmapped headcount savings 40, and the bankers' cross-selling estimate 110, each graded by its evidence.
A premium set against each grade
Net of 45 in integration costs, firm evidence covers 240 of the premium and firm plus estimated savings 280, leaving 70 to rest on revenue claims.
Who carries the shortfall under each payment
Paying all cash, the buyer's holders lose about 70 if synergy stops at 280; paying in stock, target holders own about 25 percent and absorb part of it.
A cash ceiling and a stock remainder
The memo caps an all-cash bid at 25.60, the price firm and estimated savings support, and makes at least half of any higher bid payable in shares.
Where marks go in FIN-660 Topic 7
Premiums defended with the bankers' synergy figure, repeated without a build, cost the most here, because nobody reading the memo can tell which savings exist and which are hoped for. Leaving integration costs out makes every synergy look free. Folding revenue claims in beside contracted savings, at the same weight, lets the weakest evidence carry as much of the price as the strongest. Measuring the premium from a price already lifted by takeover rumors understates what is being paid for. Choosing cash or stock without asking who bears the risk of a synergy shortfall leaves out the one decision the board can still adjust after the price is set. A recommendation that accepts 27 without stating the revenue it requires gives directors a number to approve and nothing to hold management to.
Get a FIN-660 Topic 7 example written to your instructions
Send the FIN-660 Topic 7 instructions and the rubric shared in your classroom, with the deal case your section assigns. We write a custom example to them, with standalone value fixed, each synergy built and graded by evidence, integration costs on their own line, the premium tested grade by grade and cash weighed against stock, in 24 to 48 hours. The first one is free.
FIN-660 Topic 7 questions, answered
How does paying in stock share synergy risk?
Target holders who take shares become owners of the combined firm, so if synergies fall short, part of the shortfall lands on them. In the example, paying 27 entirely in stock at 40 issues 33.75 million shares and gives target holders about 25 percent of the combined company. If net synergy stops at 280, the buyer's holders lose about 52 rather than the 70 they would lose paying cash.
What is the synergy trap?
Mark Sirower's name for the way acquirers overpay: the target's price already reflects the performance the market expects, so a premium is a commitment to deliver improvements beyond that, on a schedule, net of the cost of achieving them. When the premium is large relative to what the synergies can credibly produce, the buyer's holders lose even if the combined business performs well.
Would the memo's price hold for an actual deal?
No. Both companies, the synergy grades, the integration costs and the share prices are invented so that evidence and payment can be tested separately. Pricing an actual acquisition needs diligence findings, audited numbers, a real integration plan and the board's bankers and counsel. The memo is FIN-660 coursework on deal discipline and offers no view on any real transaction.