ACV 25743 Corporate Finance (doc)
Added on 2020-05-11
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Running head: CORPORATE FINANCE 1Corporate FinanceNameInstitution
CORPORATE FINANCE 2Tiger Airways ValuationHillhouse Capital is a major company that manages investments. It came into being in 2005 with a seed capital of $20m and from its inception to 2012, it has since experienced about 52% investments in its annual returns. Different industries like health sector, consumption, technology, telecommunications, and media have had a rise in their investments over time. In thepast year, the hedge funds of Tiger Airways have had minor shareholding who tend to consider the ability to accept a $0.45 buyout. SIA has placed the offer that would see them get more than $0.41 for each share (Vasigh & Fleming, 2016).Hillhouse Capital have gone to the extent that $1.50 per share have been accepted at various IPOs that result in huge losses if they had accepted the offer. However, if Tiger Airways had not acknowledged the offer, they would have been delisted with Hillhouse Capital shares that they would be traded with ease. Tigerair which is a low-cost carrier has been operational as an independent kind of airline. During its listing in 2010, the SIA had a minimum stake in the company. However, aboutthree years later they have raised their stake to 55.8% that has made Tigerair its subsidiary. The company has suffered various losses in a row of four years right from 2012 to 2015 as seen in its financial statements (Mack, Jiang & Peterson, 2015). SIA has lately acquired more than 90% of shares implying that Tigerair would soon be delisted.Relative ValuationTigerair has had its closest competitors and rivals to include AirAsia, Cebu Pacific, Jetblue Airways and Virgin Australia. These airlines rely on the manner of air transport sectors such as handling the right kind of expenses while renting aircrafts and choosing the best earnings
CORPORATE FINANCE 3before interest and tax rates. This is necessary for finding out the necessary share price for the company. It is suggested that an implied price of $0.22 to about $0.29 is workable. Intrinsic ValuationThe assumption involved in this case is that growth one has since been a fierce competitor whose geometric mean is a revenue rate of growth that goes past the previous half-a-decade. The competitor, in this case, has since settled for consideration without any financial kind of factors. The second growth rate involves a decade-long risk-free rate. Finally, the weighted average cost of capital measure weighs debt and levers it against the Beta factor that has been taken from worldwide industry average in the field of air transport (Srisaeng, Baxter & Wild, 2015). An analysis has been done that suggests that there should be a share price element of about $0.335.Potential alternativesTigerair has the option of allowing SIA to acquire all its remaining shares. They may alsosell out to any third party such as the present competitor or interested party right before its acquisition. Tigerair may also hold their shares and trade them out to the public immediately after their acquisition which offers a rise in their short-term strategic valuation. Finally, the company may choose to hold down their shares and then sell them out at a future period through the element of long-term holdings. Synergy RecommendationSynergy involves a hard factor that may harden the ability to estimate the right value of synergy. It further leaves the acquisition of the stockholders’ firm way worse off than existing even with no acquisition (Lu, 2017). Hillhouse Capital has a $20billion hedge fund that may fail to attain immediate benefits not unless there is an important kind of change in Tigerair financial
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