Analysis

This portion of the report is based on analyzing the before merger valuation of Flinders Values
and Controls Inc. (FVC) and RSE International Corporation. In addition to this, expected performa
nces of both the companies after the merger have also been evaluated. In order to evaluate th
e expected performance of these companies before the merger, WACC is calculated and the val
ue of WACC for FVC and RSE is 9.2% and 9.4% respectively (Exhibit 3).

For the WACC calculations, risk-free rate is assumed to be 4.52 % (30-year bonds) whereas, Ma
rket premium is assumed to be 5.5 % (geometric average) for both the companies. However, Ba
sed on the performance of past, the growth rate of the future expected performance is calculat
ed during the time period 2008 to 2013.

From the analysis of the before merger valuation of Flinders Values and Controls Inc. (FVC), it is
determined that the enterprise value of a company is $856,518 while the share per value is $3
51.03 according to the DCF valuation method. However, the enterprise value of RSE International
Corporation is $32,514,074 whereas; share per value is $0.52. Furthermore, expected sales and
net operating profit after taxes (NOPAT) of both the companies for the year 2008 to 2013 are c
alculated on the basis of average growth rate of the past years given in the exhibits.

The sales of FVC have assumed to increase at 8.63% growth rate from 2008 to 2013 while sales
of RSE projected to increase at 9% growth rate during the same time period. The Cost of Goo
ds Sold is assumed to be 70% for FVC while for RSE it is assumed to be 79% of the revenue f
or all the six years. The expenses are assumed to be growing at a 5.82 % rate for FVC while e
xpenses for RSE are supposed to be at 4%. The Tax rate is expected to be 40% for both the c
ompanies. The equity value/market capitalization of both the companies is around $100 million a
nd $1.4 billion for FVC and RSE respectively. In addition to this, the current price per share of t
he FVC and RSE are $39.75 and $0.52 respectively (Exhibit 1 &2).The per share premium of the
RSE International Corporation is expected to be $0.48 whereas, expected per share premium val
ue of FVC is $ 0.45 from examining the after merger worth of both the companies (Exhibit 4).
This means that both the companies will get the expected premium over their current per share
price as well as expected inflation is 7% of determining the value of both companies after mer
ger. Moreover, expected PV of the cash flow value of RSE after merger is $30,144,789 while exp
ected PV of cash flows of FVC is $1,091,150. The growth rate and discount rate are calculated w
hile considering the expected inflation for evaluating the post-merger worth of both the compan
ies (Exhibit 4).

Recommendation

From the above analysis of expected pre-merger performance Of FVC and RSE as well as their
after merger expected worth and performance it is recommended that both the companies shou
ld go for the merger. As this merger would provide both the companies great opportunities for
growth and also enhance the value of these companies in the industry.

Furthermore, post-merger results are promising for both the companies and allow the companie
s to get the benefits from the opportunities that explore after the merger. However, there are s
everal benefits for both the companies that would help them to increase the worth of their shar
es and to get the understanding and hold of the synergies from the merger (Exhibit 4). Therefo
re, due to all these advantages, it is recommended that RSE should acquire FVC as FVC has str
ong and experienced management team as well as expected high performance in the futurE

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