This is an old one, but a good one to test understanding of synergies/premium/value for deals that are announced in news
Back in early 2020, Legg Mason announced that it agreed to be acquired by Franklin Templeton.  Read this press release:   https://www.businesswire.com/news/home/20200218005552/en/Franklin-Templeton-to-Acquire-Legg-Mason-Creating-1.5-Trillion-AUM-Global-Investment-Manager

Note all the key words they use for the strategic rationale:  “unlocks substantial value and growth opportunities;” “differentiated capabilities with modest overlap;” “balance across investment strategies, distribution channels, and geographies;” “shared vision;” “scale;” “$200 million in annual cost savings….majority…expected to be realized within one year.”  There is much more.
What would you estimate to be the Value per Share (per Legg Mason share) of the Legg Mason cost savings mentioned in the release? Any thoughts on who is getting majority of expected synergy value/share (buyer shareholders or Legg shareholders, assuming Legg is properly valued standalone)? Submit an excel sheet showing me your work, that’s it — keep it simple so I can follow.  The title of this assignment is also a link to submit your work.  Simply select the link, upload your excel file, and submit.  I will go over a solution for this tomorrow and you can build it yourself in class if you wish (yes, it should be easier since I’m going over) — it will be due by next weekend.
Key information:  Legg Mason closing stock price day before announcement = $40.72 ; Legg Mason shares outstanding were 87,165,000 ; Effective Tax Rate to use 26.0%; 100% Cash Financed.  Risk Free Rate assume was 3% at time.  Someone did a calculation of Legg’s WACC and it was 9.0%.




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