How did Mondelez determine Hershey was worth $25 billion?

Thanks!

They recognized it as a very sweet deal.....

A bunch of guesses and some glorified hunches

Or as financial folks call it, "modeling"

There is no doubt that they tried to figure out the "synergies" that could come from the deal. Typically these come from firing duplicative staff and consolidating supply chain operations.

People will make this sound extremely complex but the reality is there is a ton of guesswork. It's the reasons most acquisitions don't deliver the returns most companies expect.

Thank you RedStickBR...Great information

Not that anyone has asked, but I'll offer my unsolicited two cents:

I prefer to use an unlevered FCF (FCFF) with a TV discounted by my WACC and cross check the result against the implied EV/EBITDA, or use levered FCF (FCFE) using my own capital structure assumptions with a TV discounted by my ROE and cross check the result against implied P/E.

Of course, in my industry, ROE is known beforehand (at least for a few years) and P/B is usually the metric which first gets the conversation between the two parties going.

I'd begin by assuming no synergies and conservative forward growth rate assumptions. If the resulting FCFF or FCFE IRR is at or above my hurdle at this point, I'm a happy camper and any synergies are just gravy. If the other party wants to talk my offer higher, then it's time to start thinking about synergies, bull case growth rate assumptions, creative capital structuring, and strategic value.

I'd have to model it all out, but you'd study historical financials, come up with some sort of opinion as to future performance for the next 5, 10, 20, etc years and then use those assumptions to project the company's financial statements over the given timeframe. Your income statement projections will be driven largely by your key growth/scale/tax/interest rate assumptions, your balance sheet will be driven largely by your income statement, and your cash flow statement will be a function of each of the other two. Once you have your cash flows, calculate unlevered free cash flow, or free cash flow to the firm, to assess the project on a purely operational basis and/or calculate levered free cash flow, or free cash flow to equity, to assess the project after interest and principal repayments have been accounted for. The IRR of your upfront payment, annual cash flows, and terminal value will tell you whether the project exceeds your cost of capital and other opportunities and should thus be accepted or doesn't exceed your cost of capital or other opportunities and should thus be rejected.

That's basically it in a nut shell, although there are literally hundreds of assumptions and other factors that can come into play. The due diligence period for large M&A deals often takes months (even years) to complete, costs tens (even hundreds) of millions, and encompasses finance, legal, accounting, economic, regulatory, and industry-specific subject matters. Taxation issues are often the ultimate deal maker (or breaker).

I was just pleased I was able to read that quote and somewhat comprehend it. RSBR is a super bright guy

I've got a few corporate finance and valuation classes I am taking in the next six months so I'll come back later to talk more shop

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RedStickBR

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Need a catch-up for sure. LinkedIn updated me on a new role you recently took so I would love to hear more about it. Hope the family is doing well!