fi6021 international corporate finance
TRANSCRIPT
GE Capital Acquisition of Milestone Aviation Group
FI6021 International corporate finance
Group members Student IDWantong Dong 15072487
Dmytro Dudko 15055221
Bocheng Yang 15060233
Olaseni Odeyemi 15014967
In January 2015,
GE Capital
Aviation Services
(GECAS), GE’s
Irish-
headquartered
aircraft finance
subsidiary
bought the
helicopter
leasing specialist
Milestone
Aviation for $1.8
billion.
Introduction
Introduction of GE & Milestone The choice to acquire milestone aviation GE’s overall strategic goals The acquisition deal Factors that impact value creation GECAS integration of milestone aviation Conclusions
Background
Imagination at work
GECAS
US & Irish commercial aircraft financing
and leasing business of GE
40+years of Industry experience
A wide business scale
Providing multiple services & financing
solutions
Milestone Aviation Group
Established in August 2010
Leasing aircraft to industries
Providing emergency searching & services
Acquired by GECAS in 2015
Open new markets & expend
production scale
Increase the market shares
Obtain sufficient and cheap labour
force; raw material
Enhance the competitiveness of
the enterprises
Carry out the brand operation
Get advanced technology;
management experience; business
network and experts
Motives for international acquisitions
The leader in aircraft market with
$ 3 billion
Global resources and delivery
positions
Financing with lower risk
Strong experienced team
Build long term; stable and
sustainable development co-
partnership
Deal with the payment carefully
Milestone Aviation Group Strengths
The choice to acquire Milestone Aviation
Deep their strength in helicopter area
Increase their main industrial values
Create the synergy effects
Gain more experts and increase reputation
The team with passion and creative knowledge will produce big profits
GE strategic areas of expansionAviation
Engines and parts for aircrafts of all types
Global service
network
Oil and Gas
Technical solutions for offshore drilling
Maintenance services for offshore platforms
Other businesses
Healthcare
Energy management
Transportation
Appliances and lightning
Acquisition of Milestone Aviation
Overall strategic goals
Decide the ‘right price’ of the target
The valuation of the target
Assets-based
Income-based
Cash flow- based
Book valueNet realisable valueReplacement cost
P/E=PPS/EPS
Dividend growth model
(P/E=MV/PAT)
SOFP of Milestone Aviation Group in 31/12/2013
Multiple
P/E ratio
China Aircraft Leasing Group Holdings LTD
15.23
Capital Lease Aviation PLC
17.66
BBA Aviation PLC
18.26
30/06/2015
average P/E =17.05
I/S in 31/12/2013 Profit (Loss) after Tax 25,017
MV=P/E*PAT =17.05*25017=£426539.85
Fixed Assets 1,551,557Current Assets 157,399Total Assets 1,708,956Current Liabilities 110,710Long Term Liabilities 1,206,667Net assets 391,579Shareholders Funds 391,579
In is normal to reduce the value by 1/3 –1/2 when estimate the value of a non-listed company.
Dividend Discount Model
market value: PV of future dividends
lower div per share
theoretical value lower growth rate
higher required rate of return
Payment method
cash consideration or debt
Roles are clear-cutMAG’s shareholders---more likely to accept cash Avoid any future upside performance
block from future gainsshare-exchange approach
GECAS’s shareholders—less likely to pay by shares pay more than MAG is worth.
tax factors • paying cash----MAG will request GECAS to pay more
pay capital gains tax overall costs • Use debt----bring great
benefit to the acquiree-----no need to pay income taxes until they receive the debt payments
$22.00
$23.00
$24.00
$25.00
$26.00
$27.00
$28.00
1/16/2015; $23.95
12/9/2014; $27.01
GE's end-of-day share price
Value creation
Date Share price
Total amount of shares outstanding
Market capitalization
13th of October 2014 $23.95 10,057,380,000 $241 bn.
18th of November 2014 $27.01 10,057,380,000 $272 bn.
Total gain in overall market value of GE 31 billion dollars
Value creation
Acquisition difficulties
• All the debts and liabilities of milestone will be inherited by GECAS
• Having the world largest leasing fleet GECAS constantly has to sell about $3 billion- worth of aircraft to renew its fleet
• The onset of new technology and aircraft
• Customary Closing conditions including regulatory approvals
References
• ACCA global (2015) Business Valuation [online], available: http://www.accaglobal.com/content/dam/acca/global/PDF-students/2012s/sa_feb12_f9_valuationsv2.pdf [accessed 23 Oct 2015].
• Alfred, R. and Mark, L. S. (1999) ‘Stock or Cash?: The Trade- offs for Buyers and Sellers in Mergers and Acquisitions’, Harvard Business Review [online], 160(11), 147-158, available: https://hbr.org/1999/11/stock-or-cash-the-trade-offs-for-buyers-and-sellers-in-mergers-and-acquisitions [accessed 24 Oct 2015].
• Andrei, S. and Robert, W.V. (2002) ‘Stock Market Driven Acquisitions’, Journal of Financial Economics, 70(2003), 295-311.
• Hsuan-Chu, L., Ting-Kai, C. and Jia-Chi, C. (2010) ‘Does market mis-valuation drive post-acquisition underperformance in stock deals?’, international Review of Economics and Finance, 20(2011), 690-706.
• Leonidas, B. and Sudi, S. (2011) ‘Determinants of earn out as acquisition payment currency and bidder’s value gains’, Journal of Banking & Finance, 36(2012), 678-694.
• Mara, F. and Ronald, W. M. (2005) ‘The choice of payment method in European mergers and acquisitions’, The Journal of Finance, 60(3), 1345-1388.
• Milestone Aviation Group A GECAS Company (2015) Milestoneaviation.com [online], available: http://milestoneaviation.com/about-milestone/ [accessed 29 Oct 2015].
• Robin, J. A. (2011) International Corporation Finance, International ed., New York: McGrew-hill.
• Milestone Aviation Group Limited (2015) GE Capital Aviation Services Closes Acquisition of Milestone Aviation Group [online], available:http://milestoneaviation.com/ge-capital-aviation-services-closes-acquisition-of-milestone-aviation-group/ [accessed 24 Oct 2015].