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Case Summary


Case-13; Microsoft/Intuit[Acquisition Related]

Group# 23Group Members Name MBA ID BBA IDCommentMd. Imran Hossain13-57313-011Subarna Roy13-55713-035Md. Mahfuz Alam13-61313-097Md. Monsur Rahman13-49713-117Tahmina Tamanna13-61713-153Now Presenting.

Tahmina tamannaBBA ID# 13- 0153MBA ID# 13- 617Case summaryEconomy AnalysisThe USA is the worlds largest economy.

As being developed country, its economic condition is favorable for investment.

Technology & Infrastructure: (Modern and sufficient)

Porters 5 forces model:

A)Threat of new entrants: Low1. Huge initial investment2. Huge rate of innovation

B) Rivalry among existing firms: High 1. Consolidation2. Imitation possibility

Industry AnalysisC) Threat of substitute products: Low

D) Bargaining power of suppliers: Low

E) Bargaining power of buyers: LowHigh Switching costIndustry AnalysisSo, overall industry competition is Moderate.PEST Analysis:Political : Liberalization in software industry

Economy : Declining growth opportunity

Social : Strong customer relationship

Technological : Modern & Developed

Company analysis SWOT Analysis of Microsoft

Strength Largest software developerMost profitable large public corp.

Weakness Low market share in personal finance softwareOpportunity Possible expansion opportunityGetting repeat customersThreatIncreasing consolidationAnti-trust investigationSWOT Analysis of Intuit

Strength Quicken- Leading personal fin. soft.Won challenge from Microsoft.

Weakness Low market share in other market segments.Opportunity Possible expansion opportunityThreatIncreasing consolidationRatio AnalysisRatio AnalysisNow Presenting.

Md. Monsur RahmanBBA ID# 13- 117MBA ID# 13- 497

Du Pont AnalysisAltman Z score modelBusiness riskParticularsIntuitMicrosoftSales Variability0.930.98DOL-3.41.07Technological riskYesYesjudgmentHighHighFinancial riskParticularsIntuitMicrosoftDFL0.980.96judgmentLowLowBCG Matrix

Microsofts PC Application softwareIntuits Quicken softwareMicrosofts PC operating systems softwareMicrosofts Hardware productsReal Option of IntuitCreating a new market niche (E-commerce) in 1996:ASSUMPTIONSS200X150Rf0.08t3 2 22%d11.055733651d20.24332981N(d1)0.854455041N(d2)0.596125044Continuous comp. Discount factor1.27124915c100.55 mlnReal Option of MicrosoftCreating a new product (Windows 95) in 1995:ASSUMPTIONSS300X150Rf0.08t2 2 20%d11.665171901d21.032716369N(d1)0.952060767N(d2)0.849131675Continuous comp. Discount factor1.173510871c177.08 mlnNow Presenting.

Md. Mahfuz AlamBBA ID# 13- 97MBA ID# 13- 613

Problem Statement1. Should Microsoft internally develop or compete aggressively or acquire Intuit to implement its future vision?

2. What will be the expected synergies from the acquisition?

3. What should be the offer price & premium?

4. How the acquisition will be financed?

5. What will be the implication of anti-trust investigation on Microsoft?

WACC of MicrosoftCost of equityRf 0.08Rm-Rf0.06Beta= 1.2Ke=15.2%WACC of Microsoftsourcesamount weightcost after tax costWACCLTD5630.14790.110.0660.0097equity32420.85200.1520.1520.129538050.1392Other Risk premium0.02Adjusted WACC15.93%Microsoft (Base Case)AssumptionsSales Growth24%Cost of revenue15%Research & Development12% Operating exp30%WACC0.1593Tax Rate40%Terminal Growth rate4%Working capital (% of sales)0.05Depreciation % of sales0.15Cap exp (% of sales)0.1total sales in 933753Firm value25456.96Add: Cash2290Add: Real option177.08Equity Value27924No. of Shares565Equity Value per share49Co-efficient of variability= 18%Simulation

Microsoft (Best Case)AssumptionsSales Growth40%Cost of revenue14%Research & Development13% Operating exp29%WACC0.1593Tax Rate40%Terminal Growth rate5%Working capital (% of sales)0.05Depreciation % of sales0.15Cap exp (% of sales)0.1total sales in 933753Firm value47864.55Add: Cash2290Add: Real option177.08Equity Value50331No. of Shares565Equity Value per share89Co-efficient of variability= 22%Simulation

Microsoft (Worst Case)AssumptionsSales Growth20%Cost of revenue16%Research & Development10% Operating exp31%WACC0.1593Tax Rate40%Terminal Growth rate3%Working capital (% of sales)0.05Depreciation % of sales0.15Cap exp (% of sales)0.1total sales in 933753Firm value20260.84Add: Cash2290Add: Real option177.08Equity Value22727.92No. of Shares565Equity Value per share40Co-efficient of variability= 16%Simulation

WACC of IntuitCost of equityRf 0.08Rm-Rf0.06Beta= 1.25Ke=15.5%WACC of Intuitsourcesamount weightcost after tax costWACCDebt245430.332610.110.06710.0223equity492440.667380.1550.1550.1034737870.1257Other Risk premium0.02Adjusted WACC14.58%Intuit (Base Case)AssumptionsSales Growth45%Cost of revenue30%Research & Development10% Operating exp45%WACC0.1458Tax Rate40%Terminal Growth rate3%Working capital (% of sales)0.10Depreciation % of sales0.07Cap exp (% of sales)0.1total sales in 93121.372Firm value427.70Add: Cash39.54Add: Real option100.55Equity Value567.79No. of Shares11.205Equity Value per share50Co-efficient of variability= 33%Simulation

Now Presenting.

Subarna RoyBBA ID# 13- 035MBA ID# 13- 557

Intuit (Best Case)AssumptionsSales Growth52%Cost of revenue29%Research & Development15% Operating exp45%WACC0.1458Tax Rate40%Terminal Growth rate4%Working capital (% of sales)0.10Depreciation % of sales0.07Cap exp (% of sales)0.1total sales in 93121.372Firm value591.728Add: Cash39.54Add: Real option100.55Equity Value731.81No. of Shares11.205Equity Value per share65Co-efficient of variability= 37%Simulation

Intuit (Worst Case)AssumptionsSales Growth20%Cost of revenue32%Research & Development10% Operating exp45%WACC0.1458Tax Rate40%Terminal Growth rate2%Working capital (% of sales)0.10Depreciation % of sales0.07Cap exp (% of sales)0.1total sales in 93121.372Firm value178.299Add: Cash39.54Add: Real option100.55Equity Value318.39No. of Shares11.205Equity Value per share28Co-efficient of variability= 24%Simulation

Intuit + ChipsoftAssumptionsSales Growth65%Cost of revenue28%Research & Development15% Operating exp43%WACC0.1539Tax Rate40%Terminal Growth rate4%Working capital (% of sales)0.10Depreciation % of sales0.1Cap exp (% of sales)0.1total sales in 93121.372Firm vlaue1099.85Add: Cash39.54Add: Real option100.55Equity Value1239.94No. of Shares19.236Equity Value per share64Co-efficient of variability= 34%Simulation

Offer price of IntuitOnly IntuitValue/shareBase case50Best case65Worst case28Intuit + Chipsoft64Average Intrinsic value/share52Only IntuitU$Intuit's Current market value/share42Premium (%)70%Premium per share29.4Offer price per share71.4No. of outstanding shares11.205total offer price800 mlntotal premium paid329.427Intuit + ChipsoftU$Intuit's Current market value/share42Premium (%)80%Premium per share33.6Offer price per share75.6No. of outstanding shares19.236total offer price1.45 blntotal premium paid646.3296Price to Sales RatioIndustry avg P/S ratio2.78Intuit's expected Sales200Price 557 mlnPrice to Earnings RatioIndustry avg P/E ratio-26.74Intuit's exp. Earnings-20Price 535 mlnNow Presenting.

Md. Imran HossainBBA ID# 13- 011MBA ID# 13- 573Synergy (If acquire Only Intuit)

Total PV of Synergy1.8 billionSynergy (If acquire Intuit+Chipsoft)Total PV of Synergy2.5 billion

NPV of mergerIf Microsoft acquires (only Intuit)U$Synergy1791.896Premium paid329.427transaction cost (25% of the offer price)200.0093NPV1.2 blnIf Microsoft acquires (Intuit+Chipsoft)U$Synergy2532.982Premium paid646.3296transaction cost (25% of the offer price)363.5604NPV1.5 blnCash or Stock offerCash OfferStock offer(Exchange ratio) Only Intuit800 mln1.5:1Intuit+Chipsoft1.45 bln1.55:1Is it right time to acquire?Yeah, this is the right time. Because:-

High consolidation in the PC industry

To grab the customer base of 7 million users of personal finance software of Intuit.

To develop the capabilities needed to enter Home entertainment & E-commerce effectively & efficiently.

If delay, the other rivals may attempt to acquire intuit & that will reduce the market share of Microsoft.

Implications of Anti-trust InvestigationsThe anti-trust investigation will not have a large impact on Microsoft.


Microsoft has made an agreement with the- Commission of the European Community and U.S. Department of Justice.

These two agreements promised to end a 4.5 year investigation of Microsofts business practices.

These will mitigate the possible restrictions to be imposed on Microsoft by the regulatory authority.What if Microsoft internally develops capabilities?On Demand Home entertainment & E-commerce servicesHuge costly & Time consumingAssumptionsSales Growth35%Cost of revenue16%Research & Development15% Operating exp31%WACC0.1593Tax Rate40%Terminal Growth rate4%Working capital (% of sales)0.05Depreciation % of sales0.11Cap exp (% of sales)15%total sales in 933753Firm vlaue25973Add: Cash2290Add: Real option177Equity Value28440No. of Shares565Equity Value per share50What if Microsoft gear up to compete more aggressively?AssumptionsSales Growth30%Cost of revenue16%Research & Development14% Operating exp31%WACC0.1593Tax Rate40%Terminal Growth rate4%Working capital (% of sales)0.05Depreciation % of sales0.115Cap exp (% of sales)0.12total sales in 933753Firm vlaue25532.083Add: Cash2290Add: Real option177.08Equity Value27999.163No. of Shares565Equity Value per share49.55Recommendations Microsoft should not go for internal development rather it should acquire Intuit after Intuit acquires Chipsoft.

The equity value per share of Microsoft:

Total synergy will be 2.5 bln, Transaction cost 25% of offer price & total NPV 1.5 bln

It should provide the cash offer of $1.45 bln for acquiring 19.236 million shares @ $75.6 per share with a premium of $33 (80%) per share.

This offer price would be 1.8 times of Intuits current market value $42 per share.

ExistingCompete AggressivelyInternally develops Acquires Intuit$49 $49.55$50 $53 Financing of the acquisitionTotal financing neededUSD Offer price1454.242Transaction costs363.5604Total1.8 blnExisting C/B2290 mlnIdle cash % in 199320%Idle cash458 mlnFinancing sourcesExisting Cash 25%458 mlnSecondary offering75%1360 mlnissue 30 mln shares @45New Capital StructureCapital StructureNewExistingTotal Debt to Equity ratio12%17%Total Debt to Asset ratio14%15%Question & Answers..Thank You very much!!!!