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Challenging the Status Quo: Steel Producer Case Study on the Enterprise Value for M&A

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  • Mădălina Viorica MANU

    (Bucharest University of Economic Studies, Council for Doctoral Studies)

  • Vlad BRÄ‚TĂȘANU

    (Bucharest University of Economic Studies, Council for Doctoral Studies)

  • Ilie VASILE

    (Bucharest University of Economic Studies, Council for Doctoral Studies)

Abstract

The purpose of this paper is to analyze the enterprise value determinants, in order to help the interested parties make correct (investment) decisions by studying industry cases of mergers and acquisitions (M&A). In order to understand and identify value-adding opportunities for the companies, the paper investigates a divestiture within a major international steel group. The research questions refer to the understanding of the relationship between the enterprise value and market capitalization of the selected companies acting in the steelmaking field, including other factors such as the revenue, EBITDA, EPS or ownership structure. In order to understand how the enterprise value is determined, we have analyzed relevant theories, including Tobin’s Quotient (Q) for a company/ aggregate corporation, for the study of the relationship between the market value and its replacement value. If used empirically, Tobin’s q helps avoid issues of estimating shareholders’ risk-adjusted required return by the market prices. However, Q is not (yet) used in practice in the valuations of companies, because of the lack of the necessary input data. Besides using the graphical visualization of the share price, we have used the datasets available for several years on the value of several mature steel producing companies, market capitalization, and other indicators. The methodology also includes Market Comparable method and own spreadsheet calculations. After analyzing the evolution of the share price for the global steelmaking leader (ArcelorMittal), between 2009 and 2018, we have not identified any growth potential; the market value of ArcelorMittal is a proxy for the market value of its assets.

Suggested Citation

  • Mădălina Viorica MANU & Vlad BRÄ‚TĂȘANU & Ilie VASILE, 2019. "Challenging the Status Quo: Steel Producer Case Study on the Enterprise Value for M&A," Management Dynamics in the Knowledge Economy, College of Management, National University of Political Studies and Public Administration, vol. 7(2), pages 207-228, June.
    • Handle: RePEc:nup:jrmdke:v:7:y:2019:i:2:207-228
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    References listed on IDEAS

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    1. repec:cup:cbooks:9781107034662 is not listed on IDEAS
    2. Michael C. Jensen, 2010. "Value Maximization, Stakeholder Theory, and the Corporate Objective Function," Journal of Applied Corporate Finance, Morgan Stanley, vol. 22(1), pages 32-42, January.
    3. Brooks,Chris, 2014. "Introductory Econometrics for Finance," Cambridge Books, Cambridge University Press, number 9781107661455, December.
    4. Timothy Erickson & Toni M. Whited, 2006. "On the Accuracy of Different Measures of q," Financial Management, Financial Management Association International, vol. 35(3), pages 5-33, September.
    5. Madalina Viorica ION (MANU) & Ilie VASILE, 2017. "How much is the listed enterprise worth? The price multipliers’ approach," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(Special), pages 77-82.
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