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Proper valuation of a stock enables the company plays a critical role in ensuring that both the acquirer and the target company at the correct theoretical value of the company. The investors who are willing to invest or take over an entity they have to determine whether this acquisition will be beneficial to them or not. In order to do this, they have to determine how much thee target company is worth (Zhao, Papanastassiou and Tan, 2015). The two sides of the acquisition deal have varying ideas concerning the worth of the target company. The target company will; tend to overvalue the company while the by setting the highest price possible while the acquirer will try to undervalue the company by stating the lowest possible value. This creates a necessity to arrive a correct and legitimate valuation model.
There exist various legitimate ways that can be used to value the companies. Looking at the comparable companies within the industry is one of the most commonly used methods. However, the deal makers use various other techniques and tools in examining the target company. In most cases the acquiring company almost always makes the payment of significant premium on the stock value of the traget5 company (Plunkett, 2008b). The justification for buying shares at premium boils down to the idea of synergy, where the merger or the acquisition is assumed to benefit the shareholders by the expectation of an increase in the post-merger share price of the acquirer. The investors expect the share price of the acquiring company to rise due to the perceived increase in a value of the potential synergy (Traub et al., 2013).
In the world of business, it would be more unlikely for the rational company owners to sell it if they can benefit more by retaining it rather than selling it. This means that the acquirer has to pay a premium if they want to take over another company. Regardless of the pre-merger statured valuation of the company. For the target company, the premium given by the buyers represent the future prospect of the company and for the buyers the buyer, it represents the post-merger synergy that they intend to gain through the acquisition. The following analysis presents the overview of the AstraZeneca.
Background to the AstraZeneca Company
AstraZeneca plc is a publicly traded company listed on London Stock Exchange, New York Stock Exchange and Stockholm stock exchange where it is traded as AZN. The company has it’s headquarter in London UK………….