A Review of Acquisition Valuation Models

The article critically examines two methods of acquisition valuation. The first concentrates on a comparison of the earnings per share of the combined companies with that of the acquiror alone on a present value basis. The second method is discounted cash flow model which is based on several establi...

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Bibliographic Details
Published in:Journal of business finance & accounting 1974-03, Vol.1 (1), p.35-53
Main Authors: FRANKS, J. R., MILES, R., BAGWELL, J.
Format: Article
Language:English
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Summary:The article critically examines two methods of acquisition valuation. The first concentrates on a comparison of the earnings per share of the combined companies with that of the acquiror alone on a present value basis. The second method is discounted cash flow model which is based on several established normative models of share price valuation. The article concludes that because of the difficulties in computing an accurate weighted average cost of capital for the combined group and the differences in cash flow and reported earnings, the earnings per share approach is not valid, and therefore the cash flow approach is to be preferred and adopted.
ISSN:0306-686X
1468-5957
DOI:10.1111/j.1468-5957.1974.tb00849.x