A competitor of La-Z-Boy and Ashley, THIRDCO, has decided to put itself up for sale by auction.THIRDCO's market value is $100M.They have a strong brand associated with a differentiated product line that generates higher margins than La-Z-Boy and Ashley, and they are growing twice as fast as La-Z-Boy. The CFO of La-Z-Boy, tells you that there are $1M of synergy/year between La-Z-Boy and THIRDCO, due to redundancies in back office staff. You agree with her and estimate that the net present value of the $1M of synergy/year is $10M. Evaluate the attractiveness of the THIRDCO acquisition. Would you advise the CFO to pursue THIRDCO? If La-Z-Boy bids for THIRDCO, and ultimately acquires that firm, how much value would you expect La-Z-Boy to earn and capture in the transaction?

Reference Article: Tennessee Producer Tries New Tactic in Sofas: Speed As Some Turn to Imports, Custom Couch By Dan MorseStaff Reporter of The Wall Street Journal Nov. 19, 2002 12:01 am ET