I am extremely lost and don't even know where to begin with this case! Coud anyone offer some guidance?

Case Questions:

• What is the gist of your recommendation to Tom Wathen? Should he go ahead with $100 million bid for Pinkerton? If so, how should he finance the acquisition? (no more than a few sentences)
• How did you use the information about the only publicly traded security firm Wackenhut in your analysis?
• What is the value of the combined company (CPP and Pinkerton)? Briefly (no more than a few paragraphs) describe how did you arrive at it? In particular, discuss your valuation of Pinkerton as well as cash flows improvement to CPP's overall business as a result of the acquisition.
• How did you evaluate financing options for this acquisition?
• Did you consider more than one possible scenario for this acquisition? If so, how did it influence your recommendations?

Summary:

Company A is bidding for Company C, and nothing less than $100 mill will be accepting for the bid. Need to know how much it is worth and how to finance it to get support for the bid within Company A.

Expected results if the bid goes through:

Company C's revenue will shrink to 70% of their 1987 level by the end of 1990 and then grow 5% a year thereafter. The new pricing strategy Company A would undertake at Company C if acquired is expected to improve Company C's gross profit margins from 8.5% in 1988 to 9% in 1989, 9.5% in 1990, and 10.25% thereafter. It is expected the strategy will produce higher margins for company A and increase A's projected operating profit by 1.2 mill in 1989, $1.5 million in 1990, $2.0 million in 1991, and $3 million in 1992. This increase in projected operating profit would be over and above the level that would otherwise have been anticipated, and is expected to grow at 5% beyond 1992. However, in the worst case scenario that the pricing strategy isn't very successful and doesn't impact company A's projected operating profits, C's gross margins would improve to only 8.5% in 1988, 8,75% in 1989, 9% in 1990, and 9.5% thereafter.

As a result of eliminating common overhead, C's operating expenses as a percentage of sales could be reduced to 6% in 1988, 5.9% in 1989, and 5.8% in 1990 and beyond. C's net plant and equipment could also be reduced to 4% of sales for the foreseeable future.

As for C'snet working capital, company A's analysts expected C's net working capital as a percentage of sales could be reduced to 8.6% in 1988, 7.4% in 1989, and 6.2% thereafter. If there were issues, though, C's NWC would remain at 9.5% of sales.

`As for options for financing this bid, there are only two options. The first would be to get debt and equity financing from a firm. The debt would be $75 million with a seven year maturity and 11.5% interest rate. The loan principle would not be amortized prior to maturity, at which time the entire $75 million would come due. It would be a senior obligation and backed by the assets of the new firm. The equity, in the amount of $25 million, would be provided in exchange for 45% of equity in the new combined firm. The second option was a 100% debt financing offered by a bank. The bank would lend 100 million at the rate of 13.5% per year. The loan principal would be amortized at the rate of $5 million a year for six years with a final payment of $70 mill at the end of the 7^th year. It was also collateralized by all the assets of the new combined firm.

Under either option, the $100 million purchase of C would result in the creation of good will which would be amortized at the rate of $5 million per year for the next 10 years.