In June $2023,$ Block announced that it was acquiring its smaller rival Brick, citing operational

synergies as the reason for the merger. On the announcement of the merger, Block$$ stock price dropped from $$54\mathrm{.}80$ to $$52\mathrm{.}50$ while Brick price went up from $$31$ to $$37\mathrm{.}50.$ At the time of the

announcement, Block had $400$ million shares outstanding and Brick had $50$ million shares

outstanding. Neither firm has any debt.

a$.$ Using the stock price data above, estimate the value that the stock market is attaching to synergies

from this merger. Is the market expecting the merger to be value enhancing $($i$.$e$.,$ are merger

synergies expected to be positive?

b$.$ You are doubtful about the accuracy of the $$54\mathrm{.}80$ pre$-$announcement stock price of Block. You

suspect that Block may have been slightly overvalued prior to the merger announcement.

However, you are reasonably confident that all other stock market data quoted above reflect fair

value. Using the following data calculate the $$correct$$ pre$-$announcement value for Block and

provide your own estimate of synergies from the merger.

Prior to the merger announcement Block had:

$$ EBIT $(1-$T$)$ equal to $$1\mathrm{.}5$ billion

$$ Net capital expenditures $($i$.$e$.$ Capex less depreciation$)$ of $200$ million

$$ Working capital investment $($i$.$e$.$ changes$)$ equal to $300$ million

$$ Cash balance of $$150$ million

$$ WACC of $10\%$ and a long$-$term growth rate of $5\%$

$$ Assume Block is in a stable growth phase.

Please provide Excel or detailed steps