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Indigo Airlines is a Company in severe financial distress. The Company can no longer pay its bills on time and it is far behind on

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Indigo Airlines is a Company in severe financial distress. The Company can no longer pay its bills on time and it is far behind on payments to its banks and long-term debt holders. The Company has decided to either be purchased by another air carrier or liquidate its assets and close. The managers have approached Jet Airlines about being acquired. After examining Indigo's financial statements, looking at the routes owned by Indigo, and looking at the condition of the fixed assets, Jet Airlines has offered to pay the stockholders of Indigo Airlines $8 million to be acquired. Indigo Airlines covers flights to both areas in which Jet already flies, but also has routes in areas into which Jet is interested in expanding. As part of the analysis, Jet determined that the additional cash flows resulting from the acquisition would total $500,000 this year (Year One) and would grow at a rate of 4% for the next three years. After this time, the cash flows would grow at a constant rate of 2% annually for the foreseeable future. The "weighted average cost of capital" (WACC) of Jet Airlines would be 8% after the merger. If, instead, Indigo Airlines decides to liquidate its assets, it will pay off its debt and give any remaining funds to the firm's stockholders. Indigo Airlines' balance sheet is attached. The "Accrued Wages" were earned within the last 90 days prior to filing for bankruptcy. The "Unpaid Employee Benefits" were due in the six months prior to the filing for bankruptcy. The "Unsecured Customer Deposits" are for less than $900 each. Indigo Airlines has no property taxes past due. The "First Mortgage" is secured against the fixed assets of the firm. The "Subordinate Debentures" are subordinate to the "Notes Payable to Banks." The liquidation of the firm's Current Assets would produce $186,000; liquidation of the firm's fixed assets would produce $800,000. This totals to $986,000 in funds to distribute to the creditors and stockholders of the firm. The trustee expenses associated with the bankruptcy totaled $50,000 and unpaid expenses incurred after the filing of the bankruptcy petition, but before the trustee was appointed totaled $10,000 Please answer the following questions: 1. What type of merger is the potential merger between Indigo Airlines and Jet Airlines (i.e., horizontal, vertical, congeneric, or conglomerate)? Why or what factors led you to classify the merger this way? 2. Synergy, a situation in which the value of the combined enterprise exceeds the sum of the values of the firms that are joining, is a typical motivation for a merger to occur. What synergy(s) do you see between Indigo Airlines and Jet Airlines

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