Students will be divided into two groups. Students in Thessaloniki will represent Olympic Air and students in Athens Aegean Airlines.
Two simultaneous meetings will take place in the two cities. The first will be preparatory with a 2-hour duration, whereas in the second with 3 hours duration the simulation will be conducted.
Scenario:
Case Study: Acquisition of Olympic Air by Aegean Airlines
We examine the case study that involves the acquisition of Olympic Air by Aegean Airlines. Under this context, the management of AEGEAN Airlines will have to estimate the market value of Olympic Air using the Discounted Free Cash Flow Method, in order to provide an acquisition bid that is further expected to be amortized over a four-year period. The value of Olympic Air will be also estimated by its management (also on a four-year basis) in order to be able to evaluate the bid. Οn this basis, you are asked to:
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Use your knowledge on time series forecasting in order to estimate for the next four years the parameter values of Olympic Air's cash flows, and hence its cash flows, using their evaluation formula. You have to justify the selection of the time-series model employed initially through a graphical depiction of the historical data in order to identify their static behavior or trend, and then through the use of the Mean Absolute Percentage Error (MAPE) measurement. The employed model will then be employed in order to determine the growth factor (g).
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Determine the Weighted Average Cost of Capital (WAAC). While the beta coefficient value will be given equal to 0.889, you will have to determine the bonds yield rate and the Risk Premium (
, using the monthly values of the Greek Stock Exchange Index and the yields of the 10 year Greek bond, for 2019.
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Evaluate Olympic air’s market-value, while considering its discounted residual value and its long term liabilities.
Given the valuation results, Aegean's management should document the acquisition’s bid while the management of Olympic Air management, any objections or new bid propositions.
You also need to examine carefully the balance sheets and their notes as they could contain useful qualitative and quantitative information for restructuring, sales of slots, return of aircrafts etc.