scholarly journals Measuring Synergies of Banks’ Cross-Border Mergers by Real Options: Case Study of Luminor Group AB

2021 ◽  
Vol 14 (9) ◽  
pp. 403
Author(s):  
Andrejs Čirjevskis
Keyword(s):  
Real Options ◽  
Value Added ◽  
Corporate Financing ◽  
The Real ◽  
Measurement Models ◽  
Cross Border ◽  
Valuation Method ◽  
Real Options Valuation ◽  
Market Value Added

Applying the real options valuation to measure merger and acquisition (M&A) synergy is highly debatable, with questions arising from the usefulness of this approach in real-world settings. Understanding the full benefits (and possible limits) of real options applications to measure synergy in cross-border merger activities remains a challenge. The main objective of the paper is to explore multiple types of synergies in the recent, highly strategic cross-border merger—the Luminor Group AB deal—and to value those synergies with the real options application. The research found that the sum of values of different types of synergies in M&A deals as the market value added provided by this deal could be valued with real options applications. A real options application may serve as a decision-making tool and at the same time be a useful valuation method of M&A deal synergies. The implications of this paper are twofold. First, the research contributes to corporate financing by providing relevant synergy measurement models in M&A deals. Second, the paper contributes to “grand challenges’’ research topics of international businesses by illustrating how a group of multinational banks solved the problem of income inequality across countries, and balanced inequality within their networks through a cross-border merger.

scholarly journals Do Synergies Pop up Magically in Digital Transformation-Based Retail M&A? Valuing Synergies with Real Options Application

2020 ◽  
Vol 6 (1) ◽  
pp. 18
Author(s):  
Andrejs Čirjevskis
Keyword(s):  
Real Options ◽  
Quantitative Research ◽  
Success Factors ◽  
Value Added ◽  
Market Value ◽  
Digital Transformation ◽  
Quantitative Research Methods ◽  
Qualitative And Quantitative ◽  
Market Value Added

This paper aims to explore and to illustrate success factors of reciprocal synergies of digital transformation-based merger and acquisition (M&A) deals in the grocery retail industry. The author carried out a case study on the merger of Ahold Delhaize in 2016. The paper’s contribution is a conceptual model of research that helps in pre-acquisition analysis on competence-based synergies in M&A to value strategic synergies as market value added a using real options application. By combining qualitative and quantitative research methods, the author provides empirical evidence to indicate the validity and value of the proposed research framework for both scholars and practitioners alike.

scholarly journals Real Options Analysis for Acquisition of New Technology: A Case Study of Korea K2 Tank’s Powerpack

2018 ◽  
Vol 10 (11) ◽  
pp. 3866 ◽  
Author(s):  
Sungchul Kim ◽  
Ronald Giachetti ◽  
Sangsung Park
Keyword(s):  
Economic Analysis ◽  
Real Options ◽  
Real Option ◽  
The Real ◽  
Weapon Systems ◽  
Real Options Valuation ◽  
Real Option Valuation ◽  
Acquisition Strategy ◽  
Options Valuation

For sustainable defense management, it is essential to acquire weapons systems that can adapt to future uncertain threats and, at the same time, to invest efficiently with limited budgets. Economic analysis is used to examine the costs, benefits and uncertainties of alternatives. In particular, the use of the real options valuation, which is one of the methodologies of economic analysis, is expanding. The real options valuation has shown effectiveness across various industries to evaluate investment strategies. In this paper, we apply the real options valuation to the weapon systems development case and confirm its usefulness. Unlike previous studies, the real option valuation methodology is applied retroactively to the finished project, compared to existing research mainly applying real options to value research and development (R&D) without knowing how the project completed. We use the following procedure. (1) Define the uncertainties of the three acquisition alternatives (development, technology adoption, and purchase). (2) Calculate the benefits of the three acquisition alternatives with expected and actual data without uncertainties. (3) Model the decision tree without options and with options. (4) Analyze and compare results with benefit and benefit cost ratio. We analyzed the Korea K2 tank powerpack development case by applying real options. We could see that the real options could have reduced the risk of losses when the development risk is high and market uncertainty exists. From the case study of the development of the powerpack, we learned the following three lessons. First, we reaffirmed the importance of objective value analysis in project decision making. Second, we need to analyze the project value continuously and revise the acquisition strategy accordingly. Third, the effectiveness of the real options valuation was confirmed for sustainable defense management. In addition, the real option analysis data acquired from similar finished projects can be useful for establishing a new product acquisition strategy and, at every decision-making phase, the real option evaluation should be continuously performed with updated information. In this paper, we first perform real option valuation of finished weapon systems in the Korean defense field. This paper is valuable in establishing a rational methodology for applying economic analysis to weapon system acquisition projects.

Valuing flexibility in a retrofit investment

2014 ◽  
Vol 16 (1) ◽  
pp. 3-21 ◽  
Author(s):  
Jussi Vimpari ◽  
Juho-Kusti Kajander ◽  
Seppo Junnila
Keyword(s):  
Real Estate ◽  
Real Options ◽  
Research Process ◽  
Real Options Analysis ◽  
Content Type ◽  
The Real ◽  
Real Options Valuation ◽  
Corporate Real Estate ◽  
Options Valuation

Purpose – The need for flexibility between organisational units is well established in corporate real estate. While the cost of flexibility is rather straightforward to approximate, measuring economical value of the flexibility is not straightforward. The purpose of this paper is to explore how real options analysis can be used for valuing flexibility in a real retrofit investment case, present a research process for valuing the flexibility in the retrofit investment case, and evaluate the empirical usability of real options valuation results compared with traditional discounted cash flow valuation results. Design/methodology/approach – The research is conducted as a case study. A newly introduced real options valuation method, the fuzzy pay-off method is used for analysing data from a Finnish office building retrofit investment case. The major difference in the selected method is that it uses fuzzy set theory instead of probabilistic theory, and the main advantage is the practical applicability, i.e. only three scenarios (minimum, best guess, and maximum) are needed for the valuation of flexibility. In the case, the scenarios are determined using a seven-phase research process that incorporates data available (e.g. rental agreements, building information) to a corporate real estate unit. The research process involves defining vacancy scenarios for rental agreements, transforming them into potential income achievable with flexibility, estimating cost of flexibility, comparing the potential income with the costs, and valuing the real options. Findings – The main finding of this paper is that real options analysis; especially the fuzzy pay-off method can be used for assessing the monetary value of flexibility. The applicability of the fuzzy pay-off method into a practical investment case was found straightforward because assignment of probabilities into different uncertainty scenarios was unnecessary. In the empirical case, it was found that flexibility investments were profitable only when parts of the building instead of the whole building were designed flexible. The present value of the pay-off from flexibility ranged from negative 58/sqm to positive 130/sqm, depending on the tenant. Originality/value – Real options literature, especially in the real estate and construction sector, has requested for new applications of real options analysis in practical setting. This paper adds to that request with an example of evaluating flexibility in a retrofit investment case. The empirical analysis produced in this paper was perceived valuable by case study investor and can be used as a guidance and motivation for further applications of real options in the industry.

Demand for Value Added and Value-Added Exchange Rates

2017 ◽  
Vol 9 (4) ◽  
pp. 45-90 ◽  
Author(s):  
Rudolfs Bems ◽  
Robert C. Johnson
Keyword(s):  
Value Added ◽  
Relative Price ◽  
Real Effective Exchange Rate ◽  
Price Changes ◽  
Elasticity Of Demand ◽  
Cross Border ◽  
Expenditure Switching ◽  
Effective Exchange ◽  
Effective Exchange Rate

We examine how cross-border input linkages shape the response of demand for value added to international relative price changes. We define a novel value-added real effective exchange rate (REER), which aggregates bilateral value-added price changes. Spillovers via input linkages lower the sensitivity of the value-added REER to price changes by supply chain partners because they counterbalance demand-side expenditure switching. Input linkages also raise the price elasticity of demand relative to the conventional REER framework, making demand more sensitive to REER changes. Using global input-output data, we demonstrate that these conceptual insights are quantitatively important in a case study of European competitiveness. (JEL E31, F23, F31, L14)

scholarly journals The real options method applied to decision making – an investment analysis

2019 ◽  
Vol 16 (4) ◽  
pp. 562-571 ◽  
Author(s):  
Guilherme Brittes Benitez ◽  
Mateus José do Rêgo Ferreira Lima
Keyword(s):  
Decision Making ◽  
Real Options ◽  
Cash Flow ◽  
Investment Analysis ◽  
Discounted Cash Flow ◽  
The Real ◽  
Managerial Flexibility ◽  
Building Project ◽  
The Impact

Goal: This study aims to assess the impact of using the method of real options in investment analysis through a case study on a retail firm. Design / Methodology / Approach: It was targeted the applications of the real options method in a different type of environment and it was compared to another method more commonly used, the discounted cash flow method (DCF). The implementation and assessment of the real options method was investigated by means of a case study conducted in an investment analysis in a retail units firm. Results: The use of the real options method showed a more concise applicability over the DCF method. The results show that the project’s value, after the inclusion of managerial flexibility, increased significantly, which indicates that the analysis of the discounted cash flow undervalued the investment in question, since it disregarded the flexibility to expand or abandon the project. Limitations of the investigation: The presented method is proper to long-term processes where it is possible to make changes during the project. Investments in this sector usually are more related to short and medium-term decisions, making the application difficult due to the short decision-making period available to the managers. Practical Implications: The study provided the incorporation of flexibility through different pathways during the building project in a retail units firm. It was showed different scenarios where practitioners could decide among expanding, proceeding, reducing or abandoning the retail units based on the characteristics of their investments. Originality/value: The results obtained are an indication of this methodology to industrial businesses that are relatively volatile and that need a certain degree of flexibility in order to burgeon, such as the case of the retailing sector.

Assessment of irrigation dam using real options and discounted cash flow approaches: a case study in Greece

Water Policy ◽  
2009 ◽  
Vol 11 (4) ◽  
pp. 481-488 ◽  
Author(s):  
Anastasios Michailidis ◽  
Konstadinos Mattas ◽  
Diamantis Karamouzis
Keyword(s):  
Real Options ◽  
Cash Flow ◽  
Flow Analysis ◽  
Discounted Cash Flow ◽  
Northern Greece ◽  
Uncertainty Factors ◽  
The Real ◽  
Discount Cash Flow ◽  
Real Options Approach

This article extends the evaluation techniques of an irrigation dam in northern Greece, called “Petrenia”, by comparing the real options approach along with, a traditional one, the discount cash flow. By introducing first a Monte Carlo simulation, the various uncertainty factors can be simulated and alternative value options can be computed, feeding them later in the real options model. Results from the case study in Greece clearly demonstrate that the irrigation dam can be classified as a profitable investment, by applying traditional discount cash flow analysis, while by applying the real options approach the project cannot be classified as profitable. Taking into consideration the uncertainty factors, the real options approach reveals that the investment could be postponed and decision makers can keep the option of investing open. Sequentially, discount cash flow analysis accompanied by the real options approach facilitates decision making and improves the investment assessment analysis. In this particular project assessment, two uncertainty factors, variation in dam capacity and water price, restrict the profitability of the irrigation dam, according to the results of the real options approach.

Real Options Framework for Dealing with Uncertainty in Project Management: A Moroccan Infrastructure Project

2019 ◽  
Vol 01 (01) ◽  
Author(s):  
Jihane Gharib ◽  
Abdelaziz Berrado ◽  
Loubna Benabbou
Keyword(s):  
Real Options ◽  
Investment Project ◽  
Future Market ◽  
Decision Analysis Model ◽  
Business Managers ◽  
Analysis Model ◽  
The Real ◽  
Investment Projects ◽  
Real Options Valuation ◽  
Infrastructure Project

The Real Options Valuation allows for the consideration of possible options that are instinctively embedded in investment projects, in which the decision-makers have the flexibility to respond to the outcome of uncertainty. The business managers’ abilities to react to future market conditions tend to impact the value of the investment project by maintaining or improving the upside potential and limiting the downside loss. This process must be regulated by a decision analysis model, capable of capturing the particularities of each project. This paper presents detailed literature review of the real options, includes their area of applications in the literature, then proposes a framework to ease the understanding and the use of this method. Later, a case study of a Moroccan infrastructure project, that had already undergone an evaluation, is outlaid. The paper fully addresses the gaps of the previous study, provides a corrected model for an improved valuation of this project and a suitable use of real options. It also illustrates its application and analyzes the obtained results.

scholarly journals The Appraisal of Assets’ Fair Value Using the Real Options Technique

2021 ◽  
Vol 8 (2) ◽  
pp. 43-76
Author(s):  
A. Gulabyan
Keyword(s):  
Real Options ◽  
Real Option ◽  
Real Life ◽  
Fair Value ◽  
Theoretical Background ◽  
Asset Valuation ◽  
The Real ◽  
Traditional System ◽  
Real Options Valuation ◽  
Real Option Approach

The goal of this paper is to analyse and systematise the possible approaches to real options valuation, especially when considering the practical aspects of their application in real-life valuation problems. Therefore, the paper sets the following tasks: To outline the concept of fair value and analyse the traditional approaches to its calculation in the context of asset valuation To define the real-option approach to fair value estimation and analyse its theoretical background To determine the role of the real options approach in the traditional system of valuation techniques To analyse the practical aspects of their application in valuation problems considering the corresponding examples To provide the real-life example of this technique applied in current market conditions using the recent data. The object of this research is the option pricing models, and the subject is their application in estimation of real options embedded in corporate valuations, particularly considering the side.

The Value Of The State-Owned Enterprises In Indonesia: A Case Study Of Privatization

2011 ◽  
Vol 8 (7) ◽  
Author(s):  
Sri Hasnawati
Keyword(s):  
Ownership Structure ◽  
Stock Exchange ◽  
Economic Value ◽  
Value Added ◽  
Market Value ◽  
The State ◽  
State Budget ◽  
Market Value Added ◽  
The Impact

This research aims to test the impact of the ownership structure toward the performance of the State-Owned Enterprises (SOEs). It examines the relationship between the performance of the SOEs and the market value. The study involves 13 SOEs listed at the Jakarta Stock Exchange. Of the 13 SOEs, 9 were selected as samples. The performance of the SOEs is measured by means of the EVA (Economic Value Added) indicator and the market value by the MVA (Market Value Added) indicator. The result of the study reveals that the ownership structure does not have an impact on the performance of the SOEs, either partially or simultaneously. To a smaller degree, the study also indicates that there is a relationship between the EVA and the MVA. The implication of this study is that the privatization of the SOEs should not fully be used to help with the state budget deficit. That is, the majority of the funds should be allocated for the purpose of developing or expanding the SOEs themselves so that they can perform optimally for the sake of society. Furthermore, the SOEs should be well-managed if they would like to obtain good responses from the market.

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