(A) ULTA + SBH (B)

Share Issuance for Partial Acquisition (Model SI‑ACQ‑PART)

@SimSim 52 days ago

This model simulates the gain/loss when two companies A and B both issue new shares that they will exchange, so as to partially acquire each other. This is also called a partial stock swap, and the Swap Ratio is the number of new shares issued by company A divided by the number of new shares issued by company B.

Whether this results in a gain or loss to the shareholders of the two companies, depends on how many new shares are issued and swapped, compared to the intrinsic values of the two companies. This is only a "zero-sum game" when the fees are zero.

You should NOT adjust the intrinsic value for tax on dividends and capital gains, because that would distort the calculations. You also cannot specify the dividend tax in this model, because it cancels out in the formulas.

Docs Related Models

Keywords: DEMO SBH ULTA

  • (A) ULTA Earnings = Net Profit Margin (2014-2023) x Sales (2023)
  • (B) SBH Earnings = Net Profit Margin (2011-2023) x Sales (2022-2023)
  • Both companies:
    • Zero Real Growth
    • Discount Rate = normal dist 10% mean, 1% std.dev.

2024-10-30T12:06:52.291457 image/svg+xml Matplotlib v3.9.2, https://matplotlib.org/ 5b 10b 15b 20b Intrinsic Value A Cur. Market-Cap A = USD 18.9b 1b 2b 3b 4b Intrinsic Value B Cur. Market-Cap B = USD 1.21b
  • This plot shows the probability distributions for the Intrinsic Values of the two companies A and B to their current shareholders before the stock swap.
  • The two plots also show the current Market-Caps as dashed blue lines, so you can easily see how they compare to the Intrinsic Values.
2024-10-30T12:06:39.770728 image/svg+xml Matplotlib v3.9.2, https://matplotlib.org/ 0% 2% 4% 6% 8% 10% Return on Intrinsic Value (ROIV) for Company A SimSim.Run - Oct 30-2024 (UTC) (A) ULTA + SBH (B) Share Issuance for Partial Acquisition (Model SI-ACQ-PART) Prob Loss: <0.1% Normal Mean 1.67% / Std 1.1% Kernel Density Estimate (KDE)
  • This histogram shows the Return on Intrinsic Value (ROIV) for the current shareholders of company A, when swapping 300k new shares in company A with 10m new shares in company B (Swap Ratio 0.03), corresponding to 0.585% of total shares in company A and 8.33% of total shares in company B.
  • >99.9% of 500k simulation trials had valid results. Outliers >10.0 IQR are removed.
  • ROIV is invalid when the intrinsic value is zero or negative. ROIS also works in those cases.
  • The red box at the bottom shows the probability of loss for the current shareholders of company A.
2024-10-30T12:06:40.979469 image/svg+xml Matplotlib v3.9.2, https://matplotlib.org/ -8% -6% -4% -2% 0% 2% Return on Intrinsic Value (ROIV) for Company B SimSim.Run - Oct 30-2024 (UTC) (A) ULTA + SBH (B) Share Issuance for Partial Acquisition (Model SI-ACQ-PART) Prob Loss: >99.9% Normal Mean -5.92% / Std 0.9% Kernel Density Estimate (KDE)
  • This histogram shows the Return on Intrinsic Value (ROIV) for the current shareholders of company B, when swapping 300k new shares in company A with 10m new shares in company B (Swap Ratio 0.03), corresponding to 0.585% of total shares in company A and 8.33% of total shares in company B.
  • 100% of 500k simulation trials had valid results. Outliers >10.0 IQR are removed.
  • ROIV is invalid when the intrinsic value is zero or negative. ROIS also works in those cases.
  • The red box at the bottom shows the probability of loss for the current shareholders of company B.
2024-10-30T12:06:42.673315 image/svg+xml Matplotlib v3.9.2, https://matplotlib.org/ 0% 50% 100% 150% 200% 250% 300% Return on Issuance (ROIS) for Company A SimSim.Run - Oct 30-2024 (UTC) (A) ULTA + SBH (B) Share Issuance for Partial Acquisition (Model SI-ACQ-PART) Prob Loss: <0.1% Normal Mean 113% / Std 34% Kernel Density Estimate (KDE)
  • This histogram shows the Return on Issuance (ROIS) for the current shareholders of company A, when swapping 300k new shares in company A with 10m new shares in company B (Swap Ratio 0.03), corresponding to 0.585% of total shares in company A and 8.33% of total shares in company B.
  • 100% of 500k simulation trials had valid results. Outliers >10.0 IQR are removed.
  • The red box at the bottom shows the probability of loss for the current shareholders of company A.
2024-10-30T12:06:43.869859 image/svg+xml Matplotlib v3.9.2, https://matplotlib.org/ -300% -250% -200% -150% -100% -50% 0% Return on Issuance (ROIS) for Company B SimSim.Run - Oct 30-2024 (UTC) (A) ULTA + SBH (B) Share Issuance for Partial Acquisition (Model SI-ACQ-PART) Prob Loss: >99.9% Normal Mean -114% / Std 35% Kernel Density Estimate (KDE)
  • This histogram shows the Return on Issuance (ROIS) for the current shareholders of company B, when swapping 300k new shares in company A with 10m new shares in company B (Swap Ratio 0.03), corresponding to 0.585% of total shares in company A and 8.33% of total shares in company B.
  • 100% of 500k simulation trials had valid results. Outliers >10.0 IQR are removed.
  • The red box at the bottom shows the probability of loss for the current shareholders of company B.
2024-10-30T12:06:45.382424 image/svg+xml Matplotlib v3.9.2, https://matplotlib.org/ 0.02 0.025 0.03 0.035 0.04 Swap Ratio (A/B) 0% 2% 4% 6% 8% 10% Return on Intrinsic Value (ROIV) for Company A SimSim.Run - Oct 30-2024 (UTC) (A) ULTA + SBH (B) Share Issuance for Partial Acquisition (Model SI-ACQ-PART) Prob Loss: <0.1%
  • This 2D histogram shows how different Swap Ratios would impact the Return on Intrinsic Value (ROIV) for the current shareholders of company A, when swapping 10m × Swap Ratio new shares in company A with 10m new shares in company B.
  • >99.9% of 500k simulation trials had valid results. Outliers >10.0 IQR are removed.
  • ROIV is invalid when the intrinsic value is zero or negative. ROIS also works in those cases.
  • The x-axis shows a range of Swap Ratios around 0.03, which is marked as a dashed blue line.
  • The y-axis shows the Return on Intrinsic Value (ROIV) for the current shareholders of company A.
  • The red box at the bottom shows the probability of loss for the current shareholders of company A, when the Swap Ratio is 0.03.
2024-10-30T12:06:47.278916 image/svg+xml Matplotlib v3.9.2, https://matplotlib.org/ 0.02 0.025 0.03 0.035 0.04 Swap Ratio (A/B) -8% -6% -4% -2% 0% 2% 4% Return on Intrinsic Value (ROIV) for Company B SimSim.Run - Oct 30-2024 (UTC) (A) ULTA + SBH (B) Share Issuance for Partial Acquisition (Model SI-ACQ-PART) Prob Loss: >99.9%
  • This 2D histogram shows how different Swap Ratios would impact the Return on Intrinsic Value (ROIV) for the current shareholders of company B, when swapping 10m × Swap Ratio new shares in company A with 10m new shares in company B.
  • 100% of 500k simulation trials had valid results. Outliers >10.0 IQR are removed.
  • ROIV is invalid when the intrinsic value is zero or negative. ROIS also works in those cases.
  • The x-axis shows a range of Swap Ratios around 0.03, which is marked as a dashed blue line.
  • The y-axis shows the Return on Intrinsic Value (ROIV) for the current shareholders of company B.
  • The red box at the bottom shows the probability of loss for the current shareholders of company B, when the Swap Ratio is 0.03.
2024-10-30T12:06:48.974752 image/svg+xml Matplotlib v3.9.2, https://matplotlib.org/ 0.02 0.025 0.03 0.035 0.04 Swap Ratio (A/B) 0% 100% 200% 300% 400% Return on Issuance (ROIS) for Company A SimSim.Run - Oct 30-2024 (UTC) (A) ULTA + SBH (B) Share Issuance for Partial Acquisition (Model SI-ACQ-PART) Prob Loss: <0.1%
  • This 2D histogram shows how different Swap Ratios would impact the Return on Issuance (ROIS) for the current shareholders of company A, when swapping 10m × Swap Ratio new shares in company A with 10m new shares in company B.
  • 100% of 500k simulation trials had valid results. Outliers >10.0 IQR are removed.
  • It is not a mistake that this plot looks quite different from the ROIS plot for the other company. It is because the new number of shares in company B is held constant at 10m, while the new number of shares in company A varies with the Swap Ratio. This means the issuance amount for company B is constant in the calculation of its ROIS ratio, while the issuance amount varies in the calculation of the ROIS ratio for company A. This tends to make the plot for company A look more curved, while the plot for company B looks more linear.
  • The x-axis shows a range of Swap Ratios around 0.03, which is marked as a dashed blue line.
  • The y-axis shows the Return on Issuance (ROIS) for the current shareholders of company A.
  • The red box at the bottom shows the probability of loss for the current shareholders of company A, when the Swap Ratio is 0.03.
2024-10-30T12:06:50.680310 image/svg+xml Matplotlib v3.9.2, https://matplotlib.org/ 0.02 0.025 0.03 0.035 0.04 Swap Ratio (A/B) -250% -200% -150% -100% -50% 0% Return on Issuance (ROIS) for Company B SimSim.Run - Oct 30-2024 (UTC) (A) ULTA + SBH (B) Share Issuance for Partial Acquisition (Model SI-ACQ-PART) Prob Loss: >99.9%
  • This 2D histogram shows how different Swap Ratios would impact the Return on Issuance (ROIS) for the current shareholders of company B, when swapping 10m × Swap Ratio new shares in company A with 10m new shares in company B.
  • 100% of 500k simulation trials had valid results. Outliers >10.0 IQR are removed.
  • It is not a mistake that this plot looks quite different from the ROIS plot for the other company. It is because the new number of shares in company B is held constant at 10m, while the new number of shares in company A varies with the Swap Ratio. This means the issuance amount for company B is constant in the calculation of its ROIS ratio, while the issuance amount varies in the calculation of the ROIS ratio for company A. This tends to make the plot for company A look more curved, while the plot for company B looks more linear.
  • The x-axis shows a range of Swap Ratios around 0.03, which is marked as a dashed blue line.
  • The y-axis shows the Return on Issuance (ROIS) for the current shareholders of company B.
  • The red box at the bottom shows the probability of loss for the current shareholders of company B, when the Swap Ratio is 0.03.