---
name: "merger_deal_analysis"
description: "Analyze an M&A deal end to end: accretion/dilution math, synergy DCF valuation, deal structure comparison (cash/stock/mixed, fixed ratio vs fixed value, collars), and break-even price analysis, delivered as a worked scorecard. Use when evaluating a merger or acquisition, sizing a bid, comparing deal structures, or sanity-checking an announced deal."
metadata: { "includeInPrompt": true }
---

# Merger Deal Analysis

## Purpose

Turn a deal headline into a real answer: does this acquisition create value, for whom, and at what price would it stop doing so. The skill runs the four analyses that matter in every deal and reports them as one scorecard: (1) accretion/dilution, (2) synergy valuation, (3) deal structure comparison, (4) break-even / maximum price. It does not opine on strategy or culture; it prices the deal.

## Workflow

1. **Gather the inputs.** For the acquirer: standalone net income, diluted shares, share price. For the target: standalone net income, standalone equity value (pre-deal market cap plus a sanity check via DCF or comps). For the deal: total equity consideration, cash vs stock split, new-debt rate and tax rate, expected pre-tax synergies by source, integration/restructuring costs. If an input is missing, state the assumption and run anyway, then sensitivity-test it.

2. **Run the accretion/dilution math** with `bin/deal_check.py`. Read the pro forma EPS, the accretion percentage, and the no-synergy EPS separately. The no-synergy figure tells you what the deal does on its own; the synergy figure tells you what management is promising.

3. **Value the synergies as a DCF.** Split synergies into cost synergies (hit EBIT directly) and revenue synergies (hit the top line, then EBIT through the margin). Phase them in: full run-rate by year 3 after closing is the standard convention, so discount the ramp years individually. Value the run-rate as a growing perpetuity of after-tax synergy cash flow, then subtract the after-tax integration and restructuring costs. Run 25/50/75/100% realization cases.

4. **Compare the premium to the synergy value.** Premium = offer price minus target standalone value. If synergy NPV beats the premium, the deal creates value for the acquirer's shareholders. The split between the two is the synergy-sharing story: how much of the created value goes to target shareholders (premium) vs acquirer shareholders (the rest).

5. **Evaluate the structure.** Compare the announced structure against the alternatives (all-cash, all-stock, mixed): new shares issued, pro forma leverage, who bears the market-price risk between signing and closing. See `references/structure-guide.md` for fixed exchange ratio vs fixed value vs collars. All-stock deals move EPS through share count; all-cash deals move it through interest cost. Show both.

6. **Compute the break-even price.** The maximum justifiable price is target standalone value plus synergy NPV. Above it, the acquirer is transferring its own shareholders' money to the target. Report the breakeven synergy too: the annual pre-tax synergy needed to keep pro forma EPS flat, from the formula `(Acquirer EPS - Combined EPS without synergies) x Combined Shares / (1 - Tax Rate)`.

7. **Deliver the scorecard.** One page, numbers first, verdict last. See Output Contract.

## Output Contract

Every analysis ships as a deal scorecard containing:
- Standalone snapshot: acquirer EPS, target EPS, both standalone equity values and their sources.
- Consideration: total price, cash/stock split, new shares issued, incremental interest, pro forma leverage.
- Accretion table: pro forma EPS with and without synergies, accretion/dilution %, breakeven synergy (annual pre-tax).
- Synergy valuation: by-source breakdown, phasing schedule, NPV at base case and 25/50/75/100% realization, integration costs.
- Premium vs synergy: premium paid, synergy NPV, value created/destroyed, who gets what.
- Break-even: maximum justifiable price, distance of the offer from it.
- Verdict: creates or destroys value, the single biggest assumption it hinges on, and the one number to watch post-close.

## Operating Rules

1. **Accretive is not good and dilutive is not bad.** EPS is one lens. A dilutive deal with real synergies beats an accretive deal built on overpaying. Always pair the EPS answer with the synergy-vs-premium answer.
2. **Run the arithmetic, don't hand-wave it.** Use `bin/deal_check.py` for the core screen and verify the headline numbers by hand before reporting. If the tool and the hand math disagree, find out why.
3. **Name every assumption.** Synergy run-rate, phasing, growth, WACC, tax rate, integration cost: all on the page, all sensitivity-tested. A synergy number with no phasing schedule is a guess, not analysis.
4. **Tax treatment differs by consideration mix; flag it for tax counsel rather than modeling it in the screen.**
5. **Never invent inputs.** If the target's standalone value or the synergy plan isn't public, say so and build the case from disclosed figures plus clearly labeled assumptions. An analysis that needs a secret number says so.