Calculation of the fair value of the company “Tatneft” for the implementation of mergers and acquisitions

Abstract

The article considers the issue of calculating the fair value of the company “Tatneft” for the subsequent implementation of a merger or acquisition transaction. The calculation is made by determining the weighted average cost of capital, which is proposed by the author. The use of the general WACC formula in determining the value of a company is a vulnerable point, since many conditions are met under the pretext-by default, and often do not correspond to the real situation in the market. In practice, many oil and gas companies, as a discount rate, prefer such indicators as inflation, etc., thinking that they fully reflect the risks and relevant situation in the global and Russian markets. It follows that the existing and applied indicators used to calculate the discount rate are imperfect. It is worth noting that the cost of borrowed capital corresponds to the interest rate with the condition of deducting income tax. More complex is the process of calculating the cost of equity, which is the main focus. There are several approaches to determining value, but the most widely used is the capital Asset Pricing model (CAPM). The Hamada model combines two theorems: the Modigliani-Miller theorem and the Capital Asset Pricing Model (CAPM). In the course of the analysis, it was revealed that the most acceptable approach of the beta coefficient for oil and gas companies is the previously mentioned Modigliani-Miller model. Next, the terminal value of the company is calculated, and the fair value is determined.