Maersk is preparing an offer to acquire the privately held Indian shipping company Salgacoar. In addition to the background information provided in problem 1, Maersk believes that by giving access to its global logistical network, Salgacoar would be able to lower its operating expenses by 10 percent. However, Maersk has to contend with 10 percent withholding tax levied by the Indian government on all dividend remittances. What is the price range within which Maersk should formulate its acquisition bid? Assume that Maersk’s cost of equity capital for international acquisition is 10. 5 percent, that acquisition targets are valued for the first five years only, and that terminal value is based on Maersk’s P/E multiple.

Data from problem 1

How should private equity firms value cross-border acquisitions? Ulysses, a Boston-based private equity firm, specializes in transportation with a focus on emerging capital markets. It has identified Salgacoar Ltd., a family-owned business group headquartered in Goa (India). Salgacoar is involved in three businesses—iron ore mining in the State of Goa, ocean-going freighters, and hotels. Each division is cash-flow positive. Its shipping division generated in 2013 earnings after taxes of INR 4 billion. Two publicly listed shipping companies on the Mumbai stock exchange have P/E multiples of 8 and 9. 2, respectively. Maersk, the giant Danish shipping and container company, is listed on the Copenhagen Stock Exchange and has a P/E of 13. 5.