Question
A supermarket chain (Foodco) trades publicly at 6x EV/EBITDA, like most other such chains. EV= market value of net debt + equity. Few investors know
A supermarket chain (Foodco) trades publicly at 6x EV/EBITDA, like most other such chains. EV= market value of net debt + equity.
Few investors know of Foodcos Internet payment subsidiary, which operates independently of the supermarkets. The payment business (FinPay) now represents 15% of Foodcos total EBITDA. Similar publicly-traded Internet payment firms are priced at 12x EV/EBITDA.
Assume Foodco obtains IRS and SEC approval to spin-off FinPay shares to Foodco shareholders on a tax-free, one share for one share basis. How much extra value might be created? Please complete the table below.
Present Situation
| Foodco |
|
| Foodco Share Price | $ 10 per share |
| EBITDA | 100 million |
| Enterprise Value | 600 million |
| Debt | -0- |
| Excess Cash | -0- |
| Shares Outstanding | 60 million |
| Pro Forma after Spin off |
|
| Foodco Share Price | ? per share |
| Foodco EBITDA | ? |
| EV | ? |
| Debt | -0- |
| Cash | -0- |
| Foodco Shares Outstanding | 60 million |
|
|
|
| FinPay Share Price | ? per share |
| EBITDA | ? |
| EV | ? |
| Debt | -0- |
| Cash | -0- |
| FinPay Shares Outstanding | 60 million |
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Sound Investing, Chapter 23 - Internal Control
Authors: Kate Mooney
1st Edition
0071719458, 9780071719452
