Acquisition Valuation Exercise: Nestle Candy Divestiture

Situation: Nestle has decided to sell its Chocolate Division (Butterfinger, Baby Ruth and Nestle Crunch) to Ferrero, the Italia maker of Nutella. You are the Director of Corporate Development and have been asked to help set the price for the business.

The division has provided you with a projection of their Base Case EBITDA forecast:

2019: $30M

2021: $38M

2023: $41M

2020: $35M

2022: $40M

You estimate that the synergies to Ferrero, which has candy outside the US, could be as much as $5M per year in revenue synergies and $6M of cost synergies. You also learn from an industry source that Ferreros internal cost of capital (discount rate) is 8%

Question: Using the Discounted Cash Flow model, what price would you suggest Nestle sell at, assuming that Ferrero wants to make 10% ROI on the deal? Is that a deal that then creates value for Nestle?

Show your math below. Ignore perpetuity value (value after year 5)

Base Case Value of Nestle Chocolate:

Value of Synergies to Ferrero:

Recommended price of Nestle Chocolate to Ferrero:

ROI to Nestle of Selling Chocolate Division: