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:

$2023$: $$30M,2025$:$$38M$

$2024$: $$35M,2027$:$$41M$

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 Ferrero's 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: