Ch.9 Corporate Restructuring and Valuations NCT inc. is an Australian operator of convenience stones, including standalone corner shops, larper convenience stores, and stores with petroleum stanions. MankNew Petroleum is a plobal vertically intregated oll and gas company. Its Upstream operibors focis on the exploration and production of oil and natural cas, its Downstream operations include several oll refineries, and its Retat business operates a large network of petroleum stations, at with convenience stores. As a result of a prolonged decline in oll prises and high financial leverage, Maskew Fetroleum is seeking to improve its balance sheet and realise value for shareholiders. At the beginning of 20X2, NCT and MaxkNew announced thar the companies had reached an aprement in which NCT would actuire the lietail segmemt of ManB New for AUD2 bifien is cash and 80 =illion NCT common thares for a total comideration of AUD3 billion, based on the unatlected share price prier :s the announcement. NCT and MaxS New expect the transaction so dose on 31 Decenber 2002 MaskNes will use the cash proceeds from the transaction to strengthen its balance sheet by nefring: debt. Based on an effective tax rate of 18K, Mas S New expects to receive atter-tan cash proceedin of AUDA. 6 bilion, all of which will be used for debt retirement. in connection with the avrement, MariNew has apeed to not dispose of any NCT shares for five yeari from the dose of the acapuition. NCT intends to finance the cash portion of the consideration with cash on hand and by bonowing AUO1 bellion from its credit taclibes, which has already been committed by its lenders. NCT intends to maintain an investment grade credit ratine unpeohtable sares. Summary historical and consensus forecast fruanclal data for NCT and the Rital segment of Max S View are showh in Exhat 1-1 and Exheit 1-2. Ehibit 1-1: NCT Summary Financial Data (Pre-Acousition) Whibit 1-2- MaxS New Petroleum, Retail Segment (Pre-Acquistion) Summary Financias Duta (1) Esplain NCTY and MaxSNew/s motivations fer purnuing this transaction. (3 pts) Eahibit 1-2: ManRNew Petroleum, Retal Segment (Pre-Acquikeion) Summary Financlai Data (1) Explain NCT's and Max\&New's motwations for pursuling this transaction. (3 pts) (2) Evaluate the valuation implied by the purchase price against comparable companies based on the selected financial data for companles in Exhibit 1.3. Explain fwo reasons why the tranaction multiple paid by NCT (based on 202 EBrTDA) mar diffler from the median comparable. Exhibit 1-3: Comparable Company Analyis for MaxSNew Petroleum, Retail Sezment. segment. Median comparable 13 pts] (3) Estimate the impact of the tranaction on NCT's debt-to-EBrTos ratio and diluted EPS in 20n3. assurfing the following: a. AUD42 million in cost syereries is fealued. b. incremental amortization expense associated wich fair value adiustments of identiable net auses: aceyired is AuD200 milion per year, C. NCT earns 50 bps in annualized interest income on its cash and pars an interest rate of 6S0 bps on its debt, and d. the eflective tar rate is 2005 NCT's debt to-EBITA ratio in 20rc (4 pts) Show the EV/EAITDA of the medan comparable for NCT's accuisition of MansNew Petrolesm's Retal sezment. Median comparable (3 pts) (3) Estimate the impact of the transaction on NCT's debt-to-ferrDA ratio and diluted EDS in 20xg. assuming the following: a. AUD42 million in cost symergies is realifed, b. incremental amortication expense associated with fair value adfustments of identifuble net assets acquired is AuD200 million per veat, c. NCT earns 50 bps in annualiaed interest income on its cash and pars an interest rate of 650 bos on its debt, and d. the effective tax rate is 20N Ch.9 Corporate Restructuring and Valuations NCT inc. is an Australian operator of convenience stones, including standalone corner shops, larper convenience stores, and stores with petroleum stanions. MankNew Petroleum is a plobal vertically intregated oll and gas company. Its Upstream operibors focis on the exploration and production of oil and natural cas, its Downstream operations include several oll refineries, and its Retat business operates a large network of petroleum stations, at with convenience stores. As a result of a prolonged decline in oll prises and high financial leverage, Maskew Fetroleum is seeking to improve its balance sheet and realise value for shareholiders. At the beginning of 20X2, NCT and MaxkNew announced thar the companies had reached an aprement in which NCT would actuire the lietail segmemt of ManB New for AUD2 bifien is cash and 80 =illion NCT common thares for a total comideration of AUD3 billion, based on the unatlected share price prier :s the announcement. NCT and MaxS New expect the transaction so dose on 31 Decenber 2002 MaskNes will use the cash proceeds from the transaction to strengthen its balance sheet by nefring: debt. Based on an effective tax rate of 18K, Mas S New expects to receive atter-tan cash proceedin of AUDA. 6 bilion, all of which will be used for debt retirement. in connection with the avrement, MariNew has apeed to not dispose of any NCT shares for five yeari from the dose of the acapuition. NCT intends to finance the cash portion of the consideration with cash on hand and by bonowing AUO1 bellion from its credit taclibes, which has already been committed by its lenders. NCT intends to maintain an investment grade credit ratine unpeohtable sares. Summary historical and consensus forecast fruanclal data for NCT and the Rital segment of Max S View are showh in Exhat 1-1 and Exheit 1-2. Ehibit 1-1: NCT Summary Financial Data (Pre-Acousition) Whibit 1-2- MaxS New Petroleum, Retail Segment (Pre-Acquistion) Summary Financias Duta (1) Esplain NCTY and MaxSNew/s motivations fer purnuing this transaction. (3 pts) Eahibit 1-2: ManRNew Petroleum, Retal Segment (Pre-Acquikeion) Summary Financlai Data (1) Explain NCT's and Max\&New's motwations for pursuling this transaction. (3 pts) (2) Evaluate the valuation implied by the purchase price against comparable companies based on the selected financial data for companles in Exhibit 1.3. Explain fwo reasons why the tranaction multiple paid by NCT (based on 202 EBrTDA) mar diffler from the median comparable. Exhibit 1-3: Comparable Company Analyis for MaxSNew Petroleum, Retail Sezment. segment. Median comparable 13 pts] (3) Estimate the impact of the tranaction on NCT's debt-to-EBrTos ratio and diluted EPS in 20n3. assurfing the following: a. AUD42 million in cost syereries is fealued. b. incremental amortization expense associated wich fair value adiustments of identiable net auses: aceyired is AuD200 milion per year, C. NCT earns 50 bps in annualized interest income on its cash and pars an interest rate of 6S0 bps on its debt, and d. the eflective tar rate is 2005 NCT's debt to-EBITA ratio in 20rc (4 pts) Show the EV/EAITDA of the medan comparable for NCT's accuisition of MansNew Petrolesm's Retal sezment. Median comparable (3 pts) (3) Estimate the impact of the transaction on NCT's debt-to-ferrDA ratio and diluted EDS in 20xg. assuming the following: a. AUD42 million in cost symergies is realifed, b. incremental amortication expense associated with fair value adfustments of identifuble net assets acquired is AuD200 million per veat, c. NCT earns 50 bps in annualiaed interest income on its cash and pars an interest rate of 650 bos on its debt, and d. the effective tax rate is 20N