colfee chain, operating and Costa Coffee. Costa United Kingdom T ILL ANALYSIS Please answer all of the following questions. You should answer the questions directly using the information below and the material covered in class. Place your answers in the examination booklet. This section is worth 30 points. Starbucks' head of strategy had recently sunnested acquiring Whitbread Ple, a diversified hospitality company. Whitbread consists of two businesses: hotels and Costa Coffee, Costa Coffee is the world's second largest coffee chain, operating 2,420 outlets in its domestic market (i.e. United Kingdom) and 1,399 outlets overseas. Whitbread generated 3.3 billion in total revenue and 319.1 million in cash flows over the previous 12 months. Growth in cash flows is expected to remain stable at 3.0%. Given limited overlap in operations, the acquisition would only generate 15.0 million annually in cash synergies by next period. Assuming a 25% premium on current stock price, Whitbread would cost 10,725 million to acquire. Starbucks' cost of capital is 6,5% (i.e. discount rate). 1. Based on the financial data provided above, should Starbucks acquire Whitbread to gain Costa Coffee? Why? (10 points) 2. Using the exhibit below, assess the performance of Whitbread. Has the company's strategy been effective? Support answer with financial ratios (10 points) 3. Based on our case study, what other strategic initiative(s) should Starbucks implement to enhance competitiveness for its existing cafes? (10 points) EXHIBIT: Select Financial Statement Data - WHITBREAD PLC ( millions) 2018 2017 2016 2015 2014 Revenue 3,295.1 3,106,0 2,921.8 2,608.1 2,294.3 Cost of revenue 385.1 375,6 3682 332.8 304.5 Gross profit 2,910.0 2,730.4 2,553.6 2,275.3 1,989.8 Operating income 589.8 552.7 528.1 488.1 411.8 Extraordinary items (41.4) (37.3) (40.4) (24.3) (64.8) Profit before tax 548.4 515.4 487.7 463.8 347.0 112.0 99.5 100.4 97.7 23.6 Net income 436.4 415.9 387.3 366.1 323.4 Current Assets PPE, Net Other assets Total assets Current liabilities Long-term liabilities Total liabilities Total equity 343.0 4,176.0 373.4 4,892.4 851. 2 1,238.7 2,089.9 2,802.5 287.1 3.972.4 429.3 4.688.8 838.8 1.325.2 2,164.0 2,524.8 245.1 3,831.0 329.2 4,405.3 692.5 1.308.1 2,000,6 2,404.7 164.4 3,278.4 291.0 3,733.8 584.1 1,171.8 1,755.9 1.977.9 196.0 2,894.1 257.4 3,347.5 475.3 1,0892 1,564.5 1,783.0 colfee chain, operating and Costa Coffee. Costa United Kingdom T ILL ANALYSIS Please answer all of the following questions. You should answer the questions directly using the information below and the material covered in class. Place your answers in the examination booklet. This section is worth 30 points. Starbucks' head of strategy had recently sunnested acquiring Whitbread Ple, a diversified hospitality company. Whitbread consists of two businesses: hotels and Costa Coffee, Costa Coffee is the world's second largest coffee chain, operating 2,420 outlets in its domestic market (i.e. United Kingdom) and 1,399 outlets overseas. Whitbread generated 3.3 billion in total revenue and 319.1 million in cash flows over the previous 12 months. Growth in cash flows is expected to remain stable at 3.0%. Given limited overlap in operations, the acquisition would only generate 15.0 million annually in cash synergies by next period. Assuming a 25% premium on current stock price, Whitbread would cost 10,725 million to acquire. Starbucks' cost of capital is 6,5% (i.e. discount rate). 1. Based on the financial data provided above, should Starbucks acquire Whitbread to gain Costa Coffee? Why? (10 points) 2. Using the exhibit below, assess the performance of Whitbread. Has the company's strategy been effective? Support answer with financial ratios (10 points) 3. Based on our case study, what other strategic initiative(s) should Starbucks implement to enhance competitiveness for its existing cafes? (10 points) EXHIBIT: Select Financial Statement Data - WHITBREAD PLC ( millions) 2018 2017 2016 2015 2014 Revenue 3,295.1 3,106,0 2,921.8 2,608.1 2,294.3 Cost of revenue 385.1 375,6 3682 332.8 304.5 Gross profit 2,910.0 2,730.4 2,553.6 2,275.3 1,989.8 Operating income 589.8 552.7 528.1 488.1 411.8 Extraordinary items (41.4) (37.3) (40.4) (24.3) (64.8) Profit before tax 548.4 515.4 487.7 463.8 347.0 112.0 99.5 100.4 97.7 23.6 Net income 436.4 415.9 387.3 366.1 323.4 Current Assets PPE, Net Other assets Total assets Current liabilities Long-term liabilities Total liabilities Total equity 343.0 4,176.0 373.4 4,892.4 851. 2 1,238.7 2,089.9 2,802.5 287.1 3.972.4 429.3 4.688.8 838.8 1.325.2 2,164.0 2,524.8 245.1 3,831.0 329.2 4,405.3 692.5 1.308.1 2,000,6 2,404.7 164.4 3,278.4 291.0 3,733.8 584.1 1,171.8 1,755.9 1.977.9 196.0 2,894.1 257.4 3,347.5 475.3 1,0892 1,564.5 1,783.0