JBL industries is considering acquiring BRL Systems. Although BRL Systems has said it is not for sale, JBL is considering a hostile takeover by making a tender offer directly to BRLs shareholders. Mr. Jain, a financial analyst with JBL, has been assigned the task of estimating a fair acquisition price for the tender offer. Mr. Jain plans to use three different valuation methods to estimate the acquisition price and has collected the necessary financial data for this purpose.

BRL Systems has 20 million shares outstanding. Mr. Jain has estimated that at the end of each of the next four years, BRL will have free cash flow to equity (FCFE) (in millions) of Rs. 24, Rs. 27, Rs. 32 and Rs. 36. After the fourth year, Mr. Jain expects BRLs FCFE to grow at a constant rate of 6% per year. He also determines that BRLs cost of equity of 10.5% is the appropriate discount rate to use for the analysis.

Mr. Jain has also found three companies that are in the same industry as BRL and have a similar capital structure Behar Corporation, Walters Inc., and Hasselbeck Dynamics. In addition, Mr. Jain has identified data for three takeover transactions with characteristics similar to BRL- Bullseye, Dart Industries, and Arrow Corp. Data for both sets of firms are shown in the following table:

Company Statistics	BRL Systems	Behar Corporation	Walters Inc.	Hasselbeck Dynamics
Current Stock Price	Rs. 32.00	Rs. 54.00	Rs. 36.50	Rs. 108.20
Earnings per share (EPS) (Rs.)	1.75	2.80	2.10	6.50
Book value per share (EPS) (Rs.)	9.75	17.25	12.10	35.75
Sales per share (EPS) (Rs.)	29.75	52.75	37.80	105.00

Company Statistics	Bullseye	Dart Industries	Arrow Corp.
Stock price pre-takeover	Rs. 18.25	Rs. 27.80	Rs. 43.00
Acquisition stock price	Rs 22.00	Rs. 35.00	Rs. 52.00
Earnings per share (EPS) (Rs.)	0.95	1.65	2.50
Book value per share (EPS) (Rs.)	6.10	9.85	14.20
Sales per share (EPS) (Rs.)	17.60	26.75	39.75

Mr. Kapoor, the CEO of BRL Systems, was not happy when he heard the rumour that JBL Industries may try to take over BRL in a hostile takeover. Mr. Kapoor asked two of his executive vice presidents for suggestions on what his firm could do. Ms. Radha said, If JBL does make a hostile takeover offer, we could implement fair price amendment to make sure a fair price is offered to our shareholders. Another EVP, Mr. Mehra stated, One option is to use a white knight defense and sell a minority stake to a third party that could help block JBL from making a deal.

1. The value per share of BRL stock using the discounted cash flow approach. (1 mark)
2. The average stock price of BRL Systems under the comparable company approach for the three relative valuation ratios, assuming it is traded at the mean of the three valuations. (2 marks)
3. Using the comparable company approach, the mean takeover premium and the estimate of the fair acquisition price for BRL Systems. (2 marks)
4. The fair acquisition price for BRL Systems using comparable transaction approach.

(2 marks)

Are Ms. Radha and Mr. Mehra correct in regard to their suggestions to Mr. Kapoor about potential courses of action if there is a hostile takeover?