Question
Let?s do a market-multiples valuation of Interco based on data on the ?total value of the firm relative to firm sales? ratio. Exhibit 11.a gives
Let?s do a market-multiples valuation of Interco based on data on the ?total value of the firm relative to firm sales? ratio. Exhibit 11.a gives the firm value-to-sales ratio for various competitors of Interco, across each of its four divisions. Exhibit 11.b gives the sales for Interco broken down across each of its four divisions. Using this information, calculate the estimated Interco stock price per share using the smallest firm value-to-sales multiple estimate for each division and then using the largest firm value-to-sales ratio for each division. Please look at the notes at beginning and end of assignment for how much debt to assume (remember we need to convert our estimate of Interco total firm value to a stock value) and how many stock shares outstanding to assume when calculating the estimate of Interco?s stock price per share.
To calculate the stock price, you need to know two things ? how many shares of stock Interco has outstanding and how much of the asset value of Interco is financed by debt (instead of equity).
Value of equity = value of assets ? debt.
Assume that Interco has 37.5 million fully diluted shares outstanding (as Wasserstein, Perella & Co. did in Exhibit 13).
Also, Exhibit 9 (summary of takeover analysis) mentions that the net debt that Interco has is $318.5 million.
Let's do a market-multiples valuation of Interco based on data on the \"total value of the firm relative to firm sales\" ratio. Exhibit 11.a gives the firm value-to-sales ratio for various competitors of Interco, across each of its four divisions. Exhibit 11.b gives the sales for Interco broken down across each of its four divisions. Using this information, calculate the estimated Interco stock price per share using the smallest firm value-to-sales multiple estimate for each division and then using the largest firm value-to-sales ratio for each division. Please look at the notes at beginning and end of assignment for how much debt to assume (remember we need to convert our estimate of Interco total firm value to a stock value) and how many stock shares outstanding to assume when calculating the estimate of Interco's stock price per share. To calculate the stock price, you need to know two things - how many shares of stock Interco has outstanding and how much of the asset value of Interco is financed by debt (instead of equity). Value of equity = value of assets - debt. Assume that Interco has 37.5 million fully diluted shares outstanding & Co. did in Exhibit 13). (as Wasserstein, Perella Also, Exhibit 9 (summary of takeover analysis) mentions that the net $318.5 million. debt that Interco has is Exhibit 11 Comparable Transaction Analysis a. Purchase Price Multiples by Business Segment Furniture Manufacturing Companies Announcement Aggregate Date Acquiror/Target Price ($MM)(a) Net Income Purchase Price Multiples(a) Book Value(b) Sales 12/13/1983 La-Z-Boy/Kincaid $63.50 22.0x 2.1x 0.8x 11/16/1982 INTERCO/Lane 523.7 19.3 2.8 1.6 8/11/1982 Chicago Pacific/ General Mills Furniture 89.3 14.1 1.8 1 6/2/1982 Masco/Henredon 260.9 31.6 2.6 2.1 8/7/1984 Rales Proposal $2,941.30 18.1x 2.2x 0.9x Source: Wasserstein, Perella & Co., Inc. presentation to the Interco Board of Directors, August 8, 1988. Civil Action No. 10111, filed in the Court of Chancery of the State of Delaware in and for New Castle County, Exhibit 23. (a) Sales, operating income, and operating cash flow multiples adjusted for the value of net debt outstanding (b) Book value adjusted for intangibles Footwear Manufacturing Companies Announcement Aggregate Date Acquiror/Target Price ($MM)(a) Net Income Purchase Price Multiples(a) Book Value(b) Sales 4/24/1984 NIKE/Cole Haan $95.00 36.2x N.M. 1.5x 6/2/1983 Moacq/Morse Shoe 312.5 2.5 1.8 0.5 3/9/1983 Reebok/AVIA 191 40.6 6.7 2.1 9/17/1982 Reebok/Rockport 146.1 30.7 N.M. 1.7 7/30/1982 INTERCO/Converse 202.7 37.1 1.8 0.9 8/7/1984 Rales Proposal $2,941.30 18.1x 2.2x 0.9x Source: Wasserstein, Perella & Co., Inc. presentation to the Interco Board of Directors, August 8, 1988. Civil Action No. 10111, filed in the Court of Chancery of the State of Delaware in and for New Castle County, Exhibit 23. (a) Sales, operating income, and operating cash flow multiples adjusted for the value of net debt outstanding (b) Book value adjusted for intangibles Exhibit 11 (continued) Comparable Transaction Analysis Apparel Companies Announcement Aggregate Date Acquiror/Target Price ($MM)(a) 4/27/1984 Wesray/William Carter Net Income Purchase Price Multiples(a) Book Value(b) Sales $157.40 N.M. 1.6x 0.8x 2/1/1984 Salant/Manhattan Indus. 129.7 N.M. 1.4 0.4 3/16/1982 W Acquisition/Warnco 504.7 21 2.5 0.9 11/3/1981 West Point Pepperall/ Cluett, Peabody 551.9 19.6 1.5 0.6 $2,941.30 18.1x 2.2x 0.9x 8/7/1984 Rales Proposal Source: Wasserstein, Perella & Co., Inc. presentation to the Interco Board of Directors, August 8, 1988. Civil Action No. 10111, filed in the Court of Chancery of the State of Delaware in and for New Castle County, Exhibit 23. (a) Sales, operating income, and operating cash flow multiples adjusted for the value of net debt outstanding (b) Book value adjusted for intangibles Central Hardware Division Announcement Aggregate Date Acquiror/Target Price ($MM)(a) Net Income Purchase Price Multiples(a) Book Value(b) Sales 6/23/1984 Management Group/ Payless Cashways $1,189.40 22.0x 2.3x 0.6x 8/7/1984 $2,941.30 18.1x 2.2x 0.9x Rales Proposal Source: Wasserstein, Perella & Co., Inc. presentation to the Interco Board of Directors, August 8, 1988. Civil Action No. 10111, filed in the Court of Chancery of the State of Delaware in and for New Castle County, Exhibit 23. (a) Sales, operating income, and operating cash flow multiples adjusted for the value of net debt outstanding (b) Book value adjusted for intangibles Exhibit 11 (continued) Comparable Transaction Analysis b. Value Ranges by Business Segment Business Segment Apparel General retail Footwear Furniture Business Segment 1988 Sales Multiple Range Value Range Median Value $813.20 532.3 890.4 1,105.60 .4 - .9 .6 - .6 .5 - 2.1 .8 - 2.1 $ 325.3 - $ 731.9 319.4 - 319.4 445.2 - 1,869.8 884.5 - 2,321.8 $1,974.4 - $5,242.9 $569.20 319.4 1,335.60 1,437.30 3,661.50 1988 Operating Income Multiple Range Value Range Median Value Apparel General retail Footwear Furniture Business Segment Apparel General retail Footwear Furniture $20.20 39.1 92.2 149.1 10.6 - 24.0 13.1 - 13.1 13.0 - 26.0 11.1 - 20.3 $ 214.1 - $ 484.8 512.2 - 512.2 1,198.6 - 2,397.2 $1,655.0 - $3,026.7 $3,579.9 - $6,420.9 $214.10 512.2 2,268.10 1,766.80 $4,761.20 1988 Operating Cash Flow Multiple Range Value Range Median Value $32.70 48.8 105.3 175.3 9.2 - 13.7 9.2 - 9.2 9.2 - 23.9 8.1 - 15.8 $ 300.8 - $ 448.0 448.9 - 448.9 968.8 - 2,516.7 $1,419.9 - $2,769.7 $3,138.4 - $6,183.3 $300.80 448.9 970.7 1,709.20 $3,429.60 ce Multiples(a) Operating Operating Income Cash Flow 11.7x 8.1x 11.1 9.6 12 9.9 20.3 15.8 11.4x 9.2x t 8, 1988. Civil le County, Exhibit 23. ebt outstanding ce Multiples(a) Operating Operating Income Cash Flow 14.1 12.2 13 9.2 24.6 23.3 26 23.9 24.7 18.2 11.4x 9.2x t 8, 1988. Civil le County, Exhibit 23. ebt outstanding ce Multiples(a) Operating Operating Income Cash Flow 24.0x 13.7x N.M. N.M. 10.6 9.2 10.6 9.2 11.4x 9.2x t 8, 1988. Civil le County, Exhibit 23. ebt outstanding ce Multiples(a) Operating Operating Income Cash Flow 13.1x 9.2x 11.4x 9.2x t 8, 1988. Civil le County, Exhibit 23. ebt outstanding
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