Question
Medibank decided that 2,754 million sh ares would form the offer through the ASX, a total of 100 per cent of total shares on issue.
Medibank decided that 2,754 million sh
ares would form the offer through the ASX, a total of 100 per cent
of total shares on issue. The federal government placed
an indicative price range on the offer of $1.55 to $2
per share. On the forecasts for Medibanks FY 2015
earnings, an earnings multiple of 16.5 to 21.3 times
and a dividend yield of 4.2 per cent to 5.4 per cent
were implied by the price range. This price band was
fairly wide (i.e., 30 per cent) and brought with it so
me noteworthy implications, given the uncertainty over
the price that investors would end up paying.
26
The offering price was to be determined followi
ng a book-building process by agreement among the
underwriters, the vendor, and Medibank on the price
discrimination date, which was expected to be
November 25, 2014. Medibank had forecasted fully franke
d dividends of 4.9 cents per share to be paid
starting September 2015, with an implied FY 2015 divide
nd yield of 4.2 per cent to 5.4 per cent. Based on
the indicative price range provided, the Commonwealth
could expect to raise between $4,269 million and
$5,508 million for 100 per cent of Medibanks equity.
27
Additionally, going public provided
a way for Medibank to position the company within the current market
and get its name out to potential investors. It was al
so a strategic way for the
company to increase customer
loyalty and its overall public image
through brand recognition. Going pub
lic gave Medibank an opportunity
to attract other companies to evaluate it for potential
mergers and acquisitions as a way to achieve synergies
and increase overall shareholder value.
Calculate the discount rate
(r)
that is appropriate for a discounted cash flow (DCF)
valuation of Medibank.
Estimate the
price
for Medibanks IPO
stock
by using the discounted cash flow (DCF)
valuation method
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