Situation: Proctor & Gamble continues its strategy of focusing its portfolio on Health and Beauty Aids, and so has decided to sell its Bounty Paper Towels business. You are the Manager of Corporate Development for Kimberly-Clark, owners of Scott Paper Towels, and your boss has asked you to study the possibility of buying Bounty.

P&G has provided you with a projection of their Base Case EBITDA forecast:

2023: $50M

2024: $55M

2025: $60M

2026: $62M

2027: $64M

With the help of Scott division management, you have identified potential revenue synergies of $8M per year and cost synergies of $7M per year, upon integrating Bounty into the operation.

Question: Using the Discounted Cash Flow model, should you recommend buying Bounty? Use the following assumptions: 1) P&G will sell for a small 15% premium over the Base Value and 2) your discount rate (weighted average cost of capital or WACC) = 10% Show your math below. Ignore perpetuity value (value after year 5)

What is the Base Case Value of Bounty?

What is the Price to be paid to PG&E?

What is the value to Kimberly-Clark of Bounty?

What is the Potential ROI of buying Bounty?