Metric Sales Growth (%) EBIT Margin (Pretax) EV/EBITDA 2012 () Metric Sales Growth (%) Depreciation and Amortization EBIT Margin (Pretax) Tax Rate Capital Expenditures Net Working Capital (%) Stand-Alone Valuation (dollars in millions) PPG Industries Actual 2011 10.9% 11.2% 7.3 Projected 2012E 2013E 4.1% 4.3% 11.0% 12.0% DuPont Performance Coatings Closing Projected 2011A 2012E 2013E 2014E 2015E 2016E 12.5% 4.0% 4.0% 4.0% 4.0% 4.0% $104 $115 $118 $122 $125 $130 6.3% 10.0% 10.0% 10.0% 10.0% 10.0% 25% 25% 25% 25% 25% 25% $80 $115 $122 $132 $144 $150 15.0% 15.0% 15.0% 15.0% 15.0% 7.0 Terminal EBITDA Multiple (*) 2 Debt/EBITDA 2012 (x) Debt Blended Interest Rate on Debt Unlevered Cost of Equity 3 N/A 6.75% 11.2% 2011A APV Analysis Closing 2012E 2013E 2014E 2015E 2016E Net Sales $4,281 $4,452 $4,630 $4,816 $5,008 $5,208 EBITDA $372 $560 $581 $604 $626 $651 Depreciation and Amortization $104 $115 $118 $122 $125 $130 Pretax Operating Income (EBIT) $268 $445 $463 $482 $501 $521 Interest Expense $0 $0 $0 $0 $0 Earings before Taxes $445 $463 $482 $501 $521 Taxes ($111) ($116) ($120) ($125) ($130) Net Income Increase in Net Working Capital Capital Expenditures Residual (Levered) Cash Flow $334 $347 $361 $376 $391 ($26) ($27) ($28) ($29) ($30) ($115) ($122) ($132) ($144) ($150) $308 $317 $323 $327 $341 Unlevered Free Cash Flow $308 $317 $323 $327 $341 Terminal Value $4,738 Unlevered FCF, including TV $308 $317 $323 $327 $5,079 Enterprise Value (EV) $3,970 Interest Tax Shield PV Tax Shield EV with Tax Shield $3,970 Using Exhibit 9, estimate the dollar increase in DPCs value, relative to the stand-alone value, if a PE fund can obtain: a. 5% revenue growth per year (instead of 4%) in each of the next 5 years and improve the operating margin to be 12% (instead of 10%) b. assume part a and that the division can be sold at 7.5 X EBITDA in 5 years c. assume that debt financing equal to 5X forward EBITDA can be obtained. Assume that all cash available is used to pay down debt and after 5 years the firm reverts to an all-equity financed firm. We'll do this in class first, then you by yourself. Try it before class, so you have some understanding before we start.