Case Study: Rjr Nabisco

1. Was Borg-Warner’s Industrial Products Group a good candidate for a leveraged buyout in 1987? Evaluate the price paid and the structure of the deal that closed in May 1987. Are you optimistic about BW/IP’s prospects?

Statement of Purpose: The purpose of this analysis is to determine if Reynolds Metals (“Reynolds”) should accept Nestlé’s offer of $61 million for its holdings of Eskimo Pie. The crux of the issue is whether or not the projected income from a proposed Initial Public Offering (“IPO”) by Wheat First Securities (“Wheat First”) is reasonable and will actually result in proceeds between $61 and $68 million to Reynolds, the Reynolds family and the Reynolds foundation, as projected. To get at this question, this paper will seek to value Eskimo Pie as a stand-alone company, if the IPO option is selected.

By the end of 1999, Seagate had a BBB credit rating issued by S&P for its long-term debt. Based upon historical operating performance, it would seem that Seagate’s leverage ratio has high volatility due to its high volatility in market value of equity and operational performance. However, we believe that the current leverage ratio is above its optimal leverage because in 1998 the firm had a -2.72 EBIT interest coverage ratio using the greater debt load of $703 million on its books. In the recapitalization for the leveraged buyout, a

The share price of $270,000 was significantly higher because the “fair value” as perceived by the dissenters, which accounted for the chance of an IPO. Taking into account the recently traded Kohler Co. share prices, the book value of a share, and the possibility of an IPO greatly inflated what the perceived value of each share should be. While Kohler believed their voting control and ownership structure would remain the same, the shareholders believed otherwise. Because shareholders assumed Kohler would go public, they argued for a higher valuation so as to receive the highest price, and thus profit, in the buyout.  So based on the highest MVE, we picked Masco as the comparable firm of choice. Using Masco’s MVE, $9838.8, and LTM EBIAT, $437.3, we solved for Masco’s P/E ratio, which was equal to 22.5. By multiplying the P/E ratio by Kohler’s LTM EBIAT (22.5 * $93.76), we projected a market value of $2,109,610,000.  To solve for estimated share price, we divided the projected market value by 7,587.89, the number of shares outstanding to obtain an estimated share price of $278,023.47. This estimate is near the $270,000 per share offer price.

Johnson & Johnson, a 130 years old famous multinational healthcare company through its family of companies is involved in the research and development, manufacture and sale of a wide range of products in the healthcare. Product that related to human health and well-being has always been their main interest over the years and also presently. Johnson & Johnson was incorporated in the State of New Jersey in 1887 by three brothers; Robert Wood Johnson, James Wood Johnson and Edward Mead Johnson.

Andrea Winfield considered issuing bonds was not a good option for financing the acquisition. She was particularly concerned about the increasing long-term debt and annual cash layout of $ 6.25 million for 15 years. We believe that her concerns are justified, because the Company had already significant amount of debt that could result in higher risks and stock price

It is important for stockholders to continuously re-evaluate their investments. Although some investors do this more frequently and thoroughly than others, the majority of shareholders do so at least once each year. Therefore, Torres’ desire to update her analysis in order to determine whether Costco was still operating efficiently makes perfect sense. After thorough examination, my analysis proves that Costco remains one of the industry’s leading competitors and there seems to be no reason for Torres to sell her shares as long as she wishes to retain holdings of a

Once the goal of corporations became maximizing the value of the firm, they attracted wealthy “corporate raiders”, who used this new corporate philosophy to launch many takeover attempts on companies, with the intent on restructuring these companies, as to increase their stock prices, so that they can “refloat” them for a considerable profit. Most of these takeovers were financed with borrowed money, hence the term lever­aged buyouts, or LBOs. As the article states, “In a typical LBO, the acquirer would buy out the public stockholders and run the com­pany as a private concern, slashing costs and slimming it down. The ultimate aim was to refloat the company on the stock market at a higher valuation”. Initially this was seen as one of the best remedies for the agency issues that surfaced between shareholders and mangers. However as the economic climate changed, many realized that the LBO was not the answer. “When the economy went into a reces­sion during the early nineteen nineties, many of the firms that had gone private, such as Macy’s and Revco, couldn’t keep up their interest

This case discusses Philip Morris Inc. intentions to acquire the Seven-up Company in an effort to diversify their consumer goods. The decision has already been made, however they must decide on an offer price to buy out the company. This report will discuss PM’s acquisition strategy and its appropriateness, along with whether or not 7up fits the criteria of PM’s strategy. The report will further discuss the methods used to determine the maximum amount that Philip Morris should pay for 7up, while also going into detail about the minimum price 7up should accept as a buyout.

The company’s debt ratios are 54.5% in 1988, 58.69% in 1989, 62.7% in 1990, and 67.37% in 1991. What this means is that the company is increasing its financial risk by taking on more leverage. The company has been taking an extensive amount of purchasing over the past couple of years, which could be the reason as to why net income has not grown much beyond several thousands of dollars. One could argue that the company is trying to expand its inventory to help accumulate future sales. But another problem is that the company’s

This case gives comprehensive coverage of a firm’s decision to start an initial public offering but also to go through the process of going public. TRX is a company managing travel-and-data processing activities for its clients. Its target market has significant transaction volume in travel agencies, travel suppliers, large corporation and credit-card issuer. Regarding its service offerings, it focuses on transaction processing, data integration and customer care. Its fortune tied to the overall health of travel industry. TRX generates a lot of revenue but less profit. Trip Davis, Chief Executive Officer of TRX, Inc. decided it was time to raise capital in order to fund the growth of the company. His main focus was to accomplish a strategic recapitalization of TRX. This case gives a brief history about several events from the company’s incorporation in 1999 through the completion of an IPO in September 2005. The main goal is to raise capital but there is also a consideration of another reason for going public. In November 1999, they tried to go public but the IPO was never finalized. After the failed IPO, Trip Davis and TRX president decided to focus on strategic investors in order to raise $20 million convertible into equity at $11 per share. In 2004, he believed that Sabre, Inc. one of the largest strategic investors was not working for the best interest of the company. He took into consideration three possible capital raising options: IPO, private placement of equity, or

Next, I invested in a popular food and beverage company, PepsiCo Inc. PepsiCo is comprised of multiple consumer segments in North America such as: Frito Lay, Quaker Foods, Aunt Jemima mixes and syrups, Aunt Jemima mixes and syrups, Quaker Chewy granola bars, Cap n Crunch and Life cereals, and Rice-A-Roni side dishes. The popular beverage segment includes beverage concentrates, fountain syrups, and finished goods such as Pepsi, Gatorade, Mountain Dew, Aquafina, etc. Since PepsiCo is worldwide, it has a handful of segments that provide consumer goods to various country and serves wholesale distributors. The company was founded in 1898 and is headquartered in Purchase, New York and expanded worldwide first entering Japan an Eastern Europe in 1966 (PepsiCo). The company was established by a merger with Pepsi-Cola and Frito-Lay and continues to add more brand names to its company today. On March 22nd, 2014 the net income applicable to common shares was 1,216,000,000 this number is a slight decrease from the 1,742,000,000 net income applicable to common shares on December 28, 2013 (Yahoo Finance). Earnings this year have been good with a positive numerical percentage of 3.76%. In the past year PepsiCo has invested five billion dollars in Mexico. This five-year investment plan Focuses on Innovation and Brand

We valued the company using four different methods; Net Present Value, Internal Rate of Return, Modified Internal Rate of Return and Profitability Index. We began with the Net Present Value, or NPV, calculation. NPV values an investment’s profitability based on the projected future cash inflows and outflows of the investment, discounted back to present value using the WACC. The calculations for NPV are presented in Appendix 2. We started by separating cash inflows and outflows by each year. We used Bob Prescott’s estimates for the revenue per year and related operating costs of cost of goods sold as

The analysis started with A-1 Holdings’ ability to buy all the rest 95 percent of National Brands. This 95 percent equaled 107,958,000 shares outstanding, and at the offer of $55 per share, A-1 Holdings would need the equivalent of $5,937,690,000 in cash to be able to take over National Brands. Assume A-1 planned

KKD divested Montana Mills chain of 28 bakery stores acquired in January 2003 for $40 million in stock. They would take a charge of $35 to $40 million in the 1st quarter. Also closing 3 new KKD “hot doughnut and coffee shops” resulting in a charge of $7 to $8 million. After these issues came to light, KKD’s shares closed down 30%, at $22.51 a share. Also in this time the SEC announced an informal investigation which caused KKD’s shares to fall another 15%, closing at $15.71 a share. The SEC filings were complete and KKD revised their financial statements. By the end of the next day the stock price was less than $10 a share.