Ducati & Tpg

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M&A (B) – Ducati & TPG

Question1: On a scale from 0 to 10, we would like to mark it with 2.
TPG is overwhelmingly acting as a financial buyer.
Firstly, picking up Ducati as its target company is quite opportunistic. From the traditional investment style’s point of view, TPG is interested in those companies that had grown rapidly but still had the corporate structures of very small companies which caused great stress to the management of the business, and the assets of their target companies always being considered to be divided in order to improve the business riping for LBO. Besides, TPG is expecting to add complexity to the doing the deals and realize fiscal efficiency. Ducati is thus to be an ideal target from these
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In this stage we would calculate the required rate of return of the asset, we can get the required rate of return of the debt in the case (the 9th line, 4th paragraph, Page 9), and assume the debt to equity is 2:1 (the 4th line,3rd paragraph, Page 9) and equity beta is equal to 1.1, the same as BMW’s equity beta (Exhibit 4, Page 16), the required rate of return of the market can use the Italian equity market data to take average, and we use Italian Treasury Bond rate as risk free rate. Rd | | 11.25% | Rf | | 8.74% | Rm | | 21.42% | Beta | | 1.1 | Re | | 22.69% | Ra | | 15.06% |

3. As we have capital cash flow and required rate of return, we almost can calculate the firm value of Ducati, but first we should get the growth rate of the company, since LBO affected the growth rate of first a few years, we just assume the long-term growth would be equal to GDP growth rate. g=8.45% V=PV(CCF1996) + PV(CCF1997)+……+ PV(CCF2003)+CCF2003×(1+g)/[(Ra-g)(1+Ra)9]
ETPC=51%E Firm Value | | 414.6908 | billion lira | | | | Equity Value | | 134.6908 | billion lira | | | | Equity Value of TPC's shares | | 68.69232 | billion lira | = | 44.76236 | million USD | Total Cash paid | | 348.6923 | billion lira | = | 227.2203 | million USD |

Question 3: How much should TPG be willing to bid? How does this relate to your answers in questions 1 and 2?
We have the equation to
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