Kohler Co - M&a Essay examples

2083 Words Jan 15th, 2013 9 Pages
Group Assignment on“Kohler (A) M&A Valuation”Submitted toINSTRUCTOR: ___________________In partial fulfillment for requirements of the courseMergers and Acquisitions (2012-2013)ByGroup K On19 November 2012 |

Contents EXECUTIVE SUMMARY 3 Why does Herbert Kohler wants to do the recap 4 Calculation of Enterprise value 4 Using Discounted cash flow method 4 Dividend Growth Model 7 Comparable Companies Analysis 8 Valuation Summary 9 Justifying the share price of $ 55,400 10 Defending $270,000 as share value 10 Final advice to Herbert Kohler 10

In May 1998, Kohler Co. offered a recapitalization plan to buy-out minority shareholders and hence become a 100% family owned business. But the offered price of $55,400
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Cost of Debt: 5.56%
Weighted Average Cost of Capital (WACC)
WACC is calculated to be 9.29% as per the table below:

Cash Flow Projections and Valuation

Notes: 1) The Present Value has been calculated as on April 1998 by discounting the 1998 cash flows for 8 months and for following years for 1.75 yrs, 2.75 yrs and so on. 2) For 1998-2002, the projections are taken as per the exhibits provided in the case 3) For 2003, the projections are extrapolated based on following assumptions: a) The net income grows at 10% pa as has been projected for the year 2002 b) Other non-cash items are also inflated by 10% in line with the increase in Net Income c) Interest Expense has been projected @6.5% [Interest cost of year 2002] of the outstanding debts as on year ended 2002 d) Tax rate: 43.4% e) Investment Cash Flows: It is projected that in the year 2003 Kohler will not incur any capex to add any further capacity and its cash flows will stabilize going forward 4) The terminal value has been calculated by capitalizing the yr 2003 cash flows with WACC
Assuming that the Kohler maintains its policy of re-investing 90% of its net income forever, the valuation in such as case would be as follows. The Terminal Value in this case has been calculated by applying the constant growth model which is provided as below:
Value in Yr 0=Cash Flow in Yr1Expected rate of return-expected growth rate in cash flow
The expected growth rate is

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