Corporate Valuation 2001 -1 Institut for Regnskab, IC Pontoppidan GETTING STARTED-agenda AIM MEANS LITERATURE WHAT TO DO EXAM PRACTICALITIES LECTURE: Background

Corporate Valuation 2001 -1Corporate Valuation 2001 -1

Institut for Regnskab, IC Pontoppidan

GETTING STARTED-agenda• AIM• MEANS• LITERATURE• WHAT TO DO• EXAM• PRACTICALITIES• LECTURE: Background• NEXT



Aim• CREATE AN UNDERSTANDING FOR Corporate

Valuation AND THE THINKING LYING BEHIND

• OBTAIN AN INSIGHT INTO C.V. IN THEORY AND PRACTICE

• PRACTICE SKILLS IN C.V.

VIA 3 ELEMENTS:

– LITERATURE

– WORKSHOP/REPORTS/NEGOTIATIONS

– 2 GUEST SPEAKERS FOCUSING ON ESSENTIALS



Means

• 2 LECTURES + 1 coached WORKSHOP PER WEEK

• SATURDAY NOV 17TH WHOLE DAY !

• REPORTS TO BE DELIVERED

• GROUPS AND TEAMS

• ACTIVE PARTICIPATION/ DIALOG+ REPORT+ EXAM



Literature

• Copeland, Koller & Murrin: Valuation 3ed.• articles (see handout) - copy from SL



Please do -THIS WEEK

• Form groups ( Danes and nondane together)• and Teams (3 groups per team)• decide in the teams on who is buyer and who is

seller (1 against 2/ 2 against 1)• pick a company and inform me on Email

– and get my acceptance 1. !!Mail group and team names, contactmail,

company, buyer/seller to me ([email protected]) 2. Prepare a workplan3. To be formalized sep 17th



Please do - LATER

• give a presentation during the workshop • mid stage report (1A4)

– Monday Oct 22rd evening• Draft report & price

– Monday Nov 12th evening• Negotiation on saturday Nov 17th• Final reports

– incl. “negotiation process and outcome description” + “learning reflections”

– NOV 26th evening



POSSIBLE TYPES OF COMPANIES • QUOTED - NONQUOTED

• BIG - SMALL

• HIGH TECH- GOOD OLD LOW TECH

• BRANDED - MASS PRODUCTS

• B2B - B2C

• SUCCESFULL - CRISIS

• INTERNATIONAL - REGIONAL-LOCAL

• DANISH -FOREIGN



Exam

POSSIBILITIES:A:REPORT TO BE APPROVED but not graded BY ME

AND INDIVIDUAL ORAL EXAMINATION BASED ON THE REPORT

B: REPORT TO BE GRADED (50%) AND GROUPS TO BE EXAMINED COLLECTIVELY

C:GROUP AGAINST GROUP REPORTEXAMINATION WITH THE POSSIBILITY FOR ME TO DIFFERENTIATE THE GRADES

D: OTHERS ?TO BE DECIDED AND PUT IN THE MID-STAGE

REPORT (OCT 22ND) – OTHERWISE I CHOOSE !



PRACTICALITIES

• PARTICIPATION LIST• PHOTOCOPIES• 1 cd• COOPERATE IN TEAMS ON BASIC

INFORMATION MATERIAL BUT PLEASE DO NOT SPY !!!!!!!

• And HAVE FUN !• [email protected] c 103



Background lecture• Which value

– market– owner/ new owner– fair/ correct

• Valuation converts a forecast to a prize - using a method and some data

• how do you get the forecast and how do you convert it into a prize ?

• Each method has its own focus and (data) requirements/ assumptions

• should it be based on dividends, earnings, cash flow, or what ?

• how historic should it be ?– should the accounts be used ?– How long into the future ?



The valuation-method ”tree”ONE PERIOD:• MULTIPLES (e.g. P/E)• NET ASSETS (all assets ? At what cost ?)

– going concern (immaterial/ goodwill)– realization/ liquidation

MULTIPLE PERIODS:• FLOWS

– direct 1: dividends– indirect: free cash flow - debt

• NET ASSETS AND FLOWS– abnormal earnings + book value (Edward-Bell-Ohlson)

PEER GROUP: (diff. in div.,leaverage, growth, risk ?)– on earnings and equity



STEPS in the valuation

• Business Strategy analysis– industry– competitive strategy– corporate strategy

• Accounts analysis– quality of earning

• Financial analysis– performance assesment

• Prospective analysis– forecast– valuate



New Foundations 1

• The nature of the firm has changed. Away from asset intensive, vertically integrated, with top down control over employees.

• This has consequences for the valuation of companies• What factors determine the ability of firms to capture new

(growth) opportunities – is it complementarity between a critical ressource and specific investments built around this ressource ? And how is it measured ? (e.g. TDCexample)

• ”the growth options are up for grabs”• We need a new approach to valuing firms that is consistent

with the new nature of firms



New Foundations 2

• The basis is a theory of the firm:– Nexus of explicit contracts– Nexus of explicit and implicit contracts– Collection of growth options– Collection of assets

• What is the unit-of-analysis (are the firm boundries stable) ?

• How is value generated ?• How is this value distributed between equity and

the other stakeholders ?



Corporate Architect (PWC)

Build SHV• By shaping strategy and management (fig.2.2)

– Develop the concept (valuation of entities)

– Use it in strat.decision making (investments & targets)

– And in operating decisions making (planning & budgeting)

– Institutionalize it in culture, perf.measurements, and incentives

• Linking the management processes in a ”value line” (fig.1.4)



Rationality

4 main decision making models

• rational

• bounded-rational

• political

• garbage can

The profit max./SHV approach is declining in relevance down the models



Evode Group 1

• Andrew Simon is chaiman of Evode Group with 5 differnet divisions.

• After many years with profitable growth, the turnover i 91 is 6 % down from 90 to Lm. 279 and profit after tax is more than halfed from Lm. 15,2 to Lm. 7,3. The stockprice is down to p.43 more or less equivalent to the intrisic value of p. 46 calculated based on cash flows.

• Analysts forecast a 92 profit of Lm. 8,9 • What should Andrew Simon do ?



Evode Group 2

• A hostile takeover bid from Wassal of p.80 turns up - calcualted by its CEO Chris Miller based on Peer Group multiples, indicating a value of p.112. Evodes stockprice rises to p. 103

• Andrew Simons fights back signaling profit

improvements in 92 to Lm.10,2 - so Chris Miller quickly improves his bid to p.95.

• Whats next ?



Evode Group 3

• A "white knight" Laporte and its CEO Ken Minton takes up 6,1% of the shares at 100p. announcing it will make a bid above p.100 for the rest. The offer is p.12o paid in "paper" and gets the deal.

• Its own shares falls 10% in total - although its

assesment of the acquisition value of Evode is p.240.

Should anybody have acted otherwise ?



Next

• 3 hours• Workshop

– Workplan presentation by each team- on OH please

– Exercise: 2,7 – 2,9 – 2.10– Dialog and coaching

• Lecture: What to Measure and Manage CKM:1,2,3 +

Documents

Corporate Valuation 2001 -1 Institut for Regnskab, IC Pontoppidan GETTING STARTED-agenda AIM MEANS LITERATURE WHAT TO DO EXAM PRACTICALITIES LECTURE: Background