Fojtasek Memo
3
The Fojasek Companies and Heritage Partners Case Talking points Submitted by: Highest Bidders: Marc Brands, Hajime Tamachi, Nobuyasu Sugimoto, Kunihiro Takahashi, and Yasuhisa Tsurumi Value As the management forecast is reasonable enough, we used it as the expected outcomes. We calculated the NPV, (58 mil. Refer to the Exhibit-1) with using WACC derived from industrial averages plus unlisted risk premium (5%). Objective There are several objectives in management decision. First, they prefer lower debt ratio to keep their growth opportunities available. Second, they are willing to keep control of the company. Other objectives are pressure for restructuring and inheritance tax issue. Options Buy-out: Although a buyout group will value around $65 mil, which is higher than others, it results in high debt ratio. Then, it will erase their growth opportunities with M&A. As the growth possibilities are essential to their business, current shareholder’s value will decrease in the long run. Therefore, they had better not to take Buy- out option. Re-Cap: Although this process prevents dilution of current shareholders perfectly, the problem is that they are going to have a very high debt ratio. As they are to borrow to buy back 80% shares from non-active shareholders, their debt ratio will increase to 86%. In
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Transcript of Fojtasek Memo
The Fojasek Companies and Heritage PartnersCase Talking points
Submitted by: Highest Bidders: Marc Brands, Hajime Tamachi, Nobuyasu Sugimoto, Kunihiro Takahashi, and Yasuhisa Tsurumi
Value
As the management forecast is reasonable enough, we used it as the expected outcomes. We calculated the NPV, (58 mil. Refer to the Exhibit-1) with using WACC derived from industrial averages plus unlisted risk premium (5%).
Objective
There are several objectives in management decision. First, they prefer lower debt ratio to keep their growth opportunities available. Second, they are willing to keep control of the company. Other objectives are pressure for restructuring and inheritance tax issue.
Options
Buy-out: Although a buyout group will value around $65 mil, which is higher than others, it results in high debt ratio. Then, it will erase their growth opportunities with M&A. As the growth possibilities are essential to their business, current shareholder’s value will decrease in the long run. Therefore, they had better not to take Buy-out option.
Re-Cap:Although this process prevents dilution of current shareholders perfectly, the problem is that they are going to have a very high debt ratio. As they are to borrow to buy back 80% shares from non-active shareholders, their debt ratio will increase to 86%. In this level, it is difficult to get financed from commercial bank.
Private IPOEven though the proposal from investment bankers is unfavorable (51.7 mil.), this is the only choice to realize the growth opportunities. This option also fit other objectives: In case of management forecast, they can keep the control. On the other hand in case of business trouble they can save the inheritance tax. Therefore, we conclude this is the best choice.
Ex-1
