Introduction to Valuation of Foreign Firms/Projects

1
Introduction to Valuation of Foreign
Firms/Projects

• International Finance II
• Dick Sweeney

2
Foreign Valuation

• Different from valuation of domestic firm (or
  project) for MA purposes
• Standard valuation problem for domestic MA
• One firm to take over another completely, or
  starts a wholly owned project/subsidiary
• Only need to look at total value of
  target/project
• Acquiring firm gets all the cash flows

3
Foreign Valuation (cont.)

• Very different for foreign company/project
• Usually have equity partners
• Typical to have host-country partner, often
  required
• Usually have multiple sources of debt financing
• Finding best equity and debt partners is art of
  project financing
• Examples International Finance Corp. of World
  Bank U.S. Ex-Im Bank or OPIC

4
Foreign Valuation (cont.)

• Need to value company/project as a whole
• Use Free Cash Flow approach
• Like finding out the size of the pie
• Also need to value the cash flows going to each
  partner in project
• Use discounted cash flow approaches comparable to
  FCF approach
• What slice does each partner get?
• Each partner has to be happy for success

5
PPP and Real Exchange Rate

• Discuss PPP, but focus on use for valuation
• Means focus on real exchange rate
• In foreign valuations, real exchange rate is a
  key
• Real rates effects are often hidden
• Often ignored, but still there, still a key
• Bring it out in the open
• Not hard if done right
• Helps you be in charge of foreign valuation

6
Robin Cases

• Short cases, like programmed learning
• Completely re-written to be clearer, more
  transparent, more complete
• Set in Indonesia
• Prepare you for Vick and Corning Indonesia cases
• Look at pro formas in Rupiahs, in USD, in real
  USD
• Go behind typical international pro formas

7
Vick and Corning cases

• Classic cases about developing countries,
  especially Indonesia
• Not written as valuation cases
• In some ways, all the better
• Makes them more demanding, you learn more
• Do not worryI am there to help you with the
  major issues, and with the tricky hurdles
• Lots of handouts to help with solutions

8
Case discussions, presentations

• The Robin cases have questions for discussion,
  and they really are for discussion, not for case
  presentation in class
• The Vick and Corning cases lend themselves to
  case presentations
• Really four cases
• Two on total value
• Two on value to single claimant