GETTING STARTED-agenda

1
GETTING STARTED-agenda

• AIM
• MEANS
• LITERATURE
• WHAT TO DO
• EXAM
• PRACTICALITIES
• LECTURE Background
• NEXT

2
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

3
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

4
Literature

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

5
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
• !!Mail group and team names, contactmail,
  company, buyer/seller to me (icp_at_asb.dk)
• Prepare a workplan
• To be formalized sep 17th

6
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

7
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

8
Exam

• POSSIBILITIES
• AREPORT 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 !

9
PRACTICALITIES

• PARTICIPATION LIST
• PHOTOCOPIES
• 1 cd
• COOPERATE IN TEAMS ON BASIC INFORMATION MATERIAL
  BUT PLEASE DO NOT SPY !!!!!!!
• And HAVE FUN !
• www.icp_at_asb.dk c 103

10
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 ?

11
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

12
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

13
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

14
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 ?

15
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)

16
Rationality

• 4 main decision making models
• rational
• bounded-rational
• political
• garbage can
• The profit max./SHV approach is declining in
  relevance down the models

17
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 ?

18
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 ?

19
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 ?

20
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
  CKM1,2,3