What is your evaluation of the intrinsic value of Bega Cheese´s stock?

Final Exam: Bega Cheese: Bidding to Bring Vegemite Back Home

Merge in whatever spreadsheet calculations
you want to include in your main text document. The solution can be
submitted either in Word or Pdf-format.

On the next page you will find a number of questions that I
want you to address in your analysis.

Rules:

·
Individual effort. No cooperation allowed.
·
Use any articles, handouts or material from the
course.
·
Do not use outside historical or industry
information.
·
Answers should be typed, one-half or
double-spaced, 11p or 12 p fonts, and at most 8 pages of text. Page margins should be at least 2 cm.
·
Numerical calculations, spreadsheets, and tables
can be put in an appendix, which does not count towards the 8-page limit. Your
appendix should be 7 pages or less.
·
Failure to adhere to the page limits and format
guidelines will result in point deductions.
·
The first page should contain an executive
summary outlining your recommendations and supporting arguments. The executive summary counts towards the 8
page limit.
·
Be sure to clearly state and motivate any
assumptions and calculations you make.
·
Try to be succinct and to the point in your
arguments. To obtain a high score, your report should also be well-structured,
well formulated, and address all the relevant issues.

QUESTIONS

Business and strategic analysis (~15%): How would
you assess Bega Cheese´s performance in recent years? What are the major challenges
facing the Bega Cheese’s business at the time of the case? In the light of this, are there
compelling economic and strategic reasons to acquire Modelez’s ANZ grocery
business?

Capital structure analysis (~25%): What do you
think is an appropriate capital structure for Bega Cheese? I expect both a qualitative and
quantitative analysis. What does your analysis imply about Bega Cheese’s
ability (and the desirability) to raise additional debt to finance an
acquisition?

Valuation (~45%):
For this analysis, I have included a number of additional exhibits in the
Excel file, including

Financial data on Bega Cheese and a number of comparable public
companies (“Comparable companies”)
Expected financial performance of Bega Cheese, which do not
include the effects of a possible ANZ acquisition (“Bega Cheese Financial
Estimates”)
Analyst estimates of the expected financial performance of ANZ.
Data on interest rates, exchange rates, and expected inflation
(“Market data”)
Data on past similar M&A transactions (“Comparable M&A
transactions”)

What is your evaluation of the intrinsic value of Bega Cheese´s
stock? How does it compare to the
current stock price? What do you
learn from this analysis?

Evaluate how much the ANZ grocery business is worth to Bega
Cheese, assuming there are no additional synergies generated over the
financials in exhibit 8A. You can
assume that the asset beta is similar for ANZ’s and Bega Cheese’s
businesses. Also, assume
acquisition costs amount to A$10 million before tax.

c. Bega’s management believes that it might be
possible to realize some additional synergies from a deal. In particular, they
believe that:

· Thanks to overlap with Bega, they can
probably achieve an increase in ANZ’s EBITDA margins by 0.5 percentage points
starting in FY 2019.
· In addition, they should be able to sell the
Port Melbourne facility (as indicated in the case), although this will also
generate taxable capital gains. The tax
basis for the Port Melbourne facility is A$30 million, i.e. the capital gains
realized will be equal to the selling price minus A$30 million.
· They also see a possibility that there might
be some soft synergies due to new product introductions and cross-promotion opportunities
across Bega and ANZ’s products, which might increase ANZ’s revenue growth from
3% to 4% per year for the period 2019-2022.

How would these synergies affect the value of
ANZ’s grocery business to
Bega Cheese?

4.
Deal
structure (15%):
Given your analysis in 1-3, what should Bega Cheese be willing to pay for the
ANZ grocery business? How should Bega
Cheese finance their bid: raise debt, issue equity, decrease their dividend, other
sources? To the extent that they borrow
to finance the acquisition, what likely rating will this debt get, and how much
would the additional interest payments be?

Last Completed Projects