Valuing a Cross-Border LBO: Bidding on the Yell Group

Harvard Business School Case 204-033

Course Software 205-701
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Exhibit 4 British Telecom Selected Historical Financial Information, 19962000 (pounds in millions, except per-share data)

1997

Income Statement
Total turnover

Years Ended 31 March

1998
1999
2000

17379

2001

-174
3203
2101
-24
2077
32.8p

17411
0%
3461
1%
63
-310
3214
1727
-25
1702
26.6p

18223
5%
3474
0%
1107
-286
4295
3002
-19
2983
46.3p

21903
20%
3198
-8%
126
-382
2942
2045
10
2055
31.7p

29666
35%
-336
-111%
619
-1314
-1031
-1683
-127
-1810
(27.7)p

6185
7
-220

-1,045

6071
5
-160

-1,886

6035
2
-328
-630

5849
5
-163

-1,311

5887
10
-727

Capital expenditure and investment

Acquisitions and disposals
Equity dividends paid

-2820
-252
-1217

-3108
-1501
-3473

1
-1967
-1186

-3752
-6405
-1364

-8442
-13754
-1432

Financing
Incr. (decr.) in cash for the year
Decr. (incr.) in net debt for the year

-224
-90
849

1794
-11
-3860

-458
67
3146

5959
54
-6582

19735
128
-18942

17252
1708
-2637
-3889
-1426
-223
10785
23285

742
17854
1832
-495
-3386
-1391
-216
14940
27962

5777
18163
5878
-7115
-5354
-1056
-498
15795
37588

18380
21625
5204
-11143
-18775
-723
-499
14069
54799

Total operating profit (loss)

Profit on sale of fixed assets
Net interest payable
Profit (loss) before taxation
Profit (loss) after taxation
Minority interests
Profit (loss) for the financial year
Basic earnings (loss) per share

3429
dc

Cash Flow Statement

Cash flow from operating activities

Dividends from associates and JVs
Investment Return & Finance Servicing
Taxation paid

Management of liquid resources

Balance Sheet
Intangible fixed assets
Tangible fixed assets
Fixed asset investments
Net current assets (liabilities)
LT loans and other borrowings
Provisions for liabilities & charges
Minority interests
Total equity shareholders funds
Total assets
Source: British Telecom.

-504

N/A

2,247

N/A
16802
1273
-2667
-2693
-1391
-208
11116
25062

-2,447

1,236

-669

-480

ns, except per-share data)

Exhibit 6 BT Yellow PagesHistorical Financial Information and Management Projections for the Business, 19992005 (pound

Year
Advertisement Volume (000)
Weighted Average Advertisement Price ()

Revenue

Discounts and free ads (000)

Direct costs (000)
Overhead costs (000)a
Change in WC (000)
Capex (000)
Depreciation (000)

COGS
Operating Income

Other U.K. businesses:

Capital cash flows after taxes (000)

Actual
Actual
Projected
Projected
Projected
31-Mar-00 31-Mar-01 31-Mar-02 31-Mar-03 31-Mar-04
813
853
927
991
1,058
641
645
644
648
649

521133

42,402
180,479
102,530
10,570
7,380
5,530

550185
6%

47,276
187,395
88,870
12,772
9,760
5,370

596988
9%

78,180
195,972
74,930
2,178
10,220
6,130

642168
8%

86,585
201,742
77,137
6,000
9,730
8,850

686642
7%

84,324
206,649
79,013
8,497
9,230
8,400

348,891 351,443 367,610 390,044 396,113

167,676 184,304 216,737 243,886 291,891
10%
18%
13%
20%
-4,566

-14,438

-12,641

-8,238

1,362

5%
1%
11%
4%
-13%
21%
32%
-3%

9%
0%
65%
5%
-16%
-83%
5%
14%

7%
1%
11%
3%
3%
175%
-5%
44%

7%
0%
-3%
2%
2%
42%
-5%
-5%

216%

-12%

-35%

-117%

GROWTH

Adv Volume Growth

Weighted Average Advertisement Price ()
Discounts and free ads (000)
Direct costs (000)
Overhead costs (000)a
Change in WC (000)
Capex (000)
Depreciation (000)
Other U.K. businesses:
Capital cash flows after taxes (000)

Source: Apax Partners; casewriter estimates; figures have been disguised.

a

Does not include depreciation.

Starting in 2006, cash flows from Other U.K. Businesses should grow dramatically into the tens of millions of pounds. Management, however, found it d
the cash stream post-2005 given the high uncertainty surrounding those future projections.

r the Business, 19992005 (pounds in thousands)

Projected
Projected
Projected
31-Mar-05 31-Mar-06 31-Mar-07
1,126
1,194
1,254
649
649
649

730774
6%

86,615
211,278
80,783
6,300
8,380
7,630

774906
6%

85,366
214,996
82,204
4,375
8,000
8,000

813846
5%

86,049
216,716
82,862
2,023
8,000
8,000

400,986 402,941 403,650

331,744 381,965 430,196
14%
15%
13%
1,956

10,000

20,000

6%
0%
3%
2%
2%
-26%
-9%
-9%

6%
0%
-1%
2%
2%
-31%
-5%
5%

5%
0%
1%
1%
1%
-54%
0%
0%

44%

411%

100%

unds. Management, however, found it difficult to evaluate

Exhibit 7 Yellow Book USAHistorical Financial Information and Management Projections for the Business, 19992005 (dolla

Year
New launches (number)
Total Revenues ($000)
Capex ($000)
Depreciation
Revenue Growth
Capex Growth

Actual
31-Mar-00
n/a

Actual
31-Mar-01
n/a

Projected
31-Mar-02

217,500
3,698
N/A

330,000
7,000
7,000

421,600
10,600
6,240

483,200
8,700
7,910

544,050
8,170
7,430

52%
89%

28%
51%

15%
-18%

13%
-6%

Projected
31-Mar-03

Projected
31-Mar-04

Source: Apax Partners; casewriter estimates; figures have been disguised.

Chart Title
800,000

f(x) = 73355.9880952381x + 174969

R = 0.9901730622

700,000
600,000
500,000
400,000
300,000
200,000
100,000
0

or the Business, 19992005 (dollar figures in thousands)

Projected
31-Mar-05

Projected
31-Mar-06

Projected
31-Mar-07

598,600
8,990
8,810

688,390
8,000
8,000

757,229
8,000
8,000

10%
10%

15%
-11%

10%
0%

Chart Title

3355.9880952381x + 174969.178571428
9901730622

Exhibit 10 Data for Comparable Listed Companies (five-year average unless otherwise indicated)
Company

Main Business Activities

Local index

SBC Communications

Long distance service, local service, wireless, and

directory publishing

S&P 500

Verizon

Long distance service, local service, wireless, and

directory publishing

S&P 500

BellSouth

Long distance service, local service, wireless, and

directory publishing

S&P 500

Qwest

DSL services, broadband and wireless

communications, directory publishing

S&P 500

Sprint

Long distance service, local service, product

distribution, and directory publishing

S&P 500

McLeodUSA

Internet access, system integration services, and

yellow pages publishing

S&P 500

WorldPagesa

Independent directory publisher recently

diversifying in Internet portal services

S&P 500

SEAT Pagine Gialle

White and yellow pages telephone directories.

More recently Internet access services

Wanadoob

Internet Service Provider. Also offers client

portals, emerchant services, and directories

CAC 40 (France)

Telefonica Publicidad e Informacionc

Directory publishing

IBEX 35 (Spain)

Enirob

Catalog and telephone directory publishing

OMX (Sweden)

Source: Bloomberg International.

aThree-year data available.
bOne-year data available.
cTwo-year data available.

MIB 30 (Italy)

Beta vs. Local

Index
0.54

Beta vs. S&P 500

Index

0.54

Beta vs. MSCI

World Index
0.63

Debt / EV
15.4%

D/(D+E)
0.53

0.53

0.61

22.6%

0.41

0.41

0.42

17.5%

1.23

1.23

1.39

25.0%

0.66

0.66

0.68

16.4%

1.75

1.75

N/A

20.7%

0.89

0.89

1.08

24.4%

0.97

0.56

0.87

2.8%

1.46

1.19

1.47

1.1%

2.33

1.13

1.9

1.9%

0.43

0.67

0.79

8.2%

Industry Avg Debt/EV = 20.3 %

E/(D+E)

Avg Beta

20%
80%

0.392 (Assuming Beta in both market same)

Exhibit 11 Country-specific Information about Interest Rates, Currency, and Taxes

On April 12, 2001
Yield on 5-year T-bill
Yield on 10-year T-bill
Yield on 30-year T-bill
$/ spot rate
$/ 1-year forward mid rate
$/ 2-year forward mid rate
$/ 3-year forward mid rate
$/ 4-year forward mid rate
$/ 5-year forward mid rate
Tax rate

United States
4.77%

5.17%
5.61%

1.439 bid1.44 ask

1.4315
1.4290
1.4270
1.4245
1.4570

35%

Source: Adapted from Bloomberg International; Offering Memorandum, Yell Finance B.V., August 6, 2001.

ency, and Taxes

ce B.V., August 6, 2001.

United Kingdom

US

UK

5.06%

Rf

5.17%

4.94%

4.52%

Rm-Rf
7%
Beta
0.392
Re= Rf+beta(Rm-Rf)

7%
0.392

7.9%

7.7%

4.94%

Re

30%