Professional Documents
Culture Documents
Asish K Bhattacharyya
Chairperson, Riverside Management Academy Private
Limited
09/01/15
09/01/15
09/01/15
09/01/15
Valuation
How do you determine the share price to be
offered to dissenters?
09/01/15
Comparable Companies
Kitchen and bath products
American Standard
American Wood mark
Masco
09/01/15
Valuation
Minority shareholders have de facto no voting rights.
Control premium and minority discount
Minority discount =
1 1/(1+Control Premium)
Control premium of 25% relative to minority share is
equivalent to minority discount of 20% relative to
controlling interest
Lack of marketability
Illiquidity
09/01/15
Minority Discount
Sources of empirical data:
Acquisition premium: 36 49%
Voting premium (in dual class companies): 10
80% [Factors for variation: the degree of
shareholder protection and the possibility of
change in the management]
09/01/15
09/01/15
10
LT Debt:
1997: 228,940 [Ex: 3a]
1998: 243,939 [Ex: 6a]
11
LT Debt:
Average 1998: 236,440
Average 1999 : 223,939
12
LT Debt:
1998: 243,939
1999 : 203,939
13
Tax Rate:
1998: 44.26%
1999: 43.60%
09/01/15
14
09/01/15
15
Cost of Equity
What should be the risk-free rate of return?
What should be the ?
What should be the market premium?
09/01/15
16
09/01/15
17
Market Premium
Average difference between stock and bond
annual returns over the period 1926-1997
7.2%
09/01/15
18
Determination of Beta ()
Net Sales [Ex: 4]:
Kitchen and Bath Group: 1,485,831 (67%)
Power systems Group: 540,260 (24%)
Interior Group: 145,414 (7%)
Hospitality& R. Estate Group: 50789 (2%)
09/01/15
19
Determination of Beta ()
Net Income [Ex:4]:
Kitchen and Bath Group: 87,411(77%)
Power systems Group: 20,339 (18%)
Interior Group: 4,001 (4%)
Hospitality& R. Estate Group: 1,121 (1%)
09/01/15
20
Determination of Beta ()
Sales and Net Income of two major Groups
Sales:
Kitchen and Bath Group: 1,485,831 (73.33%)
Power systems Group: 540,260 (26.67%)
Net Income:
Kitchen and Bath Group: 87,411(89%)
Power systems Group: 20,339 (11%)
09/01/15
21
AMW MAS
D
BGG
CUM DDC
Equity
Beta [7b]
0.82
0.76
1.28
0.66
1.09
1.30
E/V
0.59
0.95
0.89
0.81
0.65
0.84
Debt
Beta
0.00
0.00
0.00
0.00
0.00
0.00
Asset
Beta
0.49
0.72
1.14
0.53
0.70
1.09
09/01/15
22
AMW MAS
D
BGG
CUM DDC
Equity
Beta
0.82
0.76
1.28
0.66
1.09
1.30
E/V
0.55
0.87
0.82
0.89
0.75
0.80
Debt
Beta
0.00
0.00
0.00
0.00
0.00
0.00
Asset
Beta
0.45
0.66
1.04
0.58
0.82
1.04
09/01/15
23
E/V
Equity
Beta
0.78
0.81
0.97
0.78
0.77
1.02
0.78
0.79
0.99
0.78
0.80
0.97
09/01/15
24
Equity
Beta
Cost of
equity
After
tax cost
of debt
0.97
13.0%
3.7% 11.2%
1.02
13.3%
3.7% 11.1%
0.99
13.1%
3.7% 11.1%
0.97
13.0%
3.7% 11.2%
09/01/15
25
E/V
Equity
Beta
0.72
0.75
0.96
0.81
0.81
1.00
0.77
0.78
0.98
0.74
0.76
0.97
09/01/15
26
Cost of
equity
After
tax cost
of debt
WAC
C
27
Total Beta
CAPM fundamental assumptions do not hold for
a family-owned company like Kohler.
28
Total Beta
One way to adjust the standard CAPM to account
for total risk is to use a total beta instead of
the usual market beta.
Total = i/m
09/01/15
29
END
09/01/15
30