The Leveraged Buyout of Cheek Products, Inc
Chapter 17 Mini Case
The Leveraged Buyout of Cheek Products, Inc
(in millions) 2007 2008 2009 2010 2011 PV of UCF 2007-2011 at 14% Sales $1,627 $1,824 $1,965 $2,012 $2,106 = (1,735/1.14)+(1,519/1.142)+(1,188/1.143)+(1,192/1.144)+(1,251/1.145) Costs 432 568 597 645 680 4,848 Depreciation 287 305 318 334 340 EBT 908 951 1,050 1,033 1,086 UTV Less taxes (363) (380) (420) (413) (434) = (1,251*1.035)/(0.14-0.035) Add back depreciation 287 305 318 334 340 12,331 Less capital expenditures 165 143 180 182 195 Less change in nwc (72) (110) 60 56 64 Add proceeds from asset sales 810 610 - - - PV of UTV at 14% Unlevered cash flows $1,735 $1,519 $1,188 $1,192 $1,251 = 12,331/1.145 6,404 Interest payments $1,140 $1,100 $1,180 $1,150 $1,190 Interest tax shield 456 440 472 460 476 PV of tax shields 2007-2011 at 12.5% = (456/1.125)+(440/1.1252)+(472/1.1253)+(460/1.1254)+(476/1.1255) 1,636 UCF $1,735 $1,519 $1,188 $1,192 $1,251 Terminal value: (3.5% growth after 2011) Unlevered terminal value 12,331 PV of tax shield in TV at 8% Terminal value at target debt 13,619 Rs = R0 + (B/S)(1-tc)(R0-RB) Tax shield in terminal value 1,288 = 0.14 + (0.25/0.75)(1-0.4)(0.14-0.08) Interest tax shield $456 $440 $472 $460 $476 0.15 PV of UCF 2007-2011 at 14% 4,848 PV of UTV at 14% 6,404 RWACC = 0.75(0.15) + 0.25(0.08)(1-0.4) Total unlevered value 11,252 0.12 PV of tax shields 2007-2011 at 12.5% 1,636 PV of tax shield in TV at 8% 877 = 1,190(1.03)/(0.12 - 0.03) Total value of tax shields 2,512 13,619 Total value 13,765 Less value of assumed debt 0 = 13,619 - 12,331 Value of equity 13,765
The Leveraged Buyout of Cheek Products, Inc
(in millions) 2007 2008 2009 2010 2011 PV of UCF 2007-2011 at 14% Sales $1,627 $1,824 $1,965 $2,012 $2,106 = (1,735/1.14)+(1,519/1.142)+(1,188/1.143)+(1,192/1.144)+(1,251/1.145) Costs 432 568 597 645 680 4,848 Depreciation 287 305 318 334 340 EBT 908 951 1,050 1,033 1,086 UTV Less taxes (363) (380) (420) (413) (434) = (1,251*1.035)/(0.14-0.035) Add back depreciation 287 305 318 334 340 12,331 Less capital expenditures 165 143 180 182 195 Less change in nwc (72) (110) 60 56 64 Add proceeds from asset sales 810 610 - - - PV of UTV at 14% Unlevered cash flows $1,735 $1,519 $1,188 $1,192 $1,251 = 12,331/1.145 6,404 Interest payments $1,140 $1,100 $1,180 $1,150 $1,190 Interest tax shield 456 440 472 460 476 PV of tax shields 2007-2011 at 12.5% = (456/1.125)+(440/1.1252)+(472/1.1253)+(460/1.1254)+(476/1.1255) 1,636 UCF $1,735 $1,519 $1,188 $1,192 $1,251 Terminal value: (3.5% growth after 2011) Unlevered terminal value 12,331 PV of tax shield in TV at 8% Terminal value at target debt 13,619 Rs = R0 + (B/S)(1-tc)(R0-RB) Tax shield in terminal value 1,288 = 0.14 + (0.25/0.75)(1-0.4)(0.14-0.08) Interest tax shield $456 $440 $472 $460 $476 0.15 PV of UCF 2007-2011 at 14% 4,848 PV of UTV at 14% 6,404 RWACC = 0.75(0.15) + 0.25(0.08)(1-0.4) Total unlevered value 11,252 0.12 PV of tax shields 2007-2011 at 12.5% 1,636 PV of tax shield in TV at 8% 877 = 1,190(1.03)/(0.12 - 0.03) Total value of tax shields 2,512 13,619 Total value 13,765 Less value of assumed debt 0 = 13,619 - 12,331 Value of equity 13,765