A quick and dirty analysis of KKR's alleged offer for Sara Lee

Circularity On
Transaction value 12,000
Valuation date 7/3/2010

Key inputs - all figures in $mm, except per share data

Debt capacity (Debt / EBITDA) 6.0x
Year of exit 5.0yrs
EBITDA growth 3%
EBITDA exit multiple 8.8x
Interest rate on new debt 7%
Unlevered FCF / EBITDA 61%
MTR 37.70%
IRR 18%

© One-Eyed Capitalist (www.oneeyedcapitalist.blogspot.com) 10/05/2010

 Return sensitivity

Pre-tax cost of new debt

18% 6% 7% 8% 9% 10% 11%
4.0x 14% 14% 13% 13% 12% 12%
EBITDA

5.0x 16% 15% 14% 14% 13% 12%

Debt /

6.0x 19% 18% 16% 15% 13% 12%

7.0x 24% 22% 20% 18% 15% 12%
8.0x 37% 34% 30% 25% 19% 12%

EBITDA growth
18% 0% 1% 2% 3% 4% 5%
50% 7% 10% 12% 15% 17% 19%
Unlevered

EBTIDA

55% 9% 11% 14% 16% 18% 21%

FCF /

60% 10% 13% 15% 17% 20% 22%

65% 12% 14% 16% 19% 21% 23%
70% 13% 15% 18% 20% 22% 24%

Transaction value
18% 11,000.0 12,000.0 13,000.0 14,000.0 15,000.0 16,000.0
2.0 47% 26% 12% 2% (5%) (12%)
Year of exit

3.0 34% 21% 12% 6% 0% (4%)

4.0 28% 19% 12% 7% 3% (0%)
5.0 25% 18% 12% 8% 5% 2%
6.0 23% 17% 12% 9% 6% 4%
Sources Uses
Debt 8,154 68% Equity 9,691 81%
Equity 3,846 32% Net debt 2,309 19%
A quick and dirty analysis of 12,000
KKR's alleged offer for Sara Lee Total 12,000

Transaction value 12,000 Implied offer price $14.44

LT debt 2,734 Share price on Jul 03 2010 $13.99
Pension obligation 530 Implied premium 3%
Cash 955 Price / Earnings 21.6x
Net debt 2,309 TV / LTM EBIT 13.4x
SLE Equity purchased 9,691 TV / LTM EBITDA 8.8x
Basic shares outstanding 662
Diluted shares 9
Total diluted shares outstanding 671

No. of options Exercise price New shares

20,036 $15.79 0
9,014 $0.00 9.014
9.014
 For fiscal year ending June 30,
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Cash flow analysis
EBITDA $1,234 $1,251 $1,359 $1,400 $1,442 $1,485 $1,530 $1,575 $1,623 $1,671 $1,722
Unlevered FCF / EBITDA 38% 83% 61% 61% 61% 61% 61% 61% 61% 61% 61%

Est. Unlevered FCF $472 $1,036 $829 $854 $879 $906 $933 $961 $990 $1,020 $1,050
Post-tax interest adjustment (115) (106) (92) (561) (538) (513) (483) (449) (411) (368) (320)
FCF to paydown debt 357 930 737 293 341 393 450 512 579 651 730

Beginning debt balance 8,154 7,861 7,519 7,126 6,676 6,165 5,586 4,935
Debt issuance / (repayment) (293) (341) (393) (450) (512) (579) (651) (730)
Ending debt balance 7,861 7,519 7,126 6,676 6,165 5,586 4,935 4,205

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Returns analysis
Entry / Exit equity value (3,846.0) – – – – 8,654.3 – – –