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Fair Value Today in 2019 Value to Sales Multiple
Overall Firm Value 200,650,309 293,542,761 2.92

Target Value (incl premium) Today in 2019


Overall Firm Value 224,276,883 328,107,422 3.26

Fair Value Today in 2019


Value of Mail Order Division 151,572,543 250,418,115 4.16
Value of Manufacturing Division 494,520,040 867,892,323 15.66

Target Value (incl premium) Today in 2019


Value of Mail Order Division 172,540,078 285,059,288 4.73
Value of Manufacturing Division 544,590,194 955,766,420 17.24

Question in front of Sarah Newell


1. Should she sell the entire the organization - No
2. Should she sell only the Newell Design Mail Order Division - Yes
3. Should she sell only Newell Manufacturing Division - No
4. If she retain Newell Manufacturing Division and sell Newell Design Mail Order Division, will she be in a position to take Ma
Industry average Margins NMD Industry
0.95 Overall 8.4% 4.9%
Mail Order 6.6% 2.7%
Manufacturing 9.2% 5.7%
0.95

0.78
0.89

0.78
0.89

she be in a position to take Manufacturing Division public in 2019 or sell it outright - Yes
Assumptions
As per the case
Newell Manufacturing and Distribution is a debt free company and hence the free cash flow to equity is free cash flow to firm
The compnay come out of investment cycle and need no incremental capital expenditure over next decade at least
The company working capital need is very short term and met by line of credit which is paid off immediately and hence rema
It is assumed that the company maintain its working capital and hence there is no change in working capital
Terminal Growth for Newell Design (Mailorder) division is given as 9% and for Newell Manufacturing division is given as 10%
Terminal Growth for overall organization is taken at an average of explicit forecast period which is at 7%
Peer set in case of Newell Design_Mail Order Division has been considered only such entity which has mailing list of upward
Peerset in case of Newell Manufacturing Division has been considered by taking all entities highlighted
equity is free cash flow to firm
next decade at least
ff immediately and hence remains no outstanding at end of the year
orking capital
turing division is given as 10% beyond 2019 onwards

hich has mailing list of upward of 3 million households


Newell Manufacturing and Distribution
Annual Growth in Sales 7.4% 6.3%
Actual Projected Projected
2013 2014 2015
Revenue 68,746,619 73,803,109 78,430,891
COGS (48,846,294) (52,353,429) (55,493,362)
SG&A (9,551,463) (11,859,136) (12,787,156)
Depr (1,704,278) (1,784,496) (1,838,031)
EBIT 8,644,584 7,806,048 8,312,342
Interest (24,116) (24,598) (24,598)
EBT 8,620,468 7,781,450 8,287,744
Taxes (2,844,754) (2,567,878) (2,734,955)
Net Income 5,775,714 5,213,572 5,552,789

Free Cash flow to Firm / Equity


Year 0 1 2
Annual Growth 7.4% 6.3%
Net Income 5,213,572 5,552,789
Add: Depreciation 1,784,496 1,838,031
Less: New Capex - -
Less: Change in Working Capital - -
Free Cash Flow to Equity 6,998,068 7,390,820
Terminal Value @ 7% growth
Free Cash Flow to Equity and Terminal Growth 6,998,068 7,390,820
Discounting Factor 0.9084 0.8252
Overall Firm Value 200,650,309
Value of Firm in 2019 293,542,761

Overall Firm Value (Sum of Parts)


Value of Mail Order Division 151,572,543
Value of Manufacturing Division 494,520,040
Overall Value 646,092,583
7.4% 6.4% 5.9% 7.8% 7%
Projected Projected Projected Projected Terminal Growth
2016 2017 2018 2019
84,247,626 89,647,575 94,946,207 102,333,745
(59,456,619) (63,325,929) (66,844,371) (73,581,621)
(13,370,204) (13,538,769) (14,511,032) (17,161,114)
(1,927,334) (1,985,154) (2,044,709) (2,163,132)
9,493,469 10,797,723 11,546,095 9,427,878
(24,844) (25,341) (25,595) (26,106)
9,468,625 10,772,382 11,520,500 9,401,772
(3,124,646) (3,554,886) (3,801,765) (3,102,585)
6,343,979 7,217,496 7,718,735 6,299,187

3 4 5 6
7.4% 6.4% 5.9% 7.8%
6,343,979 7,217,496 7,718,735 6,299,187
1,927,334 1,985,154 2,044,709 2,163,132
- - - -
- - - -
8,271,313 9,202,650 9,763,444 8,462,319
293,542,761
8,271,313 9,202,650 9,763,444 302,005,080
0.7496 0.6809 0.6185 0.5619
164934484.96365
35715824.027665
200650308.99131
0.821999656
Newell Design - Mail Order Division (Stand Alone Estimate)
Annual Growth in Sales 9.0% 9.0%
Actual Projected Projected
2013 2014 2015
Revenue 36,458,124 39,739,355 43,315,897
COGS (25,520,687) (28,214,942) (30,321,128)
SG&A (7,656,206) (9,537,445) (10,395,815)
Depr (124,897) (126,146) (129,930)
EBIT 3,156,334 1,860,822 2,469,024
Interest (12,058) (12,299) (12,299)
EBT 3,144,276 1,848,523 2,456,725
Taxes (723,184) (314,249) (417,643)
Net Income 2,421,092 1,534,274 2,039,082

Free Cash flow to Firm / Equity


Year 0 1 2
Annual Growth 9.0% 9.0%
Net Income 1,534,274 2,039,082
Add: Depreciation 126,146 129,930
Less: New Capex - -
Less: Change in Working Capital - -
Free Cash Flow to Equity 1,660,420 2,169,012
Terminal Value @ 9% growth
Free Cash Flow to Equity and Terminal Growth 1,660,420 2,169,012
Discounting Factor 0.9089 0.8261
Overall Division Value 151,572,543
Division Value in 2019 250,418,115
9.0% 9.0% 8.0% 9.0% 9%
Projected Projected Projected Projected Terminal Growth
2016 2017 2018 2019
47,214,328 51,463,617 55,580,707 60,582,970
(33,050,030) (36,539,168) (38,906,495) (43,619,739)
(10,859,295) (11,321,996) (12,227,755) (13,934,083)
(133,828) (137,843) (141,978) (146,238)
3,171,175 3,464,610 4,304,479 2,882,910
(12,422) (12,671) (12,797) (13,053)
3,158,753 3,451,939 4,291,682 2,869,857
(726,513) (793,946) (1,287,504) (660,067)
2,432,240 2,657,993 3,004,178 2,209,790

3 4 5 6
9.0% 9.0% 8.0% 9.0%
2,432,240 2,657,993 3,004,178 2,209,790
133,828 137,843 141,978 146,238
- - - -
- - - -
2,566,068 2,795,836 3,146,156 2,356,028
250,418,115
2,566,068 2,795,836 3,146,156 252,774,143
0.7508 0.6824 0.6202 0.5637
141157953.87516
10414589.377981
151572543.25314
0.9312897366
Newell Manufacturing_Manufacturing Division (Stand Alone Estimate)
Annual Growth in Sales 5.0% 3.0%
Actual Projected Projected
2013 2014 2015
Revenue 31,587,624 33,167,005 34,162,015
COGS (24,322,470) (25,206,924) (26,304,752)
SG&A (1,895,257) (2,321,690) (2,391,341)
Depr (1,579,381) (1,658,350) (1,708,101)
EBIT 3,790,515 3,980,041 3,757,822
Interest (12,058) (12,299) (12,299)
EBT 3,778,457 3,967,741 3,745,523
Taxes (869,045) (912,581) (861,470)
Net Income 2,909,412 3,055,161 2,884,052

Free Cash flow to Firm / Equity


Year 0 1 2
Annual Growth 5.0% 3.0%
Net Income 3,055,161 2,884,052
Add: Depreciation 1,658,350 1,708,101
Less: New Capex - -
Less: Change in Working Capital - -
Free Cash Flow to Equity 4,713,511 4,592,153
Terminal Value @ 10% growth
Free Cash Flow to Equity and Terminal Growth 4,713,511 4,592,153
Discounting Factor 0.9041 0.8174
Overall Division Value 494,520,040
Value of Division in 2019 867,892,323
5.0% 3.0% 3.0% 6.0% 10%
Projected Projected Projected Projected Terminal Growth
2016 2017 2018 2019
35,870,116 36,946,220 38,054,606 40,337,883
(27,619,989) (28,079,127) (29,302,047) (31,463,548)
(2,510,908) (2,216,773) (2,283,276) (3,227,031)
(1,793,506) (1,847,311) (1,902,730) (2,016,894)
3,945,713 4,803,009 4,566,553 3,630,409
(12,422) (12,671) (12,797) (13,053)
3,933,291 4,790,338 4,553,755 3,617,356
(904,657) (1,580,812) (1,502,739) (831,992)
3,028,634 3,209,526 3,051,016 2,785,364

3 4 5 6
5.0% 3.0% 3.0% 6.0%
3,028,634 3,209,526 3,051,016 2,785,364
1,793,506 1,847,311 1,902,730 2,016,894
- - - -
- - - -
4,822,140 5,056,837 4,953,746 4,802,258
867,892,323
4,822,140 5,056,837 4,953,746 872,694,581
0.7390 0.6681 0.6040 0.5461
Comparable Companies: Balance Sheet Information

Comparable Publicly Industry Equity (Book Total Assets (Book


Traded Value) Value)
Comp E No Light Industrial 35,816,000 36,300,000
Comp G No Light Industrial 71,920,000 93,000,000
Comp H Yes Light Industrial 21,168,000 44,100,000
Comp I Yes Light Industrial 17,266,667 35,000,000
Comp J Yes Light Industrial 21,312,000 44,400,000
Comp L Yes Light Industrial 28,333,333 62,500,000
Comp O No Light Industrial 29,397,333 68,900,000
Comp P Yes Light Industrial 35,960,000 89,900,000
Comp Q No Light Industrial 45,540,000 49,500,000
Comp R No Light Industrial 60,720,000 75,900,000
Comp S Yes Light Industrial 850,667 2,200,000
Comp T No Light Industrial 43,642,667 66,800,000
Comp A No Mail Order 52,575,000 70,100,000
Comp B Yes Mail Order 64,698,000 78,900,000
Comp C Yes Mail Order 47,724,000 73,800,000
Comp D Yes Mail Order 4,380,000 6,000,000
Comp F No Mail Order 14,560,000 16,800,000
Comp K No Mail Order 30,165,333 40,400,000
Comp M No Mail Order 355,000 500,000
Comp N Yes Mail Order 53,013,333 56,800,000
Industry Average

Notes:
Publicly Traded = yes for companies that were publicly traded prior to the M&A transaction; = no for companies that were p
Bond ratings expressed from the S&P scale
NM = Not Meaningful and indicates a company without publicly traded debt though it may have bank loans
Leverage (Book Value of Debt/Book Type of Debt Debt Rating Borrowing Tax Rate
Value of Total Assets) Financing Rate
0.01 Bank Loans NM 5% 23%
0.23 Bank Loans NM 7% 33%
0.52 Bonds A 9% 17%
0.51 Bonds AA 9% 17%
0.52 Bonds BBB 9% 17%
0.55 Bonds BB 9% 23%
0.57 Bank Loans NM 10% 17%
0.60 Bonds BB 9% 23%
0.08 Bank Loans NM 5% 23%
0.20 Bank Loans NM 6% 33%
0.61 Bonds BB 10% 10%
0.35 Bank Loans NM 8% 23%
0.25 Bank Loans NM 7% 23%
0.18 Bonds AAA 5% 33%
0.35 Bonds AA 7% 17%
0.27 Bank Loans NM 7% 10%
0.13 Bank Loans NM 6% 10%
0.25 Bank Loans NM 7% 17%
0.29 Bank Loans NM 7% 10%
0.07 Bank Loans NM 5% 17%
0.33 7% 20%

r to the M&A transaction; = no for companies that were privately owned before the transaction

out publicly traded debt though it may have bank loans


Comparable Companies: M&A Transaction Information

Comparable Publicly Industry Sales Earnings Tax Rate Mailing List


Traded

Comp E No Light Industrial 31,091,337 3,072,156 23% NM


Comp G No Light Industrial 113,878,870 5,276,200 33% NM
Comp H Yes Light Industrial 34,452,427 1,532,519 17% NM
Comp I Yes Light Industrial 31,047,473 1,577,728 17% NM
Comp J Yes Light Industrial 44,436,122 2,028,943 17% NM
Comp L Yes Light Industrial 66,124,663 2,806,150 23% NM
Comp O No Light Industrial 51,594,809 1,802,199 17% NM
Comp P Yes Light Industrial 83,557,902 3,274,486 23% NM
Comp Q No Light Industrial 26,023,383 2,890,555 23% NM
Comp R No Light Industrial 60,571,726 4,744,719 33% NM
Comp S Yes Light Industrial 1,617,119 60,597 10% NM
Comp T No Light Industrial 51,217,243 2,683,468 23% NM
Comp A No Mail Order 49,265,106 3,250,073 23% 2,998,236
Comp B Yes Mail Order 84,977,080 4,557,093 33% 2,216,751
Comp C Yes Mail Order 103,057,083 2,156,118 17% 600,685
Comp D Yes Mail Order 4,383,587 202,837 10% 1,049,951
Comp F No Mail Order 14,174,614 522,716 10% 2,305,260
Comp K No Mail Order 42,426,295 1,291,279 17% 3,831,840
Comp M No Mail Order 733,376 19,785 10% 4,559,472
Comp N Yes Mail Order 94,232,896 2,240,688 17% 3,822,646
Industry Average 20%

Notes:
Publicly Traded = yes for companies that were publicly traded prior to the M&A transaction; = no for companies that
Mailing List is measured in number of households
Market Values for publicly traded companies are calculated as the per share price 30 days before the transaction mu
For private companies, market value of equity is estimated by fundamenta-basedl multiples analysis o
Equity Value Equity Beta Purchase Price Equity Premium paid over Value to Sales
Market Acquired Market Value Multiple

36,865,870 0.60 41,474,104 100% 13% 1.33


73,866,795 1.40 92,333,493 100% 25% 0.81
24,520,301 1.83 29,424,361 100% 20% 0.85
22,088,191 1.80 25,953,624 100% 18% 0.84
26,376,259 2.20 29,673,292 62% 13% 0.67
33,673,805 2.44 37,883,030 53% 13% 0.57
30,637,383 2.17 32,935,186 56% 7% 0.64
45,842,800 2.49 48,134,940 10% 5% 0.58
46,248,888 0.43 46,711,377 35% 1% 1.79
61,681,347 0.82 62,914,974 28% 2% 1.04
969,554 2.42 979,249 7% 1% 0.61
45,618,962 1.13 47,899,910 45% 5% 0.94
58,501,310 0.78 65,813,973 100% 13% 1.34
86,584,769 0.82 97,407,865 100% 13% 1.15
66,839,660 1.63 76,865,609 100% 15% 0.75
5,070,930 0.80 6,338,662 51% 25% 1.45
16,726,914 0.68 17,981,432 100% 7% 1.27
33,573,245 1.10 41,127,226 74% 23% 0.97
395,695 1.50 435,265 63% 10% 0.59
67,220,636 1.07 73,270,493 21% 9% 0.78
1.41 12% 0.95

action; = no for companies that were privately owned before the transaction

days before the transaction multiplied by the number of shares outstanding.


nta-basedl multiples analysis of statistically identified comparable publicly traded firms and can be treated as an economic estimate of the
Profit Margin

10%
5%
4%
5%
5%
4%
3%
4%
11%
8%
4%
5%
7%
5%
2%
5%
4%
3%
3%
2%
5%

e treated as an economic estimate of the private value of the equity


Industry Metric Overall MailOrder
Average Levered Beta 1.41 1.22
Average Leverage 0.33 0.20
Average Tax Rate 20% 14%

Unlevered Beta
HAMADA EQUATION
Levered beta / [1+(1-Tax rate) * Debt / Equity] 1.01 1.00
Market Return (Rm) 10.00% 10.00%
Risk-free rate (Rf) 3.00% 3.00%

Cost of Equity
CAPM
Rf + Beta * (RM - Rf) 10.08% 10.03%

Average premium paid over market value 12% 14%


Industrial
1.65
0.40
22%

1.09
10.00%
3.00%

10.61%

10%