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Monmouth, Inc.

– Case Analysis
Golden Gate Team 2iT
Hui Lin Tan | Sophia Liu | Luca Aldegheri | Alejandro Gaviria | Guillermo Gonzalez | Ricardo Mazzini
Agenda

Introduction

Valuation Analysis
 Multiple Market
 Dividend Payout
 Discounted FCF

Recommendations
Leading Provider of Oil & Gas Industry

MANAGEMENT’S OBJECTIVE THROUGH ACQUISITION

1) Achieve growth in EPS over the next 5 years


From $2.61 to > $3.56

2) Increase Wall Street’s interest in the stock


$24 ~ 4.21M shares outstanding

“We want to implement a diversification program


to reduce vulnerability to economic conditions.”
– Harry Vincent, Executive Vice President
Journey Thus Far

Concerned about
1st Opportunity Monmouth
shares devaluation after
for Monmouth retreats offer
NDP-Robertson merger

?
2000 March 2003 April 2003

Simmons purchased Simmons’s offer: NDP’s offer:


2nd Opportunity
44,000 Robertson $42 per share 5:1 common
for Monmouth
shares ($12 premium) stock swap
TO BUY OR NOT TO BUY?
Consultant 1: Multiple Market Analysis

Value of Robertson’s stock: $26 to $30 per share

Industry Most Similar Suggestion


Robertson Comment
Average Companies for Analysis

EBIAT Multiple 16.1 13.3 14 Above average 15

P/E Ratio 13.5 13.5 13 OK 13.5


Consultant 2: Dividend Payout Analysis

Value of Robertson’s stock: $13 to $20 per share

20.0
15.8
13.3

Worst case
Pessimistic Base case
Neutral Best case
Optimistic

Required rate of return 12% 10.1% 8%

Dividend per share 1.6 1.6 1.6


Consultant 3: Discounted FCF Analysis

Value of Robertson’s stock: $34 per share

WACC 8.97%

Growth rate 2%*

Discounted FCF $19.78

Shares outstanding 584,000

Price per share 33.87 NO GO ?


*Growth of last 2 years
Acquisition Benefits
OPPORTUNITIES FOR BUSINESS IMPROVEMENTS

Reduction of “COGS” – by accurate market segmentation


From 69% to 65% of sales

Reduce SG&A expenses – by unifying sales force and advertising


From 22% to 19% of sales

Redistribution of market segments to achieve better earnings


75% Industrial 50% Industrial
25% Consumer 50% Consumer
Monmouth-Robertson’s Merger
Value Proposition

WACC

Pessimistic Neutral Optimistic


11% 9% 7%

0% 30.96 47.02 72.15


Growth

2% 41.06 64.56 106.47

3% 48.00 77.73 136.51


Next Steps

COMMON STOCK SWAP


2 shares of Monmouth : 1 share of Robertson
@ $48/share