EF4312: Mergers and Acquisitions

Problem Set 2

Due March 23 before class

The MBO of Hoffmann Saveurs Case

You can find the case here.

Question 1:

What is the competitive advantage of this company? If you were a manager at a private equity
firm, would you buy 100% equity of the company from Louis Hoffmann?

Question 2:

Use both P/E and EV/EBITDA multiples and Danone as the comparable company. Danone has an
EBITDA multiple of 13. What is the equity value and the enterprise value of Hoffman Saveurs?
What is the fair offer price? Discuss what makes the two companies have comparable multiples.
Discuss reasons why Danone might not be a good comparable.
 EF4312 [RAN DUAN]

Question 3:

Calculate the yield of the 3 debt alternatives assuming the market values of all three debt
instruments are at par:

• Base: Mezzanine debt, 0% cash interest and 15% PIK interest for five years
• Alternative 1: Mezzanine debt, 7% cash interest and 8% PIK interest for five years
• Alternative 2: Junior loan for five years, 13% annual interest paid in cash and payment of
20% of the principal per year
Which option is cheaper for Pickard and Renot? Can they repay the debt and interest with the cash
flow from the company?

Question 4:

Discuss who gains from the MBO. Do you think this is a zero-sum game?

City University of Hong Kong 2/2