Valuing a Cross-Border LBO: Bidding on the Yell Group Group Harvard Business School Case 204-033 Course Software 205-701
This course software was prepared solel as the !asis for class discussion" Cases are not intended to serve as endorse#ents$ sources of pri#ar data$ or illustrations of effective or ineffective #ana%e#ent" Copri%ht & 2004 'resident and (ellows of Harvard Colle%e" )o part of this product #a !e reproduced$ stored in a retrieval sste#$ sste#$ used in a spreadsheet or trans#itted in an for# or ! an #eans*electronic$ #echanical$ photocopin%$ photocopin%$ recordin% or otherwise*without otherwise*without the per#ission per#ission of Harvard Harvard Business Business School"
Exhibit 4 British Teleco# Selected Historical (inancial ,nfor#ation$ 1./2000 pounds in #illions$ ecept per-share Years Ended 31 March 1997
Income Statement Total turnover
17379
Total operating profit (loss) Profit on sale of fie! assets #et interest pa$ale Profit (loss) efore taation Profit (loss) after taation &inorit$ interests Profit (loss) for t'e finan"ial $ear asi" earnings (loss) per s'are
199
1999
!"""
!""1
-174 3203 2101 -24 2077 328p
17411 0% 3461 1% 63 -310 3214 1727 -25 1702 266p
18223 5% 3474 0% 1107 -286 4295 3002 -19 2983 463p
21903 20% 3198 -8 % 126 -382 2942 2045 10 2055 317p
29666 35% -336 -111% 619 -1314 -1031 -1683 -127 -1810 (277)p
6185 7 -220
6071 5 -160
6035 2 -328
5849 5 -163
5887 10 -727
-1,045
-1,886
-630
-1,311
-669
-2820 -252 -1217
-3108 -1501 -3473
1 -1967 -1186
-3752 -6405 -1364
-8442 -13754 -1432
-504
2,247
-2,447
1,236
-480
-224 -90 849
1794 -11 -3860
-458 67 3146
5959 54 -6582
19735 128 -18942
17252 1708 -2637 -3889 -1426 -223 10785 23285
742 17854 1832 -495 -3386 -1391 -216 14940 27962
5777 18163 5878 -7115 -5354 -1056 -498 15795 37588
18380 21625 5204 -11143 -18775 -723 -499 14069 54799
3429 !"
Cash Flow Statement
*as' flo+ fro, operating a"tivities ivi!en!s fro, asso"iates an! ./s nvest,ent eturn inan"e ervi"ing Taxation paid
*apital epen!iture an! invest,ent "uisitions an! !isposals uit$ !ivi!en!s pai! Management of liquid resources
inan"ing n"r (!e"r) in "as' for t'e $ear e"r (in"r) in net !et for t'e $ear Balance Sheet ntangile fie! assets Tangile fie! assets ie! asset invest,ents #et "urrent assets (liailities) T loans an! ot'er orro+ings Provisions for liailities "'arges &inorit$ interests Total euit$ s'are'ol!ers: fun!s Total assets Source+ British Teleco#"
#
# 16802 1273 -2667 -2693 -1391 -208 11116 25062
ata
Exhibit 6 BT 6ello 6ellow w 'a%es* 'a%es*His Histor torica icall (inanc (inancial ial ,nfo ,nfor#a r#atio tion n and ana% ana%e#e e#ent nt 'roe 'roecti ctions ons for for the the Busine Business$ ss$ 1 1
Year
#ctual
#ctual
$ro%ected
$ro%ected
$ro%ected
31-Mar-""
31-Mar-"1
31-Mar-"!
31-Mar-"3
31-Mar-"&
Advertisement Volume (‘000) Weighted Average Advertisement Price (£)
Revenue Discounts and free ads (£’000) Direct costs (£’000) Overhead costs (£’000)a Change in WC (£’000) Capex (£’000) Depreciation (£’000)
COGS Operating Income Other U.K. businesses: Capital cash flows after taxes (£’000)
813 641
853 645
927 644
521133
550185 6%
596988 9%
42,402 180,479 102,530 10,570 7,380 5,530
47,276 187,395 88,870 12,772 9,760 5,370
78,180 195,972 74,930 2,178 10,220 6,130
991 648
1,058 649
642168 686642 8% 7% 86,585 201,742 77,137 6,000 9,730 8,850
84,324 206,649 79,013 8,497 9,230 8,400
348,891 351,443 367,610 390,044 396,113 167,676 184,304 216,737 243,886 291,891 10% 18% 13% 20% -4,566
-14,438
-12,641
-8,238
1,362
5% 1% 11% 4% -13% 21% 32% -3%
9% 0% 65% 5% -16% -83% 5% 14%
7% 1% 11% 3% 3% 175% -5% 44%
7% 0% -3% 2% 2% 42% -5% -5%
216%
-12%
-35%
-117%
GROWTH Adv Volume Growth Weighted Average Advertisement Price (£) Discounts and free ads (£’000) Direct costs (£’000) Overhead costs (£’000)a Change in WC (£’000) Capex (£’000) Depreciation (£’000) Other U.K. businesses: Capital cash flows after taxes (£’000)
Source+ pa 'artners casewriter esti#ates fi%ures fi%ures have !een dis%uised" dis%uised" a
8oes not include depreciation"
b
'tarting 'tart ing in !""() !""() cash *lo+s *ro, Other ./. Busine Businesses sses shoul should d gro+ gro+ dra,atic dra,aticall0 all0 into the tens tens o* o* ,illions ,illions o* pounds. pounds. Manag Manage,ent) e,ent) ho
the cash strea# post-2005 %iven the hi%h uncertaint surroundin% surroundin% those those future proections"
2005 pounds in thousands $ro%ected
$ro%ected
$ro%ected
31-Mar-"2
31-Mar Mar-"(
31-Mar-"7
1,126 649
1,194 649
1,254 649
730774 6%
774906 6%
813846 5%
86,615 211,278 80,783 6,300 8,380 7,630
85,366 214,996 82,204 4,375 8,000 8,000
86,049 216,716 82,862 2,023 8,000 8,000
400,986 402,941 403,650 331,744 381,965 430,196 14% 15% 13% 1,956
10,000
20,000
6% 0% 3% 2% 2% -26% -9% -9%
6% 0% -1% 2% 2% -31% -5% 5%
5% 0% 1% 1% 1% -54% 0% 0%
44%
411%
100%
eer) *ound it di**icult to ealuate
Exhibit 7 6ellow 6ellow Boo9 Boo9 :S :S*H *Hist istori orica call (inanc (inancial ial ,nfo ,nfor#a r#atio tion n and ana% ana%e#e e#ent nt 'roe 'roecti ctions ons for for the the Busine Business$ ss$ 1 1
Year
#ctual
#ctual
$ro%ected
$ro%ected
$ro%ected
31-Mar-""
31-Mar-"1
31-Mar-"!
31-Mar-"3
31-Mar-"&
New launches (number)
n/a
n/a
7
8
7
Total Revenues ($’000) Capex ($’000) Depreciation Revenue Growth Capex Growth
217,500 3,698 N/A
330,000 7,000 7,000
421,600 10,600 6,240
483,200 8,700 7,910
544,050 8,170 7,430
52% 89%
28% 51%
15% -18%
13% -6%
Source+ pa 'artners casewriter esti#ates fi%ures fi%ures have !een dis%uised" dis%uised"
800,000 f(x) = 733 f(x 73355. 55.988 988095 095238 238 R² = 0.9901730622
700,000 600,000 500,000 400,000 300,000 200,000 100,000 0
1
2
3
/2005 dollar fi%ures in thousands $ro%ected
$ro%ected
$ro%ected
31-Mar-"2
31-Mar-"(
31-Mar-"7
8
0
0
598,600 8,990 8,810
688,390 8,000 8,000
757,229 8,000 8,000
10% 10%
15% -11%
10% 0%
Chart Title 1x + 174969.178571429
4
5
6
7
8
Exhibit 10 8ata for Co#para!le
Co,pan0
Main Business #ctiities
Local inde
SBC Communications
Long distance service, local service, wireless, and directory publishing
S&P 500
Verizon
Long distance service, local service, wireless, and directory publishing
S&P 500
BellSouth
Long distance service, local service, wireless, and directory publishing
S&P 500
Qwest
DSL services, broadband and wireless communications, directory publishing
S&P 500
Sprint
Long distance service, local service, product distribution, and directory publishing
S&P 500
McLeodUSA
Internet access, system integration services, and yellow pages publishing
S&P 500
WorldPagesa
Independent directory publisher recently diversifying in Internet portal services
S&P 500
SEAT Pagine Gialle
White and yellow pages telephone directories. More recently Internet access services
Wanadoob
Internet Service Provider. Also offers client portals, portals, e‑merchant merchant services, services, and directories
CAC 40 (France)
Telefonica Publicidad e Informacionc
Directory publishing
IBEX 35 (Spain)
Enirob
Catalog an and te telephone di directory pu publishing
OMX (S (Sweden)
Source+ Bloo#!er% Bloo#!er% ,nternational" ,nternational" aThree-ear data availa!le" !;ne-ear data availa!le" cTwo-ear data availa!le"
MIB 30 (Italy)
Beta s. Local nde
0.54
Beta s. '8$ 2"" nde
0.54
Beta s. M'C orld nde
0.63
4e5t 6 EV
15.4%
(;) 0.53
0.53
0.61
0.41
0.42
1.23
1.23
1.39
25.0%
0.66
0.66
0.68
16.4%
1.75
1.75
N/A
20.7%
0.89
0.89
1.08
24.4%
0.97
0.56
0.87
2.8%
1.46
1.19
1.47
1.1%
2.33
1.13
1.9
1.9%
0.43
0.67
0.79
8.2%
0.41
22.6% (;)
17.5% vg eta
Indut!" #$ &ebt'E( ) 20*3 %
20% 80%
0392 (ssu,ing (ssu,ing eta eta in ot' ,ar
Exhibit 11 Countr-specific ,nfor#ation a!out ,nterest @ates$ Currenc$ and Taes On #pril 1!) !""1
Yield on 5-year T-bill Yield on 10-year T-bill Yield on 30-year T-bill
$/£ spot rate $/£ 1-year forward mid rate $/£ 2-year forward mid rate $/£ 3-year forward mid rate $/£ 4-year forward mid rate $/£ 5-year forward mid rate Tax rate
nited 'tates
4.77%
5.17% 5.61%
1.439 bid—1.44 ask 1.4315 1.4290 1.4270 1.4245 1.4570
35%
Source+ dapted fro# Bloo#!er% Bloo#!er% ,nternational ;fferin% e#orandu#$ =6ell (inance B">"$? u%ust .$ 2001"
nited /ingdo,
= 5.06%
4.94% 4.52%
f
517%
494%
,-f 7% eta 0392 e? f;eta(,-f)
7% 0392
79%
77%
e
30%
=>
