1. Corporate Valuation 2001 -1 Institut for Regnskab, IC Pontoppidan GETTING STARTED-agenda AIM MEANS LITERATURE WHAT TO DO EXAM PRACTICALITIES LECTURE: Background NEXT

2. Corporate Valuation 2001 -1 Institut for Regnskab, IC Pontoppidan Aim CREATE AN UNDERSTANDING FOR Corporate Valuation AND THE THINKING LYING BEHIND OBTAIN AN INSIGHT INTO C.V. IN THEORY AND PRACTICE PRACTICE SKILLS IN C.V. VIA 3 ELEMENTS: –LITERATURE –WORKSHOP/REPORTS/NEGOTIATIONS –2 GUEST SPEAKERS FOCUSING ON ESSENTIALS

3. Corporate Valuation 2001 -1 Institut for Regnskab, IC Pontoppidan Means 2 LECTURES + 1 coached WORKSHOP PER WEEK SATURDAY NOV 17TH WHOLE DAY ! REPORTS TO BE DELIVERED GROUPS AND TEAMS ACTIVE PARTICIPATION/ DIALOG+ REPORT+ EXAM

4. Corporate Valuation 2001 -1 Institut for Regnskab, IC Pontoppidan Literature Copeland, Koller & Murrin: Valuation 3ed. articles (see handout) - copy from SL

5. Corporate Valuation 2001 -1 Institut for Regnskab, IC Pontoppidan Please do -THIS WEEK Form groups ( Danes and nondane together) and Teams (3 groups per team) decide in the teams on who is buyer and who is seller (1 against 2/ 2 against 1) pick a company and inform me on Email –and get my acceptance 1.!!Mail group and team names, contactmail, company, buyer/seller to me (icp@asb.dk) 2.Prepare a workplan 3.To be formalized sep 17th

6. Corporate Valuation 2001 -1 Institut for Regnskab, IC Pontoppidan Please do - LATER give a presentation during the workshop mid stage report (1A4) –Monday Oct 22rd evening Draft report & price –Monday Nov 12 th evening Negotiation on saturday Nov 17th Final reports –incl. “negotiation process and outcome description” + “learning reflections” –NOV 26 th evening

7. Corporate Valuation 2001 -1 Institut for Regnskab, IC Pontoppidan POSSIBLE TYPES OF COMPANIES QUOTED - NONQUOTED BIG - SMALL HIGH TECH- GOOD OLD LOW TECH BRANDED - MASS PRODUCTS B2B - B2C SUCCESFULL - CRISIS INTERNATIONAL - REGIONAL-LOCAL DANISH -FOREIGN

8. Corporate Valuation 2001 -1 Institut for Regnskab, IC Pontoppidan Exam POSSIBILITIES: A : REPORT TO BE APPROVED but not graded BY ME AND INDIVIDUAL ORAL EXAMINATION BASED ON THE REPORT B: REPORT TO BE GRADED (50%) AND GROUPS TO BE EXAMINED COLLECTIVELY C:GROUP AGAINST GROUP REPORTEXAMINATION WITH THE POSSIBILITY FOR ME TO DIFFERENTIATE THE GRADES D: OTHERS ? TO BE DECIDED AND PUT IN THE MID-STAGE REPORT (OCT 22 ND ) – OTHERWISE I CHOOSE !

9. Corporate Valuation 2001 -1 Institut for Regnskab, IC Pontoppidan PRACTICALITIES PARTICIPATION LIST PHOTOCOPIES 1 cd COOPERATE IN TEAMS ON BASIC INFORMATION MATERIAL BUT PLEASE DO NOT SPY !!!!!!! And HAVE FUN ! www.icp@asb.dk c 103www.icp@asb.dk

10. Corporate Valuation 2001 -1 Institut for Regnskab, IC Pontoppidan Background lecture Which value –market –owner/ new owner –fair/ correct Valuation converts a forecast to a prize - using a method and some data how do you get the forecast and how do you convert it into a prize ? Each method has its own focus and (data) requirements/ assumptions should it be based on dividends, earnings, cash flow, or what ? how historic should it be ? –should the accounts be used ? –How long into the future ?

11. Corporate Valuation 2001 -1 Institut for Regnskab, IC Pontoppidan The valuation-method ”tree” ONE PERIOD: MULTIPLES (e.g. P/E) NET ASSETS (all assets ? At what cost ?) –going concern (immaterial/ goodwill) –realization/ liquidation MULTIPLE PERIODS: FLOWS –direct 1: dividends –indirect: free cash flow - debt NET ASSETS AND FLOWS –abnormal earnings + book value (Edward-Bell-Ohlson) PEER GROUP: (diff. in div.,leaverage, growth, risk ?) –on earnings and equity

12. Corporate Valuation 2001 -1 Institut for Regnskab, IC Pontoppidan STEPS in the valuation Business Strategy analysis –industry –competitive strategy –corporate strategy Accounts analysis –quality of earning Financial analysis –performance assesment Prospective analysis –forecast –valuate

13. Corporate Valuation 2001 -1 Institut for Regnskab, IC Pontoppidan New Foundations 1 The nature of the firm has changed. Away from asset intensive, vertically integrated, with top down control over employees. This has consequences for the valuation of companies What factors determine the ability of firms to capture new (growth) opportunities – is it complementarity between a critical ressource and specific investments built around this ressource ? And how is it measured ? (e.g. TDCexample) ”the growth options are up for grabs” We need a new approach to valuing firms that is consistent with the new nature of firms

14. Corporate Valuation 2001 -1 Institut for Regnskab, IC Pontoppidan New Foundations 2 The basis is a theory of the firm: –Nexus of explicit contracts –Nexus of explicit and implicit contracts –Collection of growth options –Collection of assets What is the unit-of-analysis (are the firm boundries stable) ? How is value generated ? How is this value distributed between equity and the other stakeholders ?

15. Corporate Valuation 2001 -1 Institut for Regnskab, IC Pontoppidan Corporate Architect (PWC) Build SHV By shaping strategy and management (fig.2.2) –Develop the concept (valuation of entities) –Use it in strat.decision making (investments & targets) –And in operating decisions making (planning & budgeting) –Institutionalize it in culture, perf.measurements, and incentives Linking the management processes in a ”value line” (fig.1.4)

16. Corporate Valuation 2001 -1 Institut for Regnskab, IC Pontoppidan Rationality 4 main decision making models rational bounded-rational political garbage can The profit max./SHV approach is declining in relevance down the models

17. Corporate Valuation 2001 -1 Institut for Regnskab, IC Pontoppidan Evode Group 1 Andrew Simon is chaiman of Evode Group with 5 differnet divisions. After many years with profitable growth, the turnover i 91 is 6 % down from 90 to Lm. 279 and profit after tax is more than halfed from Lm. 15,2 to Lm. 7,3. The stockprice is down to p.43 more or less equivalent to the intrisic value of p. 46 calculated based on cash flows. Analysts forecast a 92 profit of Lm. 8,9 What should Andrew Simon do ?

18. Corporate Valuation 2001 -1 Institut for Regnskab, IC Pontoppidan Evode Group 2 A hostile takeover bid from Wassal of p.80 turns up - calcualted by its CEO Chris Miller based on Peer Group multiples, indicating a value of p.112. Evodes stockprice rises to p. 103 Andrew Simons fights back signaling profit improvements in 92 to Lm.10,2 - so Chris Miller quickly improves his bid to p.95. Whats next ?

19. Corporate Valuation 2001 -1 Institut for Regnskab, IC Pontoppidan Evode Group 3 A "white knight" Laporte and its CEO Ken Minton takes up 6,1% of the shares at 100p. announcing it will make a bid above p.100 for the rest. The offer is p.12o paid in "paper" and gets the deal. Its own shares falls 10% in total - although its assesment of the acquisition value of Evode is p.240. Should anybody have acted otherwise ?

20. Corporate Valuation 2001 -1 Institut for Regnskab, IC Pontoppidan Next 3 hours Workshop –Workplan presentation by each team- on OH please – Exercise: 2,7 – 2,9 – 2.10 –Dialog and coaching Lecture: What to Measure and Manage CKM:1,2,3 +