題目專項(xiàng)真題推薦afm訓(xùn)練

2018/12Q1

Aroundsevenyearsago,OpaoCo,aprivateconglomeratecompanyinvolvedinmanydifferentbusinesses,decidedtoobtainalistingonarecognisedstockexchangebyofferingasmallproportionofitsequitysharestothepublic.Beforethelisting,thecompanywasownedbyaround100shareholders,whowereallcloselylinkedtoOpaoCoandhadtheir

entireshareholdingwealthinvestedinthecompany.However,soonafterthelistingtheseindividualsstartedsellingtheirsharesinOpaoCo,andoveratwo-yearperiodafterthelisting,itsownershipstructurechangedtooneofmanydiverseindividualandinstitutionalshareholders.

Asaconsequenceofthischangeinownershipstructure,OpaoCo’sboardofdirectors(BoD)commencedanaggressiveperiodofbusinessreorganisationthroughportfolioandorganisationalrestructuring.ThisresultedinOpaoCochangingfromaconglomeratecompanytoacompanyfocusingonjusttwobusinesssectors:financialservicesandfoodmanufacturing.ThefinancialpressreportedthatOpaoCohadbeenforcedtotakethisactionbecauseofthechangeinthetypeofitsshareholders.Theequitymarketsseemtosupportthisaction,andOpaoCo’ssharepricehasgrownstronglyduringthisperiodofrestructuring,aftergrowingveryslowlyinitially.

OpaoCorecentlysoldasubsidiarycompany,BurgutCo,throughamanagementbuy-in(MBI),althoughitalsohadtheoptiontodisposeofBurgutCothroughamanagementbuy-out(MBO).Inastatement,OpaoCo’sBoDjustifiedthisbystatingthatBurgutCowouldbebetteroffbeingcontrolledbytheMBIteam.

OpaoCoisnowconsideringacquiringTaiCoanddetailsoftheproposedacquisitionareasfollows:

ProposedacquisitionofTaiCo

TaiCoisanunlistedcompanyinvolvedinfoodmanufacturing.OpaoCo’sBoDisoftheopinionthattherangeofproductsproducedbyTaiCowillfitverywellwithitsownproductportfolio,leadingtocross-sellingopportunities,newinnovations,andalargermarketshare.TheBoDalsothinksthatthereisapossibilityforeconomiesofscaleandscope,suchassharedlogisticandstoragefacilities,givingcostsavingopportunities.This,theBoDbelieves,willleadtosignificantsynergybenefitsandthereforeitisoftheopinionthatOpaoCoshouldmakeabidtoacquireTaiCo.

company

FinancialinformationrelatedtoOpaoCo,TaiCoandthecombined

OpaoCo

OpaoCohas2,000millionsharesinissueandarecurrentlytradingat$2·50each.

TaiCo

TaiCohas263millionsharesinissueandthecurrentmarketvalueofitsdebtis$400million.Itsmostrecentprofitbeforeinterestandtaxwas$132·0million,afterdeductingtaxallowabledepreciationandnon-cashexpensesof$27·4million.TaiComakesanannualcashinvestmentof$24·3millioninnon-currentassetsandworkingcapital.

Itisestimatedthatitscashflowswillgrowby3%annuallyfortheforeseeablefuture.TaiCo’scurrentcostofcapitalisestimatedtobe11%.

company

Combined

IfOpaoCoacquiresTaiCo,itisexpectedthatthecombinedcompany’ssalesrevenuewillbe

$7,351millioninthefirstyearanditsannualpre-taxprofitmarginonsaleswillbe15·4%fortheforeseeablefuture.Afterthefirstyear, salesrevenuewillgrowby5·02%everyyearforthenextthreeyears.Itcanbeassumedthatthecombinedcompany’sannualdepreciationwillbeequivalenttotheinvestmentrequiredtomaintainthecompanyatcurrentoperationallevels.

However,inordertoincreasethesalesrevenuelevelseachyear,thecombinedcompanywillrequireanadditionalinvestmentof$109millioninthefirstyearand$0·31forevery$1increaseinsalesrevenueforeachofthenextthreeyears.

Afterthefirstfouryears,itisexpectedthatthecombinedcompany’sfreecashflowswillgrowby2·4%annuallyfortheforeseeablefuture.Thecombinedcompany’scostofcapitalisestimatedtobe10%.Itexpectedthatthecombinedcompany’sdebttoequitylevelwillbemaintainedat40:60,inmarketvalueterms,aftertheacquisitionhastakenplace.

BothOpaoCoandTaiCopaycorporationtaxonprofitsatanannualrateof20%anditisexpectedthatthisratewillnotchangeifOpaoCoacquiresTaiCo.Itcanbeassumedthatcorporationtaxispayableinthesameyearastheprofitsitischargedon.

Possibleacquisitionpriceoffers

OpaoCo’sBoDisproposingthatTaiCo’sacquisitionbemadethroughoneofthefollowingpaymentmethods:

Acashpaymentofferof$4·40foreachTaiCoshare,or

Throughashare-for-shareexchange,whereanumberofTaiCosharesareexchangedforanumberofOpaoCoshares,suchthat55·5%oftheadditionalvaluecreatedfromtheacquisitionisallocatedtoTaiCo’sshareholdersandtheremaining44·5%oftheadditionalvalueisallocatedtoOpaoCo’sshareholders,or

Throughamixedofferofacashpaymentof$2·09pershareandoneOpaoCoshareforeachTaiCoshare.ItisestimatedthatOpaoCo’ssharepricewillbecome$2·60persharewhensuchamixedofferismade.

Similaracquisitionsinthefoodmanufacturingindustryhavenormallyattractedasharepricepremiumofbetween15%and40%previously.

Required:

Distinguishbetweenamanagementbuy-out(MBO)andamanagementbuy-in(MBI),anddiscusswhyOpaoCo’sboardofdirectors(BoD)mighthavesoldBurgutCothroughanMBI. (4marks)

Explainwhatportfoliorestructuringandorganisationalrestructuringinvolve,anddiscusspossiblereason(s)whythechangeinthetypeofshareholdersmayhavemadeOpaoCochangefrombeingaconglomeratetoonefocusingonjusttwobusinesssectors.

(5marks)

PrepareareportfortheboardofdirectorsofOpaoCowhich:

EstimatesthevalueofequityofOpaoCoandofTaiCobeforetheacquisition,andofthecombinedcompanyaftertheacquisition; (10marks)

EstimatesthepercentagegaininvalueforeachOpaoCoshareandTaiCoshare,undereachofthecash,theshare-for-share,andthemixedoffers; (12marks)

EvaluatesthelikelyreactionofOpaoCo’sandTaiCo’sshareholderstotheacquisitionoffers. (7marks)

Professionalmarkswillbeawardedinpart(c)fortheformat,structureandpresentationofthereport. (4marks)

FollowingtheMBI,theBoDofBurgutCoannouncedthatitsintentionwastolistthecompanyonarecognisedstockexchangewithinsevenyears.TheBoDisdiscussingwhethertoobtainthelistingthroughaninitialpublicoffering(IPO)orthroughareversetakeover,butitdoesnotcurrentlyhaveastrongpreferenceforeitheroption.

Required:

DistinguishbetweenanIPOandareversetakeover,anddiscusswhetheranIPOorareversetakeoverwouldbeanappropriatemethodforBurgutCotoobtainalisting.

(8marks)

(50marks)

2016/06Q2

LouieedCo

LouieedCo,alistedcompany,isamajorsupplierofeducationalmaterial,sellingitsproductsinmanycountries.Itsuppliesschoolsandcollegesandalsoproduceslearningmaterialforbusinessandprofessionalexams.LouieedCohasexclusivecontractstoproducematerialforsomeexaminingbodies.LouieedCohasawell-definedmanagementstructurewithformalprocessesformakingmajordecisions.

AlthoughLouieedCoproducesonlinelearningmaterial,mostofitsprofitsarestillderivedfromsalesoftraditionaltextbooks.LouieedCo’sgrowthinprofitsoverthelastfewyearshasbeenslowanditsdirectorsarecurrentlyreviewingitslong-termstrategy.OneareainwhichtheyfeelthatLouieedComustbecomemuchmoreinvolvedistheproductionofonlinetestingmaterialsforexamsandtovalidatecourseandtextbooklearning.

BidforTiddedCo

LouieedCohasrecentlymadeabidforTiddedCo,asmallerlistedcompany.TiddedCoalsosuppliesarangeofeducationalmaterial,buthasbeenoneoftheleadersinthedevelopmentofonlinetestingandhasshownstrongprofitgrowthoverrecentyears.AllofTiddedCo’sinitialfivefoundersremainonitsboardandstillhold45%ofitsissuedsharecapitalbetweenthem.Fromthestart,TiddedCo’sdirectorshavebeenusedtomakingquickdecisionsintheirareasofresponsibility.Althoughlistinghasimposedsomeformalities,TiddedCohasremainedfocusedonactingquicklytogaincompetitiveadvantage,withthefivefounderscontinuingtogivestrongleadership.

LouieedCo’sinitialbidoffivesharesinLouieedCoforthreesharesinTiddedCowasrejectedbyTiddedCo’sboard.TherehasbeenfurtherdiscussionbetweenthetwoboardssincetheinitialofferwasrejectedandLouieedCo’sboardisnowconsideringaproposaltoofferTiddedCo’sshareholderstwosharesinLouieedCoforoneshareinTiddedCooracashalternativeof$22·75perTiddedCoshare.ItisexpectedthatTiddedCo'sshareholderswillchooseoneofthefollowingoptions:

Toacceptthetwo-shares-for-one-shareofferforalltheTiddedCoshares;or,

ToacceptthecashofferforalltheTiddedCoshares;or,

60%oftheshareholderswilltakeupthetwo-shares-for-one-shareofferandtheremaining40%willtakethecashoffer.

Incaseofthethirdoptionbeingaccepted,itisthoughtthatthreeofthecompany'sfounders,holding20%ofthesharecapitalintotal,willtakethecashofferandnotjointhecombinedcompany.Theremainingtwofounderswillprobablycontinuetobeinvolvedinthebusinessandbemembersofthecombinedcompany'sboard.

LouieedCo’sfinancedirectorhasestimatedthatthemergerwillproduceannualpost-taxsynergiesof$20million.HeexpectsLouieedCo’scurrentprice-earnings(P/E)ratiotoremainunchangedaftertheacquisition.

Extractsfromthetwocompanies’mostrecentaccountsareshownbelow:

Louieed

Tidded

$m

$m

Profitbeforefinancecostandtax

446

182

Financecosts

(74)

(24)

Profitbeforetax

372

158

Tax

(76)

(30)

Profitaftertax

296

128

Issued$1nominalshares

340million

90million

P/Eratios,basedonmostrecentaccounts

14

15·9

Long-termliabilities(marketvalue)($m)

540

193

Cashandcashequivalents($m)

220

64

Thetaxrateapplicabletobothcompaniesis20%.

AssumethatLouieedCocanobtainfurtherdebtfundingatapre-taxcostof7·5%andthatthereturnoncashsurplusesis5%pre-tax.

AssumealsothatanydebtfundingneededtocompletetheacquisitionwillbereducedinstantlybythebalancesofcashandcashequivalentsheldbyLouieedCoandTiddedCo.

Required:

DiscusstheadvantagesanddisadvantagesoftheacquisitionofTiddedCofromtheviewpointofLouieedCo. (6marks)

CalculatetheP/EratiosofTiddedCoimpliedbythetermsofLouieedCo’sinitialandproposedoffers,forallthreeoftheaboveoptions. (5marks)

Calculate,andcommenton,thefundingrequiredfortheacquisitionofTiddedCoandtheimpactonLouieedCo’searningspershareandgearing,foreachofthethreeoptionsgivenabove.

Note:Upto10marksareavailableforthecalculations. (14marks)

(25marks)

2017/SDQ2

EviewCinemasCoisalong-establishedchainofcinemasinthecountryofTaria.TwentyyearsagoEviewCinemasCo’sboarddecidedtoconvertsomeofitscinemasintosportsgyms,knownastheEVclubs.ThenumberofEVclubshasexpandedsincethen.EviewCinemasCo’sboardbroughtinoutsidemanagerstoruntheEVclubs,butovertheyearstherehavebeendisagreementsbetweentheclubs’managersandtheboard.Themanagershavefeltthattheboardhaswronglyprioritisedinvestmentin,andrefurbishmentof,thecinemasattheexpenseoftheEVclubs.

Fiveyearsago,EviewCinemasCoundertookamajorrefurbishmentofitscinemas,financingthisworkwithvarioustypesofdebt,includingloannotesatahighcouponrateof10%.

Shortlyaftertheworkwasundertaken,Tariaenteredintoarecessionwhichadverselyaffectedprofitability.ThefinancecostburdenwashighandEviewCinemasCowasnotabletopayadividendfortwoyears.

TherecessionisnowoverandEviewCinemasCohasemergedinagoodfinancialposition,astwoofitscompetitorswentintoinsolvencyduringtherecession.EviewCinemasCo’sboardwishestoexpanditschainofcinemasandopennew,multiscreencinemasinlocationswhichareavailablebecausebusinesseswerecloseddownduringtherecession.

Intwoyears’timeTariaisduetohostamajorsportsfestival.Thishasencouragedinterestinsportandexerciseinthecountry.Asaresult,somegymchainsarelookingtoexpandandhavecontactedEviewCinemasCo’sboardtoaskifitwouldbeinterestedinsellingtheEVclubs.MostofthedirectorsregardthecinemasasthemainbusinessandsoarereceptivetosellingtheEVclubs.

ThefinancedirectorhasrecommendedthatthesalespriceoftheEVclubsbebasedonpredictedfreecashflowsasfollows:

free

Thepredicted cashflowfiguresin$millionsforEVclubsareasfollows:

Year

1

2

3

4

390

419

455

490

AfterYear4,freecashflowsshouldbeassumedtoincreaseat5·2%perannum.

Thediscountratetobeusedshouldbethecurrentweightedaveragecostofcapital,whichis12%.

ThefinancedirectorbelievesthattheresultofthefreecashflowvaluationwillrepresentafairvalueoftheEVclubs’business,butEviewCinemasCoislookingtoobtaina25%premiumonthefairvalueastheexpectedsalesprice.

Otherinformationsuppliedbythefinancedirectorisasfollows:

Thepredictedafter-taxprofitsoftheEVclubsare$454millioninYear1.Thiscanbeassumedtobe40%oftotalafter-taxprofitsofEVCinemasCo.

TheexpectedproceedswhichEviewCinemasCoreceivesfromsellingtheEVclubswillbeusedfirstlytopayoffthe10%loannotes.Partoftheremainingamountfromthesalesproceedswillthenbeusedtoenhanceliquiditybybeingheldaspartofcurrentassets,sothatthecurrentratioincreasesto1·5.Therestoftheremainingamountwillbeinvestedinproperty,plantandequipment.Thecurrentnetbookvalueofthenon-currentassetsoftheEV

clubstobesoldcanbeassumedtobe$3,790million.TheprofitonthesaleoftheEVclubsshouldbetakendirectlytoreserves.

EviewCinemasCo’sassetbetaforthecinemascanbeassumedtobe0·952.

EviewCinemasCocurrentlyhas1,000million$1sharesinissue.Thesearecurrentlytradingat$15·75pershare.Thefinancedirectorexpectsthesharepricetoriseby10%oncethesalehasbeencompleted,ashethinksthatthestockmarketwillperceiveittobe