In the text, we use spreadsheets to convey how an LBO

16.1 (pp. 434-435) (Use excel model 16-03 posted in document sharing.)

Question 19.1 & 19.2 (p. 549)

Chapter 16

 SOURCES OF VALUE IN LBOs

16.1 In the text, we use spreadsheets to convey how an LBO is set up and how cash flows can be used to pay down debt in a successful LBO. A firm with the characteristics of the usual LBO candidate in the early 1980s would have value drivers that could be improved by a turnaround. In Table P16.1.1, we present the relevant operating relationships and financial information for Coleman Textiles, which has not been managed well.

TABLE P16.1.1          Operating Relationships and Financial Information—Coleman Textiles (Weston 435)

New England Partners, an investment group, made a leveraged buyout of Coleman Textiles. They replaced management with a new team with a track record of high-quality performance in the textile business. After a turnaround was accomplished by the new management group, the operating relationships and financial information were changed to the patterns shown in Table P16.1.2. (Weston 434)

TABLE P16.1.2          Operating Relationships and Financial Information—Coleman Textiles LBO (Weston 435)

QUESTIONS

(Use the software provided by Model 16–03 (the same as Table 16.7) in the text available at our Web sites.) TABLE 16.7 Capital Cash Flow Model (Model 16–03) (Weston 432)

16.1.1 Based on the patterns in Table P16.1.1, what is the indicated share price of Coleman Textiles?

16.1.2 Based on the new patterns in Table P16.1.2, calculate the new intrinsic share price of Coleman Textiles.

16.1.3 Comment on your results. (Weston 434)

Chapter 19

19.1 What are three types of antitakeover amendments, and how do they work to defend a target from an unwelcome takeover?

19.2 What is the effect of the passage of antitakeover amendments on stock price? (Weston 549)