Deal Structure and Other Analyses

Background

You works in the Corporate Finance division of Super Retail Group (ASX code: SUL). The head of your division believes that under the current circumstances, Super Retail Group can benefit from acquiring Kathmandu Holdings Ltd (ASX code: KMD). He is planning on suggesting this deal to the CEO and the Board of Directors of Super Retail Group. He has therefore asked your group to prepare a briefing book or “pitch book” making a case for the acquisition of Kathmandu Holdings Ltd by Super Retail Group.

Deal Structure and Other Analyses

The first four points in the following list should inform you recommendations on the subsequent points.

·  Target share price history: Target company’s annotated share price over the last 52 weeks

·  Target’s ownership structure: Target’s ownership structure summary – this might have potential effect on

bidding strategy

·  Acquisition risks: identify potential risks such as:

o Asset/accounting quality, integration issues and

o Potential regulatory concerns: ACCC, industry specific regulation etc. Control premium: Recommended bid price and upper and lower bound

o You need to consider the factors that affect control premium as discussed in the lecture (e.g., target’s recent price history) in determining the recommended control premium

o The recommendation for the control premium should be justified by the valuation of the target and the potential synergies

Payment method: Cash, stock or mixed o for stock and mixed, how many shares do you propose to issue and what is the cash equivalent of

those shares? Synergy should be included in calculating the cost of the stock offer o for cash, what is the stock equivalent of the offer and how many shares do you propose to issue?

Synergy should be included in calculating the cost of the stock offer

·  Bidding strategy: friendly or hostile? You need to provide reasons for the chosen strategy

·  Method of acquisition: Takeover bid or Scheme of arrangement? Only consider the choice between off-

market takeover bid and Scheme of Arrangement bid.

o Ignore on-market bid, since they are relatively rare

·  Funding: How will the deal be financed in the short and long term? What will be the effect of the acquisition financing on the bidder’s capital structure and gearing ratio?

·  Term sheet: this should be the first page of your “pitch book” and it should summarise the deal (see the “Pitch Book” example by Robert Bruner)