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Cases in Financial Decision Making

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Added on  2020-11-06

Cases in Financial Decision Making

   Added on 2020-11-06

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iA Report on“Healthineers: A Strategic IPO”F-506: Cases in Financial Decision MakingSubmittedto:Dr. Gazi Mohammad Hasan JamilAssociate ProfessorDepartment of FinanceUniversity ofDhakaSubmittedByGroup-14ID No.NameRemarks21-910Nazmun Nahar Nilima21-912Jannatul Ferdous21-949Saif Mahmud
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iDate of Submission: 27th February 2020
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iiLetter of Transmittal27th February 2020Dr. Gazi Mohammad Hasan JamilAssociate Professor, Department of Finance, University of Dhaka.Subject: Submission of report on “Healthineers: A Strategic IPO”.Dear Sir,WearepleasedtopresentthereportthatyouaskedforasapartofourMBA,2stsemester, andcourseF-506:CasesinFinancialDecisionMaking.Wearethankfultoyouforgiving ussuchanamazingopportunitytoworkonthetopicHealthineers:AStrategicIPO”.We areprivilegedtoworkonsuchatopicwherewecouldapplyourtheoreticalknowledgein understanding the realproblem.We have put our sincere effort to give this report a presentable shape and make it aspreciseaspossible.Wecordiallythankyouforprovidinguswiththisuniqueopportunity.Sincerely yours,Nazmun Nahar NilimaID: 21-910On behalf of,Group-04,MBA21stBatch,SectionA Department ofFinanceUniversity of Dhaka
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AcknowledgmentAt first, we would like to express our gratitude to the Almighty Allah for giving us suchstrengthandopportunitytocompletethereportwithinthescheduledtime.Suggestions andassistancefrommanyindividualsandexpertssupportedusalotineverystepofthe report.Itisourimmensepleasurenowtoacknowledgethemwithgratitude.After the Almighty, we would like to express our sincere gratitude to our honorablecourse teacher, Dr. Gazi Mohammad Hasan Jamil, Associate Professor of FinanceDepartment,UniversityofDhakaforhiscontinuoussupportandguidancethroughoutthe course.Hisconstantpresenceandwordsencouragedusalottocompletetheassigned report.Itwouldprobablybeimpossibletocompletethisreportwithouthisguidanceand availability.Finally, we are grateful to all of our group members. Without their earnest effort, wecouldn't complete the report.Thisreportispreparedformeetingouracademicpurpose,notforanyotherreason.It mightnotbeusedforthebenefitofanyotherpurpose.
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Executive SummaryThis report analyzes the case ‘Healthineers: A Strategic IPO’ which describes howHealthineers,asubsidiaryofSiemensAG,isabouttogopublic.Healthineersisapartofthe healthcareindustrywhichisdominatedbyplayerslikeGeneralElectric,Philips,Abbottand Roche. This industry offers great potential to a newly introduced company aswell as the possibility of being wiped away. The IPO is an important event forHealthineers because it believesbeingseparatedfromitsparentcompanyallowentrepreneurialspirittobloomand grantnecessaryautonomy.Itsparentcompany,SiemensAG,iscurrentlyproceedingaccording toitsVision2020strategy.Butthevalesestablishedbythesaidstrategydoesnotseemtobe workingashealthcareindustryprovestobedifferentthanallotherindustriesSiemensAGis currently operating in. So it is easy to seewhy the management would be motivated to separateHealthineersfromSiemensAG(althoughSiemensAGwouldretainmajorityofthe ownership).Inaddition,thestockscouldbeusedtopurchasesmallstart-upswhichnoneofthe valuations accountedfor.Inlightofthis,HealthineershasappointedDeutscheBank,GoldmanSachsandJPMorgan ChaseandCo.asthejointcoordinatorswithsupportfromfinancialinstitutionssuchasBNP Paribas, Bank of America, Citi Group and UBS Investment Bank. They haveprovided 3 valuationsbasedonmultiplesandexpectedcashflows,allofwhicharearound€34pershare. Asanalystsandlearners,itisourdutytoquestiontheanalysesprovided.In light of this, we have divided the report into 4 parts. The first part contains the companyoverview,companyanalysis,industryanalysis,extentofcompetition,Porter’s5Forcesmodel andmanymore.Thishashelpeduspreparetheinvestmentthesisinthelaterpart.Thispart alsotalksabouttheVision2020strategyanditsimpact.Afterreadingthispart,aninvestor should have sufficient knowledge regarding the healthcare industry, its playersand most importantly,Healthineers.The first part analyzes the relative valuation analysis. We have scrutinized the multiples in
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order to determine if the values are consistent with the reality. We have calculated theenterprise value and the equity value of Healthineers using different multiples. Enterprisevalue and equity value have been calculated by taking different multiples of different peergroups.Wehavealsocalculatedthesamevaluesbyusingsum-of-the-partsvaluationtaking different comparable companies into the consideration. After taking all peers underconsideration,webelievethatthereasonableestimatedequityvaluepershareis€29.34onan average.Andatthesametime,reasonableestimatedenterprisevalueofHealthineersis€35784 on anaverage.The third part of this report is about the discounted cash flow analysis. The DCF modelprovidedbyDeutscheBanksuggeststhevaluetobe€34.18pershare.Weassumedoptimistic andpessimisticpositionsbychangingthevariablesandtheirvaluesgivenbyDeutscheBank. Thishelpedusrealizethatthismodelistoomuchspeculative.Becausejust1%changeinthe valuesproduceavaluepersharethatisaround50%lowerthanthebasecaseinthepessimistic scenarioandaround100%higherthanthebasecaseintheoptimisticscenario.Inaddition, there were other problems such as difference in valuationdates, not considering floatation costsetc.Theseledustoseekforalternatives.So,wedevelopedaresidualearningsmodelthat reducestheextentofspeculationtremendously.Basedonthismodel,wesuggestnottobuy sharesofHealthineerson20thApril,2018becausewebelieveitisovervalued.Webelievethis because we could not find anyinformation that would brighten the future outlook of Healthineers.OnlyifHealthineerscanprovethatitwillbeabletoincreaseitsprofitmarginor increaseitsmarketshareintheDiagnosticssegment,theinvestorsaresuggestedtobuyshares ofHealthineers.ThenextpartanswersthequestionspresentedintheAppendix1ofthecase.Someofthe questionhavealreadybeenansweredintheearlierparts.Webelievethesequestionscapture the theme of the case perfectly which is to scrutinize or question and sharpen ouranalytic skills.Sowhatvaluedowesuggest?None.Becauseofthelimitedinformation,itisimpossibleto declareavalueofHealthineerswithcertainty.Infact,itisnotourdutytosticktoonevalue.
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This is why we have procured so many different scenarios with different values. It is theresponsibilityoftheinvestortochoosethescenarioandmakeinformeddecision.Thiscase,in fact,isnotaboutprocuringavalue,ratherscrutinizingthegivenvalues.
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ContentsLetterofTransmittal......................................................................................................iiAcknowledgment...................................................................................................iiiExecutiveSummary.............................................................................................................ivChapter-01............................................................................................................................11.1 Origin oftheReport.........................................................................................................21.2 Objective oftheReport...................................................................................................21.3 Scope oftheReport........................................................................................................21.4 Methodology...................................................................................................................21.5 Limitations oftheReport..........................................................................................3Chapter-2..............................................................................................................................4Chapter-3..............................................................................................................................63.1 PESTELAnalysis:..........................................................................................73.2 Porters 5ForcesModel.................................................................................83.3 HHIIndex.....................................................................................................10Chapter4............................................................................................................................114.1 CompanyOverview.....................................................................................................124.2 Vision 2020ofHealthineers.......................................................................................124.3 Financial AnalysisofHealthineers.............................................................................12 4.4 Internal AnalysisofHealthineers..............................................................13Chapter5............................................................................................................................165.1 RelativeValuation.....................................................................................................175.1.1 Valuation in ComparisonwithPeer.......................................................175.1.2 Sum-of-the-partsValuation....................................................................205.2 DiscountedCashFlow........................................................................................225.2.1 BaseCase...................................................................................................................245.2.2 Optimistic Case (Variationof0.5%).......................................................................275.2.3 Optimistic Case (Variationof1%)..........................................................................285.3.5 Pessimistic Case (1%ofVariation).......................................................................315.2.6 Interpretation........................................................................................................325.2.7 Acquisition of Start-ups: TheMissingLink..........................................................33
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