Advanced Corporate Valuation

This assignment analyzes the financial predicament of Bega Cheese ltd and its acquisition plan for Mondelez Grocery Business. The assessment conducts relative and intrinsic valuation to determine the financial validity of the acquisition plan. The weighted average cost of capital is computed to ascertain the viability of the decision. The analysis advises shareholders on the acquisition plan.

Running head: ADVANCED CORPORATE VALUATION
Advanced Corporate Valuation
Name of the Student
Name of the University:
Author’s Note

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ADVANCED CORPORATE VALUATION
Executive Summary
The main purpose of this assignment is to analyze the financial predicament which Bega Cheese
ltd faces which is related to acquisition of Mondelēz’s Grocery Business. The assessment will be
advising the shareholders whether the acquisition which the Bega Cheese ltd proposes. The
assessment will be conducting a relative analysis and intrinsic value analysis to determine
whether the transaction which is Bega Cheese ltd proposes to undertake is valid from financial
point of view or not.

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ADVANCED CORPORATE VALUATION
Table of Contents
Introduction......................................................................................................................................2
Overview of the business.................................................................................................................2
Discussion........................................................................................................................................3
Business of Bega Cheese ltd........................................................................................................3
Business of Mondelez Grocery....................................................................................................3
Relative Valuation.......................................................................................................................4
Intrinsic Valuation.......................................................................................................................5
Computation of Weighted Average Cost of Capital....................................................................7
Discounted Cash Flow Analysis and Equity Share Price..............................................................11
Conclusion.....................................................................................................................................13
Reference.......................................................................................................................................14

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ADVANCED CORPORATE VALUATION
Introduction
The main purpose of this assignment is to analyse the business of Bega Cheese ltd and
the acquisition plan which the business intends to follow. The plan of the management if Bega
Cheese ltd is to acquire the business of Mondelez Grocery business which is a part of the ANZ
grocery business. The management of Bega Cheese ltd wants to further diversify the business
and penetrate into new businesses.
Overview of the business
Bega Cheese ltd is an Australian company which is engaged in dairy business and
manufacture of dairy based products of the business. As per the current estimates of the business,
the company is regarded as one of the leading dairy companies in Australia and it is also
estimated that the market valuation of Bega Cheese ltd is around $ 775 million. The company
has its origins as early as 1850 when the farmers of Bega valley started selling milk products. It
was in 1899 when the actual company was established and the company started manufacturing
other dairy products which are quite successful in the market.
Discussion
Business of Bega Cheese ltd
As per the case study which is provided in the assessment, the management of Bega
Cheese ltd is planning to acquire the property of Mondelez Grocery. The reason for the
diversification which can be identified from the case study is the continuous turmoil and intense
competition which was there in the dairy industry. The business of Bega Cheese ltd was affected
due to such excessive and intense competition. Therefore, the management wanted to diversify

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ADVANCED CORPORATE VALUATION
the business and enter a similar but new market. Mondelez Grocery Store provided the company
with the option of diversifying and the management had already engaged in dairy production and
baby formula and therefore was confident that if the acquisition was completed they will be able
to handle the business perfectly and the business of Bega Cheese ltd would greatly benefit from
such an acquisition. The acquisition will be allowed the business to gain synergy which will help
Bega Cheese ltd to face the competition and develop the business further from the point of view
of the management. As per the estimates of 2016, Bega Cheese ltd at current had three major
product lines which were dairy products manufacture, Fast Moving Consumer Goods (FMCG)
which were basically dairy products such as cheese, butter and Baby formula and other
nutritional product. Due to the intense competition in market, the acquisition of a new product
will allow the business to have better performance in the market and moreover increase the sales
of the company.
Business of Mondelez Grocery
As per the case study Mondelez is a part of ANZ grocery shops which the business has
decided to sell off. The business of Mondelez is basically known for its three most successful
brand products which are vegemite, ZoOSh and Bonox. Out of the three which is mentioned
above Vegemite is dates back a long time and has a rich history in Australia and is regarded as a
most reputed brand. As per the acquisition requirements, Bega Cheese ltd would receive license
for the three products and the management of Bega Cheese ltd is of the view that such will be
benefiting the business and revenue generation capacity of the company.

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ADVANCED CORPORATE VALUATION
Relative Valuation
Relative valuation may be defined as the process by which management of the business
can make comparison as to the prices of the assets of the company with the market value of the
similar assets1. The method is very useful in valuation of the assets of the business and more over
it is used for the purpose of comparison of different projects which are available. Relative
Valuation is used by businesses to analyse whether the projects which the business wants to
invest in has worth and viability. The management of the Bega cheese ltd needs to analysis the
acquisition plan of the business based on residual valuation of the proposal2. The business of
Mondelez grocery shops is to be analysed on the basis of the performance of the competitors of
the business. The business of Mondelez has competitors such as Nestle company, Hershey
Company, Kelloggs Company, Cott Beverage Company. The business valuation of each of these
competitors is similar or very close to the market valuation of the business. The relative
valuation of the competitors are shown below:
Relative Valuation :-
Amount
EBITDA of Beega Cheese 63.8
Average EV/EBITDA of Mondelez 24
EV of Beega Cheese 1531.2
Add: Cash Balance 9.7
1540.900
Less: Total Debt 258.8
Fair Value of Equity 1282.100
Weighted Av. Share Outstanding 152.6
1 Inger, Kerry K. "Relative valuation of alternative methods of tax avoidance." The Journal of the American
Taxation Association 36, no. 1 (2013): 27-55.
2 Sharma, Manu, and Esha Prashar. "A conceptual framework for relative valuation." The Journal of Private
Equity (2013): 29-32.

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ADVANCED CORPORATE VALUATION
Fair Value per shares 8.402
Figure 1: (Table showing Relative Valuation)
Source: (Created by the Author)
As per the above table, Nestle Company has the highest enterprise valuation as compared
to the other enterprises which are included in the table which is shown above. Mondelez
Company has an enterprise value of $ 81.75 million. The lowest valuation for enterprise which is
shown in the above table is Cott Beverage Company. The above table makes it clear that the
market value and Enterprise Value/ EBITDA shows that Mondelez grocery company3. The
business of Mondelez company looks quite promising as the market valuation of the company is
shown to be favourable. The business of Mondelez as shown among the group of competitors are
shown to be similar with the competitors. The maximum amount of sales which is achieved by
Nestle company due to size and the wide range of operations of the business.
Intrinsic Valuation
The intrinsic valuation is conducted by the business to ascertain the intrinsic value of the
shares of the business. This sort of valuation is also known as fundamental analysis which is
used to determine the market value of the shares or stocks of the business4. The purpose of
intrinsic valuation is to ascertain the true value of the shares of the business. In the case study
which is provided in the question, the management of Bega Cheese ltd will be conducting
intrinsic valuation so that the valuation of the acquisition of the business can be justified to the
3 Liebreich, Michael. "Bloomberg new energy finance summit." London: Bloomberg New Energy Finance (2013).
4 Davidson, Marc D. "On the relation between ecosystem services, intrinsic value, existence value and economic
valuation." Ecological Economics 95 (2013): 171-177.

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ADVANCED CORPORATE VALUATION
shareholders of the company5. The valuation of the intrinsic value for the acquisition project of
Mondelez Project is shown with respective calculations below:
Free Cash Flows (FCFs) 2016 2015 2014 2013 2012
Net Income Before Tax 40 16 94 35
Add
Depreciation 22 22 22 21
Add Interest Expenses 4 3 3 7
Total EBIT 66 42 119 63
y/y Growth 57.18% -64.84% 89.33%
Average
Growth 27.22%
Current Assets 346 329 322 290 265
Add (Subtract) -
Decrease(Increase) in Current
Assets (given) (18) (7) (32) (25)
y/y Growth 152.86% -78.13% 29.55%
Average
Growth 34.76%
Plant, Machinery & Equipment 220 210 214 209 205
Add (Subtract) -
Decrease(Increase) in Plant,
Machinery & Equipment (given) (10) 4 (5) (5)
y/y Growth -361.54% -186.67% 0.00%
Average
Growth -182.74%
Current
Liabilities 209 179 212 175 165
Add (Subtract) - Increase
(Decrease) in Current Liabilities
(given) 30 (33) 37 9
y/y Growth -191.46% -187.70% 297.87%
Average
Growth -27.10%
5 Bennett, Daniel, Stefan Bode, Maja Brydevall, Hayley Warren, and Carsten Murawski. "Intrinsic valuation of
information in decision making under uncertainty." PLoS computational biology 12, no. 7 (2016): e1005020.

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ADVANCED CORPORATE VALUATION
Figure 2: (Table showing Free Cash flows growth of the business)
Source: (Created by the Author)
Computation of Weighted Average Cost of Capital
The weighted average cost of the capital of the business reflects the level of returns
which are expected by the business and the same is important in the computation of Discounted
Cash flow of the business6. On the basis of the discounted cash flow of the business, the viability
of the decision regarding the acquisition of Mondelez Grocery shop is to be taken by the
business. The computation of the WACC of the business is shown below:
Dividend Growth Rate = Return of Equity x Retention Rate (1-
Payout Ratio)
2016 2015
Return of Equity
8.80
%
4.00
%
Retention Rate (1-Payout Ratio)
50.0
%
-
5.00
%
Dividend Growth Rate (g)
4.40
%
-
0.20
%
Figure 3: (Table showing Dividend Growth Rate)
Source: (Created by the Author)
6 Frank, Murray Z., and Tao Shen. "Investment and the weighted average cost of capital." Journal of Financial
Economics 119, no. 2 (2016): 300-315.

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ADVANCED CORPORATE VALUATION
Discounted Rate (ke) = Dividend Per Share (D1) / Value of Stock (P0) + Dividend
Growth Rate (g)
2016 2015
Share price 5.660 4.330
FX Conversion Rate into SGD 1 1
Share price - SGD 5.66 4.33
Dividend per share (D1) 0.0950 0.0850
Share price - SGD (P0) 5.6600 4.3300
Dividend Growth Rate (g) 0.0440 -0.0020
Discounted Rate (ke) 6.08% 1.76%
Figure 4: (Table showing Cost of Equity)
Source: (Created by the Author)
2.3 COST OF DEBT
Total Debts
2016 2015
S$'000 S$'000
Non-Current Laibilites:
Notes
Convertible Bonds - CL
Senior note
Borrowings 48 58
Current Lailibilies:
Bank debts and current portion of long term
debts 15 12
Convertible bonds - CL
Senior note - CL
Trade and otherpayables
Borrowings

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ADVANCED CORPORATE VALUATION
Total Debts 63 69
Cost of Debt (kd) = Finance / Total Debts
2016 2015
S$'000 S$'000
Finance Costs 4 3
Total Debts 63 69
Cost of Debt (kd) 5.58% 4.49%
Figure 5: (Table showing Cost of Debt Computation)
Source: (Created by the Author)
2.4 WEIGHTED AVERAGE COST OF CAPITAL (WACC)
Capital Structure = Equity + Debts
2016 2015
S$'000 S$'000
Issues Capital (E) 864 660
Total Debts (D) 63 69
V = E + D 927 729
Calculation of Weighted Average Cost of Capital (WACC)
= (E/V x ke) + [(D/V x kd) x (1-Tc)]
2016 2015
E/V 93.23% 90.53%
ke 6.08% 1.76%

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ADVANCED CORPORATE VALUATION
D/V 6.77% 9.47%
kd 5.58% 4.49%
1-Tc 72% 76%
WACC 5.94% 1.92%
Figure 6: (Table showing Weighted Average Cost of Capital Computation)
Source: (Created by the Author)
The weighted average cost of capital which is computed for the business is shown to be
5.94% and 1.92% for the year 2016 and 2015 respectively. The cost of equity of the business is
computed to be 6.77% and 9.47% The cost of debt of the business is shown to be 5.58% for the
year 2016 and 4.49% for the year 2015. The weighted average cost of capital of the business
represents the level of risks which the business might be facing in the current circumstances and
the level of risks which the business is likely to face if the project is undertaken by the
management of Bega Cheese ltd.
Discounted Cash Flow Analysis and Equity Share Price
Using PV of FCF to Derive Fair Value of
Share - Choose only 1 method
($s in
millions)
Formula per
Damodaran 2006)
Free Cash
Flows (FCFs)
Gro
wth
Rate 2016A 2017F 2018F 2019F 2020F 2021F
EBIT
27.2
2% 66 84 106 135 172 219
Add
(Subtract) -
Decrease(Incr
ease) in
34.7
6% (18) (24) (32) (43) (58) (79)

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ADVANCED CORPORATE VALUATION
Current
Assets
(given)
Add
(Subtract) -
Decrease(Incr
ease) in
Plant,
Machinery &
Equipment
(given) (10) 8 (7) 6 (5) 4
-
182.
74%
Add
(Subtract) -
Increase
(Decrease) in
Current
Liabilities
(given) 30 22 16 12 8 6
-
27.1
0%
Free Cash Flows
(FCFs) - TOTAL 68 90 83 109 117 150
yoy Growth
Rate
-
232.80%
-
192.35
% 31.52%
-
207.37% 28.10%
Average yoy
Growth rate
equ
al r-
g
growth rate of the
cash flow -
114.58%
Calculation
WACC (Extracted from WACC
"sheet") 5.94%
FCF Growth, after year 5 using yoy
Growth Rate -114.58%
Terminal FCF 150
[year 2010
FCF]
Terminal Value (Gordon Model) (18)
[Use DDM
formula]
2016A 2017F 2018F 2019F 2020F 2021F

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ADVANCED CORPORATE VALUATION
FCF 68 90 83 109 117 150
Terminal
Value (18)
Total Free
Cash Flow 68 90 83 109 117 132
DCF using
WACC
WA
CC
5.9
4% 67.80 84.99 74.09 91.98 93.23 99.09
PV of FCF 511.18
Add Cash or Cash
Equivalents 9.70
Less Interest on Preferred
and minority interest
Equity Value (PV) 520.88
No. of Outstanding shares 152.60
Fair Value per share 3.41

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ADVANCED CORPORATE VALUATION
The calculations which are shown above show that the fair value of the share price per
shares of the company as shown in the table above. The above projects show that if the business
acquire the shares of the Mondelez Grocery shop than Bega Cheese ltd will be benefiting from
the acquisition.
Conclusion
The above analysis and computation shows that Bega Cheese ltd should acquire the
shares of the business of Mondelez grocery shops. The fair value of the shares are favourable and
the acquisition transaction of the business will add synergy to the business of Bega Cheese ltd.
The business will be acquiring synergy effect and thereby allow the business to compete in the
market and effectively generate the revenue.
Reference
Bennett, Daniel, Stefan Bode, Maja Brydevall, Hayley Warren, and Carsten Murawski. "Intrinsic
valuation of information in decision making under uncertainty." PLoS computational biology 12,
no. 7 (2016): e1005020.

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ADVANCED CORPORATE VALUATION
Davidson, Marc D. "On the relation between ecosystem services, intrinsic value, existence value
and economic valuation." Ecological Economics 95 (2013): 171-177.
Frank, Murray Z., and Tao Shen. "Investment and the weighted average cost of capital." Journal
of Financial Economics 119, no. 2 (2016): 300-315.
Inger, Kerry K. "Relative valuation of alternative methods of tax avoidance." The Journal of the
American Taxation Association 36, no. 1 (2013): 27-55.
Liebreich, Michael. "Bloomberg new energy finance summit." London: Bloomberg New Energy
Finance (2013).
Sharma, Manu, and Esha Prashar. "A conceptual framework for relative valuation." The Journal
of Private Equity (2013): 29-32.