Corporate Finance: Analysis of Dechra Pharmaceuticals

Corporate Finance

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
Current Market Capitalisation of Dechra Pharmaceuticals:........................................................3
Book Value of Shareholders' fund of Dechra-Pharmaceuticals:.................................................3
Discussion on Market Value and Book Value Difference:..........................................................3
Main Shareholders of Dechra-Pharmaceuticals:..........................................................................4
Total Borrowings:........................................................................................................................5
Debt to Equity Ratio:...................................................................................................................5
Quoted Beta:................................................................................................................................6
Competitor Information:..............................................................................................................6
Recent Financial News:...............................................................................................................7
TASK 2............................................................................................................................................8
Dividend Policy:..........................................................................................................................8
Theories of Modigliani & Miller:..............................................................................................10
Practical Issues in company:......................................................................................................10
TASK 3..........................................................................................................................................11
WACC:......................................................................................................................................11
TASK 4............................................................................................................................................1
Part a) Estimation of share’s value of Dechra Pharmaceutical through SVA model..................1
Part b) Rationale for adjustment made to the particular data.......................................................3
TASK 5............................................................................................................................................5
Recent merger and acquisition by Dechra Pharmaceutical..........................................................5
Potential sources of synergy among parents and acquired company...........................................7
Premium paid for the target company..........................................................................................8
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9

INTRODUCTION
Corporate finance relates to finance area which interacts with funding's sources, financial
capital-structure, the measures executives take to maximize the company's value to investors, as
well as methods and evaluation used to distribute financial resources. This study comprises
complete analysis of Dechra Pharmaceuticals along with theories like Modigliani & Miller,
CAPM, SVA etc. with aim to assess the overall financial performance of company. Study also
focuses on evaluation of company's dividend policy and pattern and comprehensive analysi of
company's capital structure.
Dechra Pharmaceuticals plc is UK based manufacturing corporation which has head
office in Northwich. Company is engaged in production of veterinary products. Company is
listed on London-Stock-Exchange and has significant place in FTSE 250 Index (About Us:
Dechra Pharmaceuticals PLC, 2019).
TASK 1
Current Market Capitalisation of Dechra Pharmaceuticals:
Current Market Cap (USD) Around 2914 GBP million
Number of Shares (in MM) 102.81
Book Value of Shareholders' fund of Dechra-Pharmaceuticals:
Shareholder's Fund 2019 (£m)
Issued share capital 1
Share premium account 277.9
Foreign currency translation reserve 21.6
Merger reserve 84.4
Retained earnings 124.2
Total equity shareholders’ funds 509.1

Discussion on Market Value and Book Value Difference:
Book value is simple difference among total assets and external liabilities. While market
value of company is assessed by multiplying market-price of each share with aggregate number
of outstanding shares. As in case of Dechra Pharmaceuticals, book value of shareholders' fund is
498.7 which is difference between company's aggregate assets and external-liabilities while
Market value is 2914 GBP million with 102.81 million outstanding share (Annual Report of
Dechra Pharmaceuticals PLC, 2019).
Main Shareholders of Dechra-Pharmaceuticals:
A shareholder is a person or entity in a publicly or private corporation which lawfully
holds one or even more securities or shares. Shareholders can be considered as corporate
members. A corporation that retains securities in a listed corporation, like a mutual-fund,
banking or insurance corporation. It really is crucial with institutional stockholders to place new
stocks and bonds issues because they can actually afford much more of entire issue than
individual shareholders (Atanasov and Black, 2016). If majority of securities in a corporation are
held by institutional shareholders, company is considered to be under institutional control
ownership. In this context following are the main shareholders of company Dechra-
Pharmaceuticals, as follows:
Company's Main Shareholders Equities
Percentage
Holding
Fidelity Management & Research Co. 8768222 8.53%
Standard Life Investments Ltd. 5597424 5.44%
Royal London Asset Management Ltd. 4396255 4.28%
Neptune Investment Management Ltd. 4255714 4.14%
Coöperatieve Centrale Raiffeisen-Boerenleenbank
(Paris Branch) 3672000 3.57%

Aviva Investors Global Services Ltd. 3300696 3.21%
Kames Capital Plc 3039715 2.96%
The Vanguard Group, Inc. 2992732 2.91%
BlackRock Investment Management (UK) Ltd. 2845606 2.77%
Legal & General Investment Management Ltd. 2706999 2.63%
Total Borrowings:
2019 (£m)
Bank Loans (Current) 1.2
Long term: Bank loans (Non-current) 309.6
Arrangement fees netted off -2.7
Total Borrowings 308.1
At Jun-30,2019, £ 128.8 million was borrowed against Revolving-Credit Facility of £
235.0 million reaching maturity as on July 25, 2024. Facility is not guaranteed on any particular
group properties, but is sponsored by a mutual and multiple cross-guarantee arrangement.
Interest on such facility is paid at a least of 1.30 percent over LIBOR and a total of 2.20 percent
over LIBOR, depending on company's leverage. Interest rate on facility as at 30-June 2019 is
1.70 percent over LIBOR. During year ending June 30,2019, all of the obligations are fulfilled.
At Jun30,2019, £179.3 million had been drawn from the £350.0 million Term-Loan Facility
reaching maturity as on December 31, 2020. This facility is not guaranteed/secured on any
particular Group assets but is followed by joint and multiple cross-guarantee system. Interest on
such facility is paid at a minimal level of 1.10 over LIBOR and a maximum of 2.00percent over
LIBOR, depending on entire Group's Leverage (Aggregate Net-Debts to Adjusted-EBITDA
ratio). The interest rate on such facility for period ending 30,June-2019 is around 1.50 percent

over LIBOR. During period ending June 30th-2019, all clauses are fulfilled. The Term-Loan
Facility's maturity period will end on 31st Dec.-2020.
Debt to Equity Ratio:
Year 2019 (£m) Based on Book Value Based on Market Value
Debts 539.4 539.4
Equity 509.1 2914
1.0595 0.1851
As presented in table, Dechra-Pharmaceuticals' debt to equity ratio in year 2018 based on
book value is 1.0595 while based on market value this ratio is just 0.1851 which shows that
company is financially stable as its market-based debt-to-equity ratio is below one. Company is
able to discharge all its obligations and debts though its market value of equity. While book
value of equity is not adequate to pay out its all debts and obligations.
Quoted Beta:
Beta is correlation of anticipated excess return on capital to projected excessive returns on
market. Company Dechra Pharmaceuticals' quoted beta is 0.53 (Beta of Dechra Pharmaceuticals
PLC. 2019).
Competitor Information:
Shire Otonomy Zoetis Kindred
Description Biopharmaceutica
l company
biopharmaceutica
l corporation
engaged in
development and
Producer of
medicinal drug
and vaccinations
for pets and
Veterinary
biotechnology
corporation which
focuses on