Valuation of VOC Ltd Share Offer

The assignment evaluates a proposed takeover bid for VOC Ltd by conducting a valuation analysis. It utilizes two models: the dividend discount model and the residual earnings model. The analysis calculates the present value of future dividends and considers the company's earnings to determine the fair market value of its shares. Based on the findings, the assignment concludes whether the takeover offer is viable and presents the implications for shareholders.

Case study in finance

EXECUTIVE SUMMARY
Present report revolves around the financial analysis of proposal provided by Kohlberg
Kravis Robert & Co. (KKR) to Vocus Group for acquiring his all the issued capital. Financial
analysis is specified as analysis for viability, operational efficiency, stability and profitability
of an organization or a proposal. A detail financial analysis of books of accounts of Vocus
group has been done in order to ascertain whether the price offered by KKR ltd is appropriate
or not. Further, the main emphasis is made on operational; performance and efficiency
aspects of the company. The report ends up with the conclusion that acceptance of the offer
will lead to loss as the price per share before the acquisition is higher in comparison to the
price which has been offered.

TABLE OF CONTENTS
Introduction................................................................................................................................4
Financial Assessment.................................................................................................................4
Analysis of operational, efficiency and performance aspects of Vocus Group Ltd...............4
Comparison of Book Value and Market Value of VOC on 30th June 2017...........................5
Conclusion..................................................................................................................................8
References..................................................................................................................................9

INTRODUCTION
Financial analysis is the method or a process which is being done in order to evaluate and
assess business projects for ascertaining their viability, performance and suitability (Esqueda
and Jackson, 2015). The present report deals with the assessment of offers provided by
Kohlberg Kravis Roberts & Co. to Vocus Group Ltd regarding the purchase of its total issued
capital. A detailed assessment of financial statements and other relevant facts and details of
Vocus Group Ltd has been done in order to ascertain that whether the offer should be
accepted or not. Further, the main emphasis is made on operating, efficiency and performance
aspect of the business. The report ends up with an appropriate suggestion regarding the offer
price which has been provided in the acquisition approval.
FINANCIAL ASSESSMENT
Analysis of operational, efficiency and performance aspects of Vocus Group Ltd.
Table 1: Assessment of trend of Net Profit and EPS for the year 2011 -2017
(Amount in A $000)
Year 2011 2012 2013 2014 2015 2016 2017
Reported
NPAT
8115 7775 5098 12925 19850 64252 -1464
EPS
Adjusted
(cents/share
)
14.49 13.28 11.26 16.13 23.16 30.76 -233.49
Percentage
of retained
profits (5
years)
154.97 565.07 181.67 160.03 69.72 37.69
From above data it can be assessed the Vocus group ltd is having increasing trend in net
profit till the year 2016; however the fact has major losses have been incurred in the year
2017 i.e. $1464000 cannot be ignored while evaluating its efficiency (Shapiro, 2008).

Similarly, EPS of the company has been increased on a continuing basis from the year 2013
and attained a significant hike from 11.26 cents in the year 2013 to 30.76 in the year 2016.
Thus, it can be concluded that except the year 2017; the company is efficiently working and
also operating in an appropriate manner (Bodie, 2013).
The reason for the significant loss in the year 2017 is a major increase of 386% in operating
expenses in comparison to 119% increase in operating revenues. Further, it has been also
forecasted earning of the company will reach $300 million until end of the year 2018 and an
annual growth in earning of 4%. The specified figures are proof of the efficiency of Vocus
Group Ltd.
Comparison of Book Value and Market Value of VOC on 30th June 2017
Book Value Method
The book value of shares can be specified as the value of the business in accordance with its
financial statements. Shareholder equity value; according to this method is ascertained
through adding retained earnings to share capital value provided in books of accounts (Petty
and et al. 2015). Further the same is divided to total no. of shares in order to ascertain value
per share. It is one of the important variants which is assessed by investor as well as company
to determine whether the shares and overvalued or undervalued (Farooqi, Harris and Ngo,
2014).
Calculation of Book Value
Particular Amount in A$000
Sales 1820577
Net Profit After Tax -1464870
Earnings per share (working note 1) (Amount in $) -2.36
Forecasted Earning per share (working note -2) (Amount in $) -.25 (2018) and .26
(2019)
Dividend Per Share .06
Forecasted Dividend (working note 3) .063 (2018) and 0.66

(2019)
Dividend Growth Rate (Annual) 5% from the year
2018
Book Value (working note 4) 2303063
Working note -1
Calculation of EPS
= Total Profit / No. of shares
= -1464.87 Million A$ / 619.9819
= -2.36
Working note -2
It has been provided that growth rate of VOC Ltd is 4% thus EPS for future years will be
calculated in its accordance
Year 2018 = -0.25 A$
Year 2019 = 0.26 A$
Working note -3
As the growth rate of the company is 4% p.a.; thus forecasted dividend will be ascertained
through increasing the existing dividend with provided growth rate.
The year 2018 .063 A$
The year 2019 .066A$
Working note -4
Calculation of Book Value of VOC Ltd
2089.339 A$ Million / .9072

= 2303063272 A$
Calculation of Market Value
Gordon Growth Model
Gordon growth model provides the present value of the company as the sum of all future cash
flow produced by an organization or entity. However, the model emphasis on the time value
and thus due to same reason it is a most appropriate method of ascertaining the market value
of any organization (Brigham and Ehrhardt, 2013). In case dividend are provided that value
of the stock is equal to the net present value of all future dividends. Thus, in the present case
of Vocus Ltd; Gordon growth model has been applied for ascertaining market value.
Formula = P = D1 / r-g
P = Market price of share
D1 = expected dividend for next year.
R = Cost of equity
G = Growth rate
Calculation of Cost of equity
Risk free rate + (Market rate of return – risk free rate) * beta
=2.675 % (9.976 % -2.675%) *.61
= 7.129%
Calculation of future dividend
Year Dividend
2018 $.0600*1.05 = $0.0630
2019 $0.0630*1.05 =$0.0662
2020 $0.0662*1.05 = $0.0695
Share value in 2020 = Dividend in 2020/ (cost of equity –growth rate)

=$0.0695/ (7.129% -5%)
=$3.26
The same will be discounted further: $3.26/1.07129/1.07129 i.e. 2.84.
Present value of dividend of the year 2019
= Dividend of the year /1.07129/1.07129
=.0576
Present value of dividend of the year 2018
= Dividend of the year /1.07129/1.07129
=.0549
Total market value of share on 2017
= Present Value of 2017 + Future income
= 2.84 +.0576+ .0549
=$2.96
Thus, from above valuation, we have received the market price per share of VOC ltd i.e.
$2.96.
Further present value of each share is $3.6 by applying residual earnings of 2016 thus equity
value ranges among $2.96-$3.6 an average of the same are $3.28. Current market price of a
share is $3.37 so same is overvalued.
CONCLUSION
In accordance with the present study; conclusion can be drawn that proposed offer regarding
takeover bid is not viable with reference to conducted valuation analysis. It is because; as a
net result there will be a loss of $.1 on per share to shareholders. A similar conclusion can be
drawn by applying other valuation models as the proposal was not in favour of shareholders.

REFERENCES
Bodie, Z., 2013. Investments. McGraw-Hill.
Brigham, E.F. and Ehrhardt, M.C., 2013. Financial management: Theory & practice.
Cengage Learning.
Brigham, E.F. and Houston, J.F., 2012. Fundamentals of financial management. Cengage
Learning.
Esqueda, O.A. and Jackson, D.O., 2015. Journal of Multinational Financial Management.
Farooqi, J., Harris, O. and Ngo, T., 2014. Journal of Multinational Financial Management.
Petty, J.W., Titman, S., Keown, A.J., Martin, P., Martin, J.D. and Burrow, M.,
2015. Financial management: Principles and applications. Pearson Higher Education AU.
Shapiro, A.C., 2008. Multinational financial management. John Wiley & Sons.

APPENDICES
Calculation of present value or market value of the shares as at June 30, 2017
Calculation of the present value or market value of shares using abnormal earnings model: