I need a excellent expert with high ratings in financial management. This assignment is on share valuation in merger and acquisitions( part a) as well as rights issues (part b)(calculation & evaluation) . This assignment accounts 70% mark of my module. So this assignment should be with high quality and accuracy. The information in the assignment case should be digested well. I will provide & upload the pdf version of my textbook.
Financial Management Term 1 2012-13 Coursework Assignment 2 Page 1
FINANCIAL MANAGEMENT
TERM 1 2012
COURSEWORK ASSIGNMENT
THIS ASSIGNMENT CONTRIBUTES 70% TO THE FINAL MARK FOR THIS MODULE.
Coursework is subject to double marking. All results when first published are provisional until confirmed by the External Examiner. No appeals regarding your published mark are available until after confirmation by the External Examiner at the Exam Board held in Summer Term 2013.
Late submission:
Standard MSI late submission penalties will apply.
Plagiarism
This is cheating. Do not do it. Plagiarised copies are invariably rooted out and severe penalties apply. All assignment submissions are electronically tested for plagiarism.
Finding a Price for Stein Limited
Cure All plcis an international pharmaceutical company that was once seen as a safe haven for investors when stock markets became volatile. It had a reputation as a well-managed and solid, but rather unexciting, company operating within a strong industrial sector. However, a number of problems had emerged in recent years to damage its reputation. A major problem for the company has been its failure to develop new drugs to replace a generation of successful drugs, the patents of which had either already expired or were about to expire. Where patents had already expired, rival companies had developed competing generic drugs that had seriously damaged the companys sales and profits. To make matters worse, the company had recently launched two new products, amidst much publicity, which had to be swiftly withdrawn when patients taking the drugs complained of side effects. This led to a severe loss of confidence in the management of the company and it became clear that major changes had to be made.
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In order to restore confidence in the future of the company, a majority of the members of the board of directors was replaced and Nina Supalot was appointed as chief executive officer. The new board agreed that the pharmaceutical sector had become fiercely competitive in recent years and it doubted whether the company had the resources or expertise to remain a successful player within the industry. The increasing costs associated with developing new drugs, along with downward pressure, exerted by governments, on prices for prescription drugs led the board to conclude that a change of direction was needed. Hence, it was decided that the company should reposition itself in the related healthcare market where it already had a small presence. For some years, Cure All plchad been selling a range of antiseptics and disinfectants for use in hospitals and nursing homes. The mission of the company was restated as being:
To maximise shareholder value by becoming a leading provider of healthcare products
Stein Ltdis a family-owned company that produces a small range of healthcare products. The main products of the company are wound dressings and surgical gloves, which are sold to hospitals, surgeries and nursing homes throughout Europe and which enjoy a reputation for their very high quality. The most recent financial statements of Stein Ltdare set out below:
Statement of financial position (balance sheet) as at 31 January Year 5
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Dr Frankie Stein founded the Stein Ltdbusiness 35 years ago and has been the chief executive and chairman of the company since that date. However, ill health has recently forced him to consider his future and also to consider the future of the company. Although the founder has two children, neither has shown an interest in the business. The idea of allowing non-family members to manage the business was regarded by the Stein family as unacceptable and so the various family members, who owned all the issued shares, agreed to sell the company. When Nina Supalot discovered that Cure All plcwas for sale, she expressed an immediate interest in entering into negotiations with the Stein family. She believed that this was an outstanding opportunity to acquire a range of high quality products with a strong brand image. It provided an immediate and strong presence in markets that the board of directors of Cure All plchad recently identified as being of particular interest.
The finance director of Cure All plc, Lyn Chewalot, was the first among the new board of directors to express reservations concerning the possible acquisition. Although she acknowledged the possible benefits that might accrue, she argued that Cure All plchad no previous experience in acquiring companies and that the new board of directors had not yet developed a clear view as to how the acquisition process should be approached or managed. As a result, there was a risk that the acquisition of Stein Ltdwould not turn out to be as successful as Nina Supalot was expecting. Lyn also wondered whether investors would be prepared to support the deal given the recent history of Cure All plc. The board of directors debated the issue and, by a narrow majority, decided to support Ninas wish to enter into negotiations with the Stein family with a view to buying all the shares of the company. However, it was agreed that an independent firm of consultants, Nosnikrap Associates, should be appointed to advise the board throughout the period of negotiations. The finance department of Cure All plcextracted the following information as at 20 February Year 5 relating to healthcare companies from a financial newspaper:
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When P/E ratios and Dividend Yields are used in share valuation and a number od ratios and yields are available, it is not uncommon to use averages.
The finance department also provided the following ratios for each of the companies:
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In the early stages of negotiation between the two companies, the following information was provided by Frankie Stein:
1.The market value of the premises of Stein Ltdwas estimated to be about £32 million.
2.The sales revenue of Stein Ltd is expected to grow at about 2 per cent each year over the next five years (tears 6-10 inclusive). The market is fairly competitive and there is little prospect of improved growth rate over this period. Thereafter, sales are likely to stabilise.
3.Operating profit margins are likely to remain at their historic levels, which are about 10 per cent, for the foreseeable future.
4.Replacement costs of non-current assets will be more or less in line with the annual depreciation charge. In addition, however, the company is committed to a major upgrade of plant and equipment costing £1.8 million over the next three years. The cost of this upgrade would be spread evenly over the three-year period.
5.Additional working capital over the next five years will be 20 per cent of sales growth.
6.An exceptional dividend had been paid during the year to Year 5 of £2,600,000. In previous years, the dividend paid had usually been about £220,000.
7.Following the initial negotiations, the Directors of Cure All plcdecided that, in the event that a price could be agreed for the shares in Stein Ltd:
– The total after-tax savings in operating expenses from merging the sales and distribution channels of each company would be about £100,000 each year. These figures are not included in the operating profit margin estimates mentioned above.
– The shares in Stein Ltdwill be paid for in cash, which would be raised by a rights issue of ordinary shares.
Cure All plchas an estimated cost of capital of 8 per cent. It has 10 million ordinary shares in issue and the current market value of a share is £10.64.
Required
Assume that you are a consultant with Nosnikrap Associates. You are required to write a report for the board of directors of Cure All plcwhich:
(a) suggests with reasons:
(i) a reserve price per share in Stein Ltdthat is appropriate for the Stein family;
(ii) a reserve price per share in Stein Ltdthat is appropriate for the shareholders of Cure All plc; for use in negotiations concerning the acquisition of the ordinary shares in Stein Ltd.
In so doing you should draw upon a range of valuation approaches.
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(50 marks)
When answering parts (a) you should clearly state any assumptions and reasoning that you have made and you should show key workings. Possible options available should be examined and any suggestions or decisions that are made must be supported by appropriate arguments.
(b) sets out recommendations concerning
(i) the number of rights shares that should be issued;
(ii) the price at which each rights share should be issued to finance the deal; and
(iii) the likely value of an ordinary share in Cure All plcfollowing the rights issue.
In answering this part, you should assume that shareholders in Cure All plchave been made aware of the impending purchase of Stein Ltdand that the agreed price to acquire the shares in Stein Ltdis the reserve price identified in your answer to (a)(ii) above.
(20 marks)