Recommended
Recommended
More Related Content
What's hot
What's hot (20)
Viewers also liked
Viewers also liked (10)
Similar to AIG/IBA M&A Case Competition Finalist Presentation
Similar to AIG/IBA M&A Case Competition Finalist Presentation (20)
Recently uploaded
Recently uploaded (20)
AIG/IBA M&A Case Competition Finalist Presentation
- 1. 11/21/2015 KICC Application 1 Goizueta Finance Group 2015 M&A Competition Benjamin Detemmerman, Benjamin Poon, Jia Tang, Kasper Stockel, Michael Bolliger Synergy is Still King NAVIS Global
- 2. Company & Industry Problem Analysis Whole Foods should merge with Publix Merging with Publix allows shareholders’ gain to be maximized Overview Problems & Solution Financials Whole Foods should not go private with Blackstone Executive Summary 11/21/2015 2GFG M&A Competition 2015
- 3. Company and industry overview 11/21/2015 3 Mission To promote the vitality and well- being of people by supplying the highest quality, most wholesome foods available. Locations 412 9 10 Growth rate • Grocery market 3% • Natural retail market 9% Company IndustryCompany Industry Core competence • Premium quality brand • Superior customer shopping experience GFG M&A Competition 2015
- 4. Increasing costs & competitions hamper Whole Foods’s growth 11/21/2015 4 Missing Targets by Sales Growth -0.6% Sales/Square Foot -5% ROIC -0.6% Gross Margin is narrowingCOGS is growing Same store sales growth decelerated The only driver of growth is expansion CostsCompetition 20% COGS 2013-15 0% 2% 4% 6% 8% 10% 2011 2012 2013 2014 2015 Same Store Sales Growth 34.8% 35.0% 35.2% 35.4% 35.6% 35.8% 36.0% 2013 2014 2015 Gross Margin 290 315 340 365 390 415 440 2011 2012 2013 2014 2015 Number of Stores Results: Falling short of expectations GFG M&A Competition 2015 Key Question: How to maximize shareholder value in the long run?
- 5. Whole Foods’s possible alternatives 11/21/2015 5 Go private and get acquired by Blackstone Merge with Publix Others? GFG M&A Competition 2015
- 6. Whole Foods should not be acquired by The Blackstone Group 11/21/2015 6 ….while Whole Foods is not the caseCompanies that go private with PE are usually Whole Foods currently has If Whole Foods goes private with PE • Mature firms with no growth prospect • Struggling with a FCF problem • In need of capital restructuring • Suffering from agency problem • The industry is growing, and Whole Foods ranks first • FCF/OCF = 25.94% • High debt capacity • Committed executives • Sound long-term plans • Low market price • Restructure of management level • Short-sighted, strategies made to ensure a profitable exit strategy in 3-5 years • Disadvantageous to shareholders’ gains GFG M&A Competition 2015
- 7. Whole Foods’s possible alternatives 11/21/2015 7 Go private and get acquired by Blackstone Merge with Publix Others? GFG M&A Competition 2015
- 8. Whole Foods should merge with Publix 11/21/2015 8 Whole Foods Market • The largest natural and organic foods supermarket in the U.S. • 433 stores worldwide, including UK, Canada and across 42 U.S. states Publix • One of the 10 largest-volume supermarket chains in the U.S., rank 1st in Florida • 1,109 store locations in 6 Southern states 取長補短,相得益彰 (Compensate our weaknesses while gain through combined strengths) GFG M&A Competition 2015
- 9. How are the synergies going to benefit Whole Foods 11/21/2015 9 Cost Synergies Growth Synergies • Significant reduction of COGS • Reduction of overhead costs • Having access to pharmacy industry and boost product sales • Increase in online sales • Cross-selling opportunities 0% 2% 4% 6% 8% 10% 2011 2012 2013 2014 2015 Same Store Sales Growth 34.8% 35.0% 35.2% 35.4% 35.6% 35.8% 36.0% 2013 2014 2015 Gross Margin GFG M&A Competition 2015 Narrowing Gross Margin Decelerated Sales Growth Benefits from SynergiesExisting Problems
- 10. Synergy benefits under different scenarios 11/21/2015 10 • Overhead savings 4% • COGS savings of 3.5% • EBITDA margin on Pharmacy products 8.5% • Overhead savings 2% • COGS savings of 2% • EBITDA margin on Pharmacy products 7.1% but sales 20% below expectations • Ready to eat products 22% below expectation 18.63% 39.45% 11.86% 30.05% 0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00% 70.00% 80.00% 90.00% 100.00% Worst Case: $4.69bn Cost Synergies and Merger Gains Overhead Costs COGS Pharma Extension Ready to eat extension 20.50% 39.24% 10.89% 29.37% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Best Case: $7.73bn Cost Synergies and Merger Gains Overhead Costs Cogs Pharma Extension Ready to Eat Extension • Overhead savings 2.5% • COGS savings of 2.5% • EBITDA margin on Pharmacy products 7.9% 15.74% 37.23% 13.07% 33.96% 0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00% 70.00% 80.00% 90.00% 100.00% Base Case: $5.81bn Cost Synergies and Merger Gains Overhead Costs Cogs Pharma Extension Ready to Eat Extension Best Case Base Case Worst Case GFG M&A Competition 2015 Growth Synergies Cost Synergies Growth Synergies Cost Synergies Growth Synergies Cost Synergies
- 11. Whole Foods shareholder gains 11/21/2015 11 • Publix pays a 20% premium to acquire all of Whole Foods Shares • 1 WFM to 1.8 Publix share exchange rate • WFM Shareholders own 45% of the total shares of the post-merger firm • Why Shares? So WFM Shareholders maintain an ownership stake Merger Approach: Exchange of Shares BEST CASE BASE CASE WORST CASE Post-merger firm now worth $34.06bn $32.02bn $30.95bn Total gain to Whole Foods shareholders $16.10bn $14.84bn $14.23bn
- 12. Buyout may be unfavorable – Whole Foods is currently underpriced • Growth uncertainty and increasing competition drives down current price • Whole Foods share is underpriced: • Current share price: $29.93 • Intrinsic value: $34.45 11/21/2015 12GFG M&A Competition 2015
- 13. Comparison of Alternatives • Blackstone pays a premium to take Whole Foods private. • The worst case merger scenario would generate higher returns than a 30% premium. • The best case merger scenario would generate higher returns than a 50% premium. 11/21/2015 13GFG M&A Competition 2015
- 14. Merging with Publix is always the best option 11/21/2015 14 • Highly unlikely – LBO Industry Premium Avg. of 24.3% • Best alternative for Whole Foods shareholders is to merge GFG M&A Competition 2015 10.00 11.00 12.00 13.00 14.00 15.00 16.00 17.00 WFM Current Value Historic Avg. Premium 30% PE Case Worst Case 50% PE Case Best Case Comparison of Alternatives
- 15. Whole Foods’s possible alternatives 11/21/2015 15 Go private and get acquired by Blackstone Merge with Publix Others? GFG M&A Competition 2015
- 16. Why Whole Foods is the best fit for Publix? 16 Financial • Increasing sales in natural and organic food industry • Unleveraged • Solid cash positions (FCF/OCF=25.94%) • The largest natural and organic foods supermarket in the U.S. • Strong brand image • National presence, covering 42 states • Global presence Geographical Brand Cultural • Great cultural fit Strategy Compatibility GFG M&A Competition 2015
- 17. 11/21/2015 KICC 2014 17 Don’t sell the chicken that lays golden eggs. 別殺生金蛋的雞
- 18. Index Page 11/21/2015 AIG M&A Case 2015 18 • Cover Page • Executive Summary • Company Overview • Problem Analysis • Alternatives Tree • M&A with Blackstone • Bad Timing - Underpriced • M&A with Publix • Synergies • Scenario Analysis • Shareholder Gains • Financial Comparison • Whole Foods is the best fit for Publix • Appendix: • Risk & Mitigation • Implementation Timeline • Historical LBO Premiums • Distribution of Merger Gains • Alternatives Evaluation • Position Map • Synergies with Publix Pharmacy • Key Assumptions of Synergy Calculation • Calculation of Total Shareholder Value
- 19. Appendix: Risks & Mitigation 11/21/2015 AIG M&A Case 2015 19 Risks 1. Risk of adverse selection 2. Cultural risks: both companies have distinct cultures with could result in incompatibilities, lower productivity, turnover of key talents 3. Strategic risk leading to costly diversion: Mitigation 1. Risk of adverse selection: Incentivize actions by performance- contingent payout structures and other incentive structures 2. Cultural risks: walk the talk and articulate the mission and vision of the new company on a steady basis. 3. Strategic risk leading to costly diversion: Clear process planning and scenario technique to address unexpected outcomes Index Page
- 20. Appendix: Implementation Process 11/21/2015 AIG M&A Case 2015 20 2016 2017 2018 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q Overhead Costs Gradual Implementation COGS Cost Savings Pharmacy Pre-launch marketing Post-launch marketing Ready-to-Eat WFM Ready-to-Eat in Publix Evaluation and improvements 1 Year Pilot covering 10% of Publix Stores Planning Phase of 2 Years Index Page
- 21. Appendix: Historical LBO Premiums 11/21/2015 AIG M&A Case 2015 21 Index Page
- 22. Appendix: Distribution of Merger Gains 11/21/2015 AIG M&A Case 2015 22 Index Page • Merged Company Value: $34.06bn • WFM Shareholders Value $16.1bn • Merged Company Value: $32.07bn • WFM Shareholders Value $14,84bn • Merged Company Value: $30.95bn • WFM Shareholders Value $14.23bn Best Case Base Case Worst Case 68.95% 31.05% Best Case Distribution of Merger Gains Whole Foods Shareholders Publix Shareholders 71.00% 29.00% Base Case Distribution of Merger Gains Whole Foods Shareholders Publix Shareholders 76.90% 23.10% Worst Case Distribution of Merger Gains Whole Foods Shareholders Publix Shareholders
- 23. Appendix: Alternatives Evaluation 11/21/2015 KICC 2014 23 Customer Base Expansion 4 0 0 5 Cost of Implementation 4 3 4 2 Time Needed 3 3 3 1 Ease of Implementation 3 4 3 1 More DesirableLess Desirable Merging with Publix Acquired by Blackstone International M&A Integrate with suppliers 0 1 2 3 4 5 Index Page
- 24. Appendix: Position Map 11/21/2015 AIG M&A Case 24 FreshFoodNon-perishable Premium Value Index Page
- 25. Appendix: Synergy potential of Pharmacies in Whole Food Stores 11/21/2015 KICC 2014 25 • Publix Pharmacies open new growth driver for the merged company • In-store pharmacies to provide health consulting to advice customers on diets, nutrition, and weight loss by eating more organic and natural foods in order to prevent diabetes and high cholesterol. • Future Vision: expand health services to Whole Foods Markets Index Page
- 26. Appendix: Key Assumptions of Synergy calculation 11/21/2015 KICC 2014 26 • Three Cases considered • Best Case: 4.4Bn • Base Case: 3.1Bn • Low Case: 2.7Bn • 38.5% Tax Rate • WACC 9.2% • EBITDA margins of 8.5% • Ramp up of synergies of 5 years Key Assumptions of Synergy calculation Index Page
- 27. 11/21/2015 KICC 2014 27 Index Page Appendix: Calculating the Total Shareholder Value Publix P $20,00 WFM P $29,93 Publix # 777090000 WFM # 357860000 Publix V $15.541.800.000 WFM V $10.710.749.800 Premium 20% Price Paid $12.852.899.760 Shares Issued by Publix to pay for WFM 642644988 Total Shares post-merger 1419734988 Share Exchange Rate 1,80 Publix Shares for each WFM share Apparent Cost $2.142.149.960 PVCS $5.818.000.000 Apparent NPV Publix $3.675.850.040 Value of New Company $32.070.549.800 New Stock Price $22,59 True Cost $3.806.028.518 True NPV Publix $2.011.971.482 WFM Shareholders get 3806028518 65,42% of the merger gains Publix Shareholders get 2011971482 34,58% of the merger gains WFM Shareholders now have 45,27% of the total shares in the new company Publix Shareholders now have 54,73% of the total shares in the new company WFM total shareholder value $14.841.722.170 Publix total shareholder value $17.228.827.630 $32.070.549.800 71.00% 29.00% Base Case Distribution of Merger Gains Whole Foods Shareholders Publix Shareholders