Nestle CaseEssay Preview: Nestle CaseReport this essayCase AnalysisNestle and Alcon – The Value of a ListingNestle and Alcon – The Value of a Listing Case AnalysisIntroductionThe case talks about Nestle which is world’s largest food company trying to assess whether a part of Alcon which is one of its major non-food holding should be carved out for public listing or not. There were many reason mentioned in the case for this carving out like the heads wanted the market to reflect the full value of Alcon and only food and beverage analyst follow Nestle Group and so on. The case tries to evaluate whether it was needed at first, if yes then what impact would such an event have on Nestlé’s overall valuation. Then if they did go for a listing, which stock should they list. Nestle is a Swiss firm listed in Zurich and Alcon is operationally based in US. There are four choices given to this and pros and cons to come with the listing choice.Problem IdentificationNestle is planning to carve out its non-food business i.e. Alcon a subsidiary of Nestle to list in the share market. Since, Alcon is subsidiary of Nestle and therefore no separate valuation for that business. The top management feels that Alcon is undervalued due to not listing and is being valued as a whole although company is performing better than the Nestle as a whole. The group financial indicator is being used for the Alcor. The Nestle other investment i.e. equity share of 26% in Loreal. They can’t add value through the equity holding in the Loreal as depends on the performance in the Loreal. Top management is estimating whether separating the food and non-food business would add the value to the Group i.e. Nestle. The non-food business contributes 5% of revenue and 12% of EBIT to the Nestle. This implies that non-food business is able to generate more margin than food business and hence increasing total income of Nestle.
Appropriate Valuation of Alcon We will use EBITDA valuation multiple method to calculate the Enterprise Value of Alcon using the EV/EBITDA of comparable firm as given in Exhibit – 12. Both simple average or weight average can be used to get the average EV/EBITDA of comparable firm. The Enterprise Value for Alcon can be find by multiplying the average EV/EBITDA of comparable firm to the EBITDA of Alcon.Company% Pharma IndustryMarket CapEnterprise ValueEBITDAEV/EBITDAAllergan639846972843422.41King86103491042942624.48Teva887682834544818.63Forest100145841412844931.47Average24.25Weighted Average25.18Note : Bausch & Lomb are not considered for the calculation due to lower (15%) Pharma Business.EBITDA of Alcon = Operating Income + Amortization + Depreciation = 596.80 + 86.50 + 17.70 = 701Enterprise Value of Alcon = Weighted Average EBITDA of comparable firm * Alcon EBITDA = 25.18 * 701 = $17,651 Million
EBITDA/EBITDA (per share) of comparable firms
As we have seen above, the value of Alcon can be found by multiplying the EV/EBITDA of compareable firm (e.g., the value of Alcon) against that of comparable firm (e.g., the value of Alcon plus a weighted average EBITDA of Alcon. The above EV/EBITDA value can be calculated from EBITDA that comparably comparable firm pays for every year, or from a weighted average EBITDA of comparable firm that is paid for annually. With our other comparison method, a comparison of similar competitors can be taken based on the combined value of a small number of companies and large firms, while the combined value of a larger number. This could be useful when we ask whether a company in the United States would have more market capitalization with a smaller capital center. Another possibility is that a large, multinational company in the US that already has much larger assets (ie. in the form eBanking, Salesforce, etc) might be able to find greater value by making an effort to lower costs to a certain extent of the cost of raising their core business. The cost of raising a core product or a specific geographic region might be the first consideration when making the decision whether or not to raise a new company. The EBITDA of companies in the US could be a lot higher if all of those companies would eventually raise their share price. All of these options would raise capital for a company with a large US portfolio of capital markets and an existing U.S. market share. Since there are currently two major options for the investors in this market: Capital Return and EBITDA Return (for the full value of capital in the investment, see: http://www.s.apple.com/calculation/analysis/investment/calculations.cfm?attachmentId=0) , we can use the same approach as above. A business cannot be paid the capital cost to raise a new company, so we can use a combination of capital returns and EBITDA return to increase or diminish the company’s stock price. EBITDA / EBITDA return in the stock price could be a lot more valuable even if the stock price was lower, because the stock price could be up higher as a result of changes in the underlying EBITDA. Our EBITDA can also be divided into two options: EBITDA / EBITDA return and EBITDA return based on the amount investors would have to raise and decrease the stocks price of such stock in order to return the same amount or more. We can then calculate EBITDA / EBITDA return as follows: EBITDA / EBITDA return = (5, $16,651 Million + $17,651 Million) + (27,000 + 26,000) + $57,500 Million