Dupont Corporations Harvard Case Solution & Analysis

Dupont Corporations Case Study Solution

Dollar increase in DPC’s Value

Considering the given 3 scenarios separately, Enterprise Value of DPC under part a, b and c is $4859, $4169 and $4179 respectively. It can be seen from Exhibit B that, the DPC value would increase by 22% with a 5% growth in EBITDA and 12% growth in EBIT. (See Exhibit B)

Maximum Enterprise Value Offered for DPC

IF PE considers an IRR of 20% it could offer a maximum enterprise value of $3234 and $4361 under part a. and b. respectively. The price under part b. with leverage is however higher than the standalone value projected by the company i.e. $3970. However, the price with no leverage is lower than the estimated price.(See Exhibit C)

Minimum Bid Price for DPC

The minimum bid price for DPC should not be less than the estimated standalone enterprise value $3970, as lower price would reduce the shareholder’s value which the company cannot afford. The offered price if the PE choose to finance the purchase using debt is higher than the minimum bid price showing a positive point for DuPont.

Exhibits

Exhibit-A: Analysis of DPC for Potential Buyers

DPC Analysis For Potential Buyers
Favourable Unfavourable
·         High performance liquid and powder coatings

·         Diverse customer categories

·         Growth in emerging markets

·         Better competitive position.

·         Utilization of buyout funds.

 

·         Decline in sales of auto sector.

·         Increase in prices of key inputs constituting 50%.

·         Customer Demands for Technological advancement.

·         High Variable Costs.

·         Strong Competition

·         Decline in Refinishing due to low rates of collision

·         Low GDP growth 1-2%

·         Environmental Compliance Costs

 

Exhibit-B: Increase in DCP Value

Summary sources of deal value (dollars in millions).
Enterprise Increase % of Total
Value in Value Increase
Enterprise Value of Standalone 3,970
Plus:
part a. EBITDA Growth 4859 889 22%
part b. Multiple Arbitrage (7.5× 2017 E EBITDA) 4169  $      199 5%
part c. Leverage (6.0× 2012 E EBITDA)
4179  $      209 5%
Total Dollar Increase in Value 100%

Exhibit C: DCP Enterprise Value at 20% IRR

PE Firm’s Valuation of DPC
Target rate 20%
part b. EBITDA Growth and Multiple Arbitrage
Closing 2012 E 2013 E 2014 E 2015 E 2016 E
RCFs = FCFs $ 372 387 401 412 433
Equity TV = Enterprise Value 5102
Total CFs to Equity 372 387 401 412 5535
Maximum LBO Equity Contribution  $     3,234
Add: Net Debt (no excess cash)  $           -  
Implied Enterprise Value for DPC  $     3,234

 

PE Firm’s Valuation of DPC
Target rate 20%
part c. EBITDA Growth, Multiple Arbitrage, and Leverage
Closing 2012 E 2013 E 2014 E 2015 E 2016 E
RCFs (used to pay off debt) $3,926 174 197 221 243 276
Enterprise Value $5,350
Equity Terminal TV Debt Balance at 2016 2,816
Total CFs to Equity 174 197 221 243 $2,534
Maximum LBO Equity Contribution  $       1,545
Add: Net Debt (no excess cash) 2,816
Implied Enterprise Value for DPC  $       4,361

 

 

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