Lion Capital and the Blackstone Group Harvard Case Solution & Analysis

Lion Capital and the Blackstone Group The case solution  

There is the risk of losing value to both firms such as Orangina may not be proved as a good investment in the future, as the lion already faced issues this investment might further lose its value. But this strategic step would create synergy between the two companies.

Is Orangina a good deal

Yes, the Orangina is a good deal for both firm Blackstone and lion capital. When we will look at the qualitative measures, the Orangina is a good company to acquire. The firm has a good reputation, and earned brand power in industry, firm reliance, and also its distribution network in France as well as in Spain. The financing-friendly nature of Orangina is also a positive point.

What angle might the Blackstone-Lion consortium have found to justify it?

The Orangina is a well-known brand in France and Spain, and it is an iconic brand. The firm had a good presence in the market. The Orangina is in a defensive sector, and also attractive cash flows along with large tangible assets. So Blackstone-lion partnership was found justifying from this view.

Orangina Valuation

The discounted cash flow valuation model and EV/EBITDA market multiples were used to calculate the valuation ranges of Orangina. In the DCF model, we took the weight of equity and the weight of debt from the 9a exhibit given in the case. So the weight of equity was 29.8% and the weight of debt was 69.2%. the rate of debt before tax is taken the average of interest rate from 2006 December to 2013 December calculated. The average interest rate before tax is 16%, after tax cost of debt is 10.3%( see appendix:2). The tax rate has been calculated by taking an average of tax expense/income before tax of competitors coke-cola and PepsiCo that is 35.67%. to calculate the rate of equity we took the average beta of both competitors and the average 10-year Eurobond rate of 4.82% as the risk-free rate that is given in the case. The market risk premium was 5% (F. Norrestad,, 2021). The calculated WACC is 9.31%,(given below in appendix:1).the enterprise value by using DCF is €2.8794billion, and the equity value is €1.540billion, which is greater thanthe proposed value of €1.85billion. the value of Orangina by using EV/EBITDA market multiples the value of equity is €1.398 billion. The range of value is €1.398billion to €3.665billions (TIM SMITH, 2021).

What is the best deal approach

The best deal approach is the DCF model, because it is based on the estimations, and the estimation is based on the firm previous performance. On the other hand market multiple approaches are based on the average performance of the industry so that can be changed overtime. The firm should base its decision on the DCF model, but it should not ignore the valuation results of multiple approaches.........................

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