Financial analysis and management of international groups: Schneider vs Square D

Résumé du document

The electrical equipment industry, which generates revenues from construction and maintenance, is closely related to the economic conditions. This sector is characterized by the globalization of markets, the concentration of firms, the standardization of products and increasing costs of development & production. The Schneider Group, a French electrical manufacturer whose CEO is Didier Pineau-Valencienne has been restructured. It has conducted the following measures:
-Divest the loss-making businesses,
-Focus on the two segments: electrical building contracting and electrical equipment manufacturing,
-Geographical diversification through the acquisition of 15% stake in DAVY, an English engineering company, and a controlling interest in Federal Pioneer, a Canadian electrical equipment manufacturer.

Extraits

[...] Financial Analysis and Management of International Groups: Schneider vs Square D 1. Presentation of the case 1. Outlook of the industry The electrical equipment industry, which generates revenues from the construction and maintenance, is closely related to the economic conditions. This sector is characterized by the globalization of markets, the concentration of firms, the standardization of products and increasing costs of development & production Schneider Group The Schneider Group, a French electrical manufacturer whose CEO is Didier Pineau-Valencienne has been restructured. [...]

[...] The free cash flows of the first 7 years are discounted with the discount rate k = (Question and we use the constant growth model for the other years: Vn = CFn+1 / The total fair value is $ 1,675 M Price offered for Square D by Mr. Pineau-Valencienne Other companies approached Square D therefore Schneider would quickly offer a bid for Square D. Given Lazard's valuation, the fair price is the value divided by the number of primary shares: Price = Value / # shares = (1,675 x 1000) / 23,181 = $ Net income, Equity and ROE The Return on Equity is the ratio of net income divided by equity. We assume the same dividend policy with a payout of 50%. [...]

[...] Schneider could make an offer to a potential acquisition of Square D Questions about the case study 1. Assumptions made by Lazard Frères for valuing Square D Financial projections made by Lazard To determine Square D's stand-alone value, Lazard Frères prepared a set of base assumptions for the firm's future performance as an independent entity. They projected: - Sales growth = in 1991 and thereafter - EBIT = 15-16% of sales - Net working capital = 11-13% of sales - Capex = of sales - Depreciation expenses = of sales between 1991 and 1997 and thereafter Using exhibit 6 the other data used for the valuation of Square D are: - Square D equity Beta = 0.95 - Prime rate = - Government 30-year treasuries rate = - US Federal income tax rate = 34% - State income rate = We take into account the following data because it will have an impact on the future consolidated financial statements Schneider group if the merger is made. [...]

[...] Therefore, we found a yearly market yield of The second method, based on the same daily returns, consists in the calculation of a daily geometric average. This average has been annualized and we found a yearly market yield of Assumption: Based on the information above, we decided to take into consideration a market yield of * Source: FININFO Using the Capital Assets Pricing Model, the Square D's cost of equity or discount rate is calculated thanks to the risk free rate rF ( 8.25 the equity beta β ( 0.95 ) and the market yield ( 19.4 k = rF + β x (rM rF) = + 0.95 x ( - 8.25 = Estimation of the value of Square D to Schneider, based on Lazard's assumptions The value of Square D to Schneider is the present value of the free cash flows, which are the sum of the operating cash flows, the investing cash flows and the savings. [...]

[...] FF 134 M with an exchange rate of 0.2 in February 1991. As a result, the deterioration of net income is about Consequence of the future amortization of the goodwill asset for Mr. Pineau-Valencienne Mr. Pineau-Valencienne would be partially concerned about the future amortization of the goodwill. He is concerned because of the dilution of earnings and therefore he expected that many analysts would react negatively. As a result, there would be a fall of the stock price and the pressure of the shareholders. [...]