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Introduction to Valuation of Foreign Firms/Projects

Introduction to Valuation of Foreign Firms/Projects. International Finance: II Dick Sweeney. Foreign Valuation. Different from valuation of domestic firm (or project ) for M&A purposes Standard valuation problem for domestic M&A

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Introduction to Valuation of Foreign Firms/Projects

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  1. Introductionto Valuation of Foreign Firms/Projects International Finance: II Dick Sweeney

  2. Foreign Valuation • Different from valuation of domestic firm (or project) for M&A purposes • Standard valuation problem for domestic M&A • One firm to take over another completely, or starts a wholly owned project/subsidiary • Only need to look at total value of target/project • Acquiring firm gets all the cash flows

  3. Foreign Valuation (cont.) • Very different for foreign company/project • Usually have equity partners • Typical to have host-country partner, often required • Usually have multiple sources of debt financing • Finding best equity and debt partners is art of project financing • Examples: International Finance Corp. of World Bank; U.S. Ex-Im Bank or OPIC

  4. Foreign Valuation (cont.) • Need to value company/project as a whole • Use Free Cash Flow approach • Like finding out the “size of the pie” • Also need to value the cash flows going to each partner in project • Use discounted cash flow approaches comparable to FCF approach • What “slice” does each partner get? • Each partner has to be “happy” for success

  5. PPP and Real Exchange Rate • Discuss PPP, but focus on use for valuation • Means focus on real exchange rate • In foreign valuations, real exchange rate is a key • Real rate’s effects are often hidden • Often ignored, but still there, still a key • Bring it out in the open • Not hard if done right • Helps you be in charge of foreign valuation

  6. Robin Cases • Short cases, like programmed learning • Completely re-written to be clearer, more transparent, more complete • Set in Indonesia • Prepare you for Vick and Corning Indonesia cases • Look at pro formas in Rupiahs, in USD, in real USD • Go behind typical international pro formas

  7. Vick and Corning cases • Classic cases about developing countries, especially Indonesia • Not written as valuation cases • In some ways, all the better • Makes them more demanding, you learn more • Do not worry—I am there to help you with the major issues, and with the tricky hurdles • Lots of handouts to help with solutions

  8. Case discussions, presentations • The Robin cases have questions for discussion, and they really are for discussion, not for case presentation in class • The Vick and Corning cases lend themselves to case presentations • Really four cases • Two on total value • Two on value to single claimant

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