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Corporation Strategy Analysis and Valuation

Corporation Strategy Analysis and Valuation. Bass and Whitbread. Brands. Introduction. Analysts representing an International Consulting Group Specialising in Business Strategy and M&A Asked to prepare presentation to the board of a rival company Your company is looking for:

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Corporation Strategy Analysis and Valuation

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  1. Corporation Strategy Analysis and Valuation Bass and Whitbread

  2. Brands

  3. Introduction • Analysts representing an International Consulting Group • Specialising in Business Strategy and M&A • Asked to prepare presentation to the board of a rival company • Your company is looking for: • How much you will need to pay? • Understanding of corporate strategy – opportunity for fit? • Understand the strategic choices made by each company over the past several years

  4. Consultants Sharon Hodgson Quentin Cole Gary Woodman Bob Jose

  5. Purpose • Evaluate each company in terms of: • Financial performance • Relative shareholder value creation • Analyse strategy in relation to performance • Conceptualise strategy and suitability to the industry

  6. Industry Overview • Brewing industry • Important part of history • Adversely effected by Government regulation in 1989 • Consolidation in marketplace for horizontal integration • Fragmentation of global brewing market • Restaurant/Hotel industry • Effect of social and demographic changes • High cost to entry • Globalisation of companies • Resulting in M&A activity to reduce costs, increase quality & service Mass exodus from brewing industry

  7. Whitbread Snapshot • Leading UK leisure provider • Leading health and fitness club operator • Largest budget hotel chain in Uk - 262 Travel Inns • 1,600 restaurants in Uk and Europe Turnover down -17% to £3095m Operating Profit down 4% to £394.8m Loss of £17.9m on disposal of Beer Company Dividend per share up 6% to 31.15p Adj. EPS down -1% to 53.49p

  8. Whitbread Major Events • 1989 – Acquired Boddingtons Brewery • 1990 – Acquired Berni chain restaurants • 1995 – Acquired Marriot Hotels & David Lloyd Leisure (16 clubs) • 1998 – First significant disposals • 2000 – Sold Whitbread Beer Company for £394 m • Acquisition of Swallow Group • Sold 50% share of First Quench for £112 m • JV with Punch Group to develop Travel Inns • 2001 – Fairbar – combined pubs and bars group, sold for £1.6bn (£1.1bn went to shareholders)

  9. Growth matrix for Whitbread Breweries (star pre 1990) Business growth rate  David Lloyd health and fitness clubs ? Whitbread Hotel Co. Marriott Swallow Travel Inns Restaurants (pre 1990) H L £ Restaurants Beefeater, Pizza Hut Brewers Fayre TGI Fridays Costa Coffee  Pelican Group Bella Pasta Café Rouge Mamma Amalfi Pubs/drinks (pre 1990) Breweries/pubs (disposed 00/01) H L Market share

  10. Bass (Six Continents) Snapshot • Turnover up 22.8% to £3775m • Operating Profit up 24.8% to £776m • Profit on Disposal of Bass Breweries £1,231m • Dividend per share up 3.1% to 33.3p • Adj. EPS up 8.9% to 62.2p • “Leading Hotel Group and UK’s leading operator of managed restaurants, pubs and bars” • 3060 Hotels • 491,000 Rooms • 6 continents

  11. Bass Major Events • 1989 – Acquire Holiday Inns International • 1990/01 – Cultivate and build Holiday Inn Brands • 1994 – Crowne Plaza & O’Neills brands launched • 1996– MMC blocks acquisition of Carlsberg-Tetley and Disposal of low growth/low profit companies • 1998 – Acquisition of Inter-Continental Hotels for £2 bn. • 2000 – Sell brewing arm and the Bass Brand • 2001 – Acquires Posthouse UK and hotels in Australia and US • 2001 – Bass changes name to Six Continents • Chief Exec headhunted

  12. Growth matrix for Bass Breweries (star pre 1990) Business growth rate  Harvesters O’Neills Ember Inns Toby ? Intercontinental Crowne Plaza Holiday Inn Holiday Express Restaurants (pre 1990) H L £ Hotels - building  Britvic/Pepsi Hotels (2000 Onwards) Breweries/pubs (disposed 00/01) H L Market share

  13. Strategies Compared

  14. Financial Performance

  15. Current Share Price Bass 722p 22/11/01 High 1175p Low 438.5p Whitbread 564p 22/11/01 High 1130p Low 421p

  16. Comparative Share Price

  17. Earnings Comparison

  18. Dividend Comparison

  19. Investor Analysis • Bass share price out-performing Whitbread and Hilton • Bass out-performing FTSE 100 by 12.5% • £1000 invested Jan 1994: • Bass gain of £486.16 (£1487.32) • Whitbread loss of £29.40 (£975.72) • Is this the whole story?

  20. Turnover Comparison

  21. Profitability Comparison

  22. Profitability Comparison

  23. ROCE Comparison

  24. Liquidity Comparison

  25. Gearing Comparison

  26. Valuations Market Capitalisation Whit:£1669.91 Bass: £6250.12 NAV Whit: £2645.70 Bass: £5379.00

  27. 3 Year PE Comparison

  28. Dividend Valuation Method

  29. Effect of growth rate changes

  30. Earnings Valuation Method

  31. Summary of Valuations

  32. Conclusion

  33. Questions?

  34. Thank You!

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