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Firm Valuation

Firm Valuation. Lecture 7. Trading and Operating Comparables. Aggregate Value Market Value Revenue EBITDA EBIT Net Income Total Debt Book Value/Share EPS LTM Revenue, Net Income, EBITDA growth rates P/E TSR. HD Lowe’s Market Cap $78.6B $46.6B

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Firm Valuation

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  1. Firm Valuation Lecture 7

  2. Trading and Operating Comparables • Aggregate Value • Market Value • Revenue • EBITDA • EBIT • Net Income • Total Debt • Book Value/Share • EPS • LTM Revenue, Net Income, EBITDA growth rates • P/E • TSR

  3. HD Lowe’s Market Cap $78.6B $46.6B Enterprise Value 84.7B 49.1B 1 yr TSR (9.5)% 4.3% 3 yr TSR 8.4% (6.3)% 2007 AV/EBITDA 7.0X 7.0X 2007E P/E Ratio 11.9 13.9 2008E P/E Ratio 10.7 12.2 Credit Rating Aa3/AA A1/A+ Profile of Home Depot & Lowe’s

  4. ROIC and P/E Multiples

  5. Purchase price per share $12 %Premium to Current price 20% Fully Diluted Shares Outstanding 100M Implied Equity Value $1.2B Plus Net Debt 0.4B Implied Aggregate Value $1.6B Current EBITDA $150M Implied AV/EBITDA 10.6X Aggregate Value Analysis

  6. Financial Outlook Analysis

  7. Characteristics of Top Performing Firms • Capital Efficiency • Working Capital Efficiency • Increasing Return on Invested Capital • Rising Incremental Relative P/E values • Bottomline Limited Capital Requirements and High NOPAT margins generate strong ROIC

  8. Sale Process Alternatives • One Party- Negotiated Sale Contact One Party • Controlled Limited Auction • Open Broad Auction • Publicly Announce Pursuing Strategic Alternatives

  9. Factors in the Decision • Shareholder • Marketing • Senior Management • Employees • Contract • Community

  10. Factors in the Decision • Marketing • Confidentiality • Number of potential Bidders • Timing • Information Flow

  11. Factors in the Decision • Senior Management • Willingness to stay on • Depth of the team • Contracts/Severance • Incentive-Stay Pay Agreements

  12. Factors in the Decision • Employees • Future Opportunity • Benefits • Job Security • Culture

  13. Factors in the Decision • Structure of the Deal • Representations and Warranties • Indemnifications • Closing Conditions

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