Recommended
Recommended
More Related Content
What's hot
What's hot (20)
Viewers also liked
Viewers also liked (10)
Similar to AIG/IBA M&A Case Competition Finalist Presentation
Similar to AIG/IBA M&A Case Competition Finalist Presentation (20)
Recently uploaded
Recently uploaded (20)
AIG/IBA M&A Case Competition Finalist Presentation
- 1. 11/21/2015 KICC Application 1 Goizueta Finance Group 2015 M&A Competition Benjamin Detemmerman, Benjamin Poon, Jia Tang, Kasper Stockel, Michael Bolliger Synergy is Still King NAVIS Global
- 2. Company & Industry Problem Analysis Whole Foods should merge with Publix Merging with Publix allows shareholdersā gain to be maximized Overview Problems & Solution Financials Whole Foods should not go private with Blackstone Executive Summary 11/21/2015 2GFG M&A Competition 2015
- 3. Company and industry overview 11/21/2015 3 Mission To promote the vitality and well- being of people by supplying the highest quality, most wholesome foods available. Locations 412 9 10 Growth rate ā¢ Grocery market 3% ā¢ Natural retail market 9% Company IndustryCompany Industry Core competence ā¢ Premium quality brand ā¢ Superior customer shopping experience GFG M&A Competition 2015
- 4. Increasing costs & competitions hamper Whole Foodsās growth 11/21/2015 4 Missing Targets by Sales Growth -0.6% Sales/Square Foot -5% ROIC -0.6% Gross Margin is narrowingCOGS is growing Same store sales growth decelerated The only driver of growth is expansion CostsCompetition 20% COGS 2013-15 0% 2% 4% 6% 8% 10% 2011 2012 2013 2014 2015 Same Store Sales Growth 34.8% 35.0% 35.2% 35.4% 35.6% 35.8% 36.0% 2013 2014 2015 Gross Margin 290 315 340 365 390 415 440 2011 2012 2013 2014 2015 Number of Stores Results: Falling short of expectations GFG M&A Competition 2015 Key Question: How to maximize shareholder value in the long run?
- 5. Whole Foodsās possible alternatives 11/21/2015 5 Go private and get acquired by Blackstone Merge with Publix Others? GFG M&A Competition 2015
- 6. Whole Foods should not be acquired by The Blackstone Group 11/21/2015 6 ā¦.while Whole Foods is not the caseCompanies that go private with PE are usually Whole Foods currently has If Whole Foods goes private with PE ā¢ Mature firms with no growth prospect ā¢ Struggling with a FCF problem ā¢ In need of capital restructuring ā¢ Suffering from agency problem ā¢ The industry is growing, and Whole Foods ranks first ā¢ FCF/OCF = 25.94% ā¢ High debt capacity ā¢ Committed executives ā¢ Sound long-term plans ā¢ Low market price ā¢ Restructure of management level ā¢ Short-sighted, strategies made to ensure a profitable exit strategy in 3-5 years ā¢ Disadvantageous to shareholdersā gains GFG M&A Competition 2015
- 7. Whole Foodsās possible alternatives 11/21/2015 7 Go private and get acquired by Blackstone Merge with Publix Others? GFG M&A Competition 2015
- 8. Whole Foods should merge with Publix 11/21/2015 8 Whole Foods Market ā¢ The largest natural and organic foods supermarket in the U.S. ā¢ 433 stores worldwide, including UK, Canada and across 42 U.S. states Publix ā¢ One of the 10 largest-volume supermarket chains in the U.S., rank 1st in Florida ā¢ 1,109 store locations in 6 Southern states åé·č£ē,ēøå¾ēå½° (Compensate our weaknesses while gain through combined strengths) GFG M&A Competition 2015
- 9. How are the synergies going to benefit Whole Foods 11/21/2015 9 Cost Synergies Growth Synergies ā¢ Significant reduction of COGS ā¢ Reduction of overhead costs ā¢ Having access to pharmacy industry and boost product sales ā¢ Increase in online sales ā¢ Cross-selling opportunities 0% 2% 4% 6% 8% 10% 2011 2012 2013 2014 2015 Same Store Sales Growth 34.8% 35.0% 35.2% 35.4% 35.6% 35.8% 36.0% 2013 2014 2015 Gross Margin GFG M&A Competition 2015 Narrowing Gross Margin Decelerated Sales Growth Benefits from SynergiesExisting Problems
- 10. Synergy benefits under different scenarios 11/21/2015 10 ā¢ Overhead savings 4% ā¢ COGS savings of 3.5% ā¢ EBITDA margin on Pharmacy products 8.5% ā¢ Overhead savings 2% ā¢ COGS savings of 2% ā¢ EBITDA margin on Pharmacy products 7.1% but sales 20% below expectations ā¢ Ready to eat products 22% below expectation 18.63% 39.45% 11.86% 30.05% 0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00% 70.00% 80.00% 90.00% 100.00% Worst Case: $4.69bn Cost Synergies and Merger Gains Overhead Costs COGS Pharma Extension Ready to eat extension 20.50% 39.24% 10.89% 29.37% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Best Case: $7.73bn Cost Synergies and Merger Gains Overhead Costs Cogs Pharma Extension Ready to Eat Extension ā¢ Overhead savings 2.5% ā¢ COGS savings of 2.5% ā¢ EBITDA margin on Pharmacy products 7.9% 15.74% 37.23% 13.07% 33.96% 0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00% 70.00% 80.00% 90.00% 100.00% Base Case: $5.81bn Cost Synergies and Merger Gains Overhead Costs Cogs Pharma Extension Ready to Eat Extension Best Case Base Case Worst Case GFG M&A Competition 2015 Growth Synergies Cost Synergies Growth Synergies Cost Synergies Growth Synergies Cost Synergies
- 11. Whole Foods shareholder gains 11/21/2015 11 ā¢ Publix pays a 20% premium to acquire all of Whole Foods Shares ā¢ 1 WFM to 1.8 Publix share exchange rate ā¢ WFM Shareholders own 45% of the total shares of the post-merger firm ā¢ Why Shares? So WFM Shareholders maintain an ownership stake Merger Approach: Exchange of Shares BEST CASE BASE CASE WORST CASE Post-merger firm now worth $34.06bn $32.02bn $30.95bn Total gain to Whole Foods shareholders $16.10bn $14.84bn $14.23bn
- 12. Buyout may be unfavorable ā Whole Foods is currently underpriced ā¢ Growth uncertainty and increasing competition drives down current price ā¢ Whole Foods share is underpriced: ā¢ Current share price: $29.93 ā¢ Intrinsic value: $34.45 11/21/2015 12GFG M&A Competition 2015
- 13. Comparison of Alternatives ā¢ Blackstone pays a premium to take Whole Foods private. ā¢ The worst case merger scenario would generate higher returns than a 30% premium. ā¢ The best case merger scenario would generate higher returns than a 50% premium. 11/21/2015 13GFG M&A Competition 2015
- 14. Merging with Publix is always the best option 11/21/2015 14 ā¢ Highly unlikely ā LBO Industry Premium Avg. of 24.3% ā¢ Best alternative for Whole Foods shareholders is to merge GFG M&A Competition 2015 10.00 11.00 12.00 13.00 14.00 15.00 16.00 17.00 WFM Current Value Historic Avg. Premium 30% PE Case Worst Case 50% PE Case Best Case Comparison of Alternatives
- 15. Whole Foodsās possible alternatives 11/21/2015 15 Go private and get acquired by Blackstone Merge with Publix Others? GFG M&A Competition 2015
- 16. Why Whole Foods is the best fit for Publix? 16 Financial ā¢ Increasing sales in natural and organic food industry ā¢ Unleveraged ā¢ Solid cash positions (FCF/OCF=25.94%) ā¢ The largest natural and organic foods supermarket in the U.S. ā¢ Strong brand image ā¢ National presence, covering 42 states ā¢ Global presence Geographical Brand Cultural ā¢ Great cultural fit Strategy Compatibility GFG M&A Competition 2015
- 17. 11/21/2015 KICC 2014 17 Donāt sell the chicken that lays golden eggs. å„ę®ŗēéčēé
- 18. Index Page 11/21/2015 AIG M&A Case 2015 18 ā¢ Cover Page ā¢ Executive Summary ā¢ Company Overview ā¢ Problem Analysis ā¢ Alternatives Tree ā¢ M&A with Blackstone ā¢ Bad Timing - Underpriced ā¢ M&A with Publix ā¢ Synergies ā¢ Scenario Analysis ā¢ Shareholder Gains ā¢ Financial Comparison ā¢ Whole Foods is the best fit for Publix ā¢ Appendix: ā¢ Risk & Mitigation ā¢ Implementation Timeline ā¢ Historical LBO Premiums ā¢ Distribution of Merger Gains ā¢ Alternatives Evaluation ā¢ Position Map ā¢ Synergies with Publix Pharmacy ā¢ Key Assumptions of Synergy Calculation ā¢ Calculation of Total Shareholder Value
- 19. Appendix: Risks & Mitigation 11/21/2015 AIG M&A Case 2015 19 Risks 1. Risk of adverse selection 2. Cultural risks: both companies have distinct cultures with could result in incompatibilities, lower productivity, turnover of key talents 3. Strategic risk leading to costly diversion: Mitigation 1. Risk of adverse selection: Incentivize actions by performance- contingent payout structures and other incentive structures 2. Cultural risks: walk the talk and articulate the mission and vision of the new company on a steady basis. 3. Strategic risk leading to costly diversion: Clear process planning and scenario technique to address unexpected outcomes Index Page
- 20. Appendix: Implementation Process 11/21/2015 AIG M&A Case 2015 20 2016 2017 2018 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q Overhead Costs Gradual Implementation COGS Cost Savings Pharmacy Pre-launch marketing Post-launch marketing Ready-to-Eat WFM Ready-to-Eat in Publix Evaluation and improvements 1 Year Pilot covering 10% of Publix Stores Planning Phase of 2 Years Index Page
- 21. Appendix: Historical LBO Premiums 11/21/2015 AIG M&A Case 2015 21 Index Page
- 22. Appendix: Distribution of Merger Gains 11/21/2015 AIG M&A Case 2015 22 Index Page ā¢ Merged Company Value: $34.06bn ā¢ WFM Shareholders Value $16.1bn ā¢ Merged Company Value: $32.07bn ā¢ WFM Shareholders Value $14,84bn ā¢ Merged Company Value: $30.95bn ā¢ WFM Shareholders Value $14.23bn Best Case Base Case Worst Case 68.95% 31.05% Best Case Distribution of Merger Gains Whole Foods Shareholders Publix Shareholders 71.00% 29.00% Base Case Distribution of Merger Gains Whole Foods Shareholders Publix Shareholders 76.90% 23.10% Worst Case Distribution of Merger Gains Whole Foods Shareholders Publix Shareholders
- 23. Appendix: Alternatives Evaluation 11/21/2015 KICC 2014 23 Customer Base Expansion 4 0 0 5 Cost of Implementation 4 3 4 2 Time Needed 3 3 3 1 Ease of Implementation 3 4 3 1 More DesirableLess Desirable Merging with Publix Acquired by Blackstone International M&A Integrate with suppliers 0 1 2 3 4 5 Index Page
- 24. Appendix: Position Map 11/21/2015 AIG M&A Case 24 FreshFoodNon-perishable Premium Value Index Page
- 25. Appendix: Synergy potential of Pharmacies in Whole Food Stores 11/21/2015 KICC 2014 25 ā¢ Publix Pharmacies open new growth driver for the merged company ā¢ In-store pharmacies to provide health consulting to advice customers on diets, nutrition, and weight loss by eating more organic and natural foods in order to prevent diabetes and high cholesterol. ā¢ Future Vision: expand health services to Whole Foods Markets Index Page
- 26. Appendix: Key Assumptions of Synergy calculation 11/21/2015 KICC 2014 26 ā¢ Three Cases considered ā¢ Best Case: 4.4Bn ā¢ Base Case: 3.1Bn ā¢ Low Case: 2.7Bn ā¢ 38.5% Tax Rate ā¢ WACC 9.2% ā¢ EBITDA margins of 8.5% ā¢ Ramp up of synergies of 5 years Key Assumptions of Synergy calculation Index Page
- 27. 11/21/2015 KICC 2014 27 Index Page Appendix: Calculating the Total Shareholder Value Publix P $20,00 WFM P $29,93 Publix # 777090000 WFM # 357860000 Publix V $15.541.800.000 WFM V $10.710.749.800 Premium 20% Price Paid $12.852.899.760 Shares Issued by Publix to pay for WFM 642644988 Total Shares post-merger 1419734988 Share Exchange Rate 1,80 Publix Shares for each WFM share Apparent Cost $2.142.149.960 PVCS $5.818.000.000 Apparent NPV Publix $3.675.850.040 Value of New Company $32.070.549.800 New Stock Price $22,59 True Cost $3.806.028.518 True NPV Publix $2.011.971.482 WFM Shareholders get 3806028518 65,42% of the merger gains Publix Shareholders get 2011971482 34,58% of the merger gains WFM Shareholders now have 45,27% of the total shares in the new company Publix Shareholders now have 54,73% of the total shares in the new company WFM total shareholder value $14.841.722.170 Publix total shareholder value $17.228.827.630 $32.070.549.800 71.00% 29.00% Base Case Distribution of Merger Gains Whole Foods Shareholders Publix Shareholders