Procter & Gamble continues its strategy of focusing its portfolio on Health and Beauty Aids, and so

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Question:

Procter & Gamble continues its strategy of focusing its portfolio on Health and Beauty Aids, and so has decided to sell its Bounty Paper Towels business. You are the Manager of Corporate Development for Kimberly-Clark, owners of Scott Paper Towels, and your boss has asked you to study the possibility of buying Bounty.

P&G has provided you with a projection of their Base Case EBITDA forecast:

2021: $50M 2023: $60M 2025: $64M

2022: $55M 2024: $62M

With the help of Scott division management, you have identified potential revenue synergies of $8M per year and cost synergies of $7M per year, upon integrating Bounty into the operation.

Using the Discounted Cash Flow model, should you recommend buying Bounty? Use the following assumptions: 1) P&G will sell for a small 15% premium over the Base Value and 2) your discount rate (weighted average cost of capital or WACC) = 10% Show your math below. Ignore perpetuity value (value after year 5)

Base Case Value of Bounty=

Price to be paid to P&G=

Value to Kimberly-Clark of Bounty=

Potential ROI of Buying Bounty=