A supermarket chain (Foodco) trades publicly at 6x EV/EBITDA, like most other such chains. EV= market value
Question:
A supermarket chain (Foodco) trades publicly at 6x EV/EBITDA, like most other such chains. EV= market value of net debt + equity.
Few investors know of Foodco’s Internet payment subsidiary, which operates independently of the supermarkets. The payment business (FinPay) now represents 15% of Foodco’s total EBITDA. Similar publicly-traded Internet payment firms are priced at 12x EV/EBITDA.
Assume Foodco obtains IRS and SEC approval to “spin-off” FinPay shares to Foodco shareholders on a tax-free, one share for one share basis. How much extra value might be created? Please complete the table below.
Present Situation
Foodco | |
Foodco Share Price | $ 10 per share |
EBITDA | 100 million |
Enterprise Value | 600 million |
Debt | -0- |
Excess Cash | -0- |
Shares Outstanding | 60 million |
Pro Forma after Spin off | |
Foodco Share Price | $10 per share |
Foodco EBITDA | 100 |
EV | ? |
Debt | -0- |
Cash | -0- |
Foodco Shares Outstanding | 60 million |
FinPay Share Price | ? per share |
EBITDA | ? |
EV | ? |
Debt | -0- |
Cash | -0- |
FinPay Shares Outstanding | 60 million |
Expert Answer:
Solution Answer Extra value created 90 million The table has been completed below Pro Forma ... View the full answer
