Case: OldTown Berhad

After reading the case and doing the three-part analysis requested below, be able to explain why you would or would not recommend accepting RM 3.18 per share.

1. Approach 1: Projecting Expected Future Net Cash Flows.
   1. What growth rates, discount rate and terminal values are appropriate here if the Capital Asset Pricing Model is used? Growth rate of what? What information do you have? Is this estimate for a shorter planning period? Or, for a terminal value estimation?
   2. What value would you put on each share? Are there any difficulties of estimation?

2. Approach 2: Projecting Future Expected Dividends.
   1. Estimate the cost of equity and the share value using the Gordon Growth Model of discounting future dividends.
   2. How do your estimates of future growth rates of dividends affect your share valuation estimates?
3. Approach 3: Implied Growth Rates for Earnings, EBITDA or Dividends
   1. Look at the multiples shown in Exhibit 6. What are the implied growth rates for target companies EBITDA? Earnings? Revenues?
   2. What can you learn from this data?
   3. Would this change the valuation you place on each share?

4. If there are valuation differences in your answers above, how would you reconcile what you have found? How best to deal with the fact that both the growth rate and the discount rate are estimates? How best to structure a credible valuation model?

5. Does the offered acquisition premium affect your answer?

6. Again, the central question is whether you would you recommend accepting RM 3.18 per share. Be prepared to recommend one way or the other, even if you are not certain.