Imagine that you are the CEO of Moet Hennessy Louis Vuitton SE (LVMH). You have just received share price valuation estimates for a potential buyout target, Rimowa, from two of your top financial analysts. You have confidence in their estimates because they have taken FIN 305 from the Shidler College of Business. Both analysts used the discounted cash flow (DCF) model to estimate the share price resulting in a valuation of $50, by the first analyst and $60, by the second analyst.

Part I: Identify two possible causes for the significant difference in valuation and briefly explain how each possible cause affected the DCF model’s share-price estimate.

Part II: You made a buyout offer of $55 a share and Rimowa’s CEO rejected it. The German luxury luggage brand Rimowa is crucial to LVHM’s strategic expansion into brands that have heritage and a unique position. As the CEO of LVHM what would you do to meet LVHM’s strategic objective while minimizing the cost to acquire Rimowa? Briefly defend your recommendation.

Answer rating: 100% (QA)

Two possible causes for significant difference in valuation could be as follows 1 D... View the full answer