Our second case study is about Swedish Match (HBS Case No. 9‐212‐017) and written by Bo Becker and Michael Norris. The case is copyright‐protected and can be purchased after registration. Please register at the Harvard Business Publishing website with a student account: After login, make use of the following link: https://cb.hbsp.harvard.edu/cbmp/access/42497623. Integrate answers/discussions to the following questions into your memo (Please don’t write separate answers for each question, and also the order when you answer them is not relevant. Your memo should consist of one comprehensive and well‐structured text.) Please also take the comments into account that were posted on blackboard. Case correction: There is a mistake in exhibit 2 of the case material. The year‐end share prices in SEK have to be corrected as seen below. This also affects market value of equity in the same exhibit, and potentially other financial metrics that are based on the share prices. Please use the corrected prices: Year 2000: 36.50 Year 2001: 55.50 Year 2002: 68.50 Year 2003: 73.50 Year 2004: 77.00 

Questions: 

1. Assuming Swedish Match faces a 28% tax rate on income and can issue bonds at a fixed krona yield of 4.5%, how much will the company save in taxes for a SEK4 billion recapitalization? What is the value of this interest tax shield? 

2. What will Swedish Match’s book value balance sheet look like after it completes the debt issuance and share repurchase? 

3. What will Swedish Match’s market value balance sheet look like: 

a. Right after it announces the leveraged recap? 

b. When it completes the issuance of SEK 4 billion in debt? 

c. When it completes the share repurchase? 

4. Can Swedish Match afford to borrow this much money? What are the risks? Is it realistic to expect a BBB+ rating? 

5. What else speaks in your opinion in favor or against the leveraged recap? Should the company go ahead with this new financial policy? If so, would you even approve a larger recapitalization?

Answer rating: 100% (QA)

Q1 Assuming Swedish Match faces a 28 tax rate on income and can issue bonds at foxed krona yield of 45 how much will the company save in taxes for SEK 4 billion recapitalization What is the value of i... View the full answer