A “Compelling And Pre-Emptive” Offer For The Valspar Corporation Harvard Case Solution & Analysis

A “Compelling And Pre-Emptive” Offer For The Valspar Corporation Case Study Solution

Question 3

The EV/EBITDA and EV/Sales multiples are used to determine the share price of the Valspar Corporation. The high and low industry EV/EBITDA ratio of 9.1 and 13 is multiplied with the Valspar’s EBITDA in 2015, out of which the debt is subtracted and divided by the total number of outstanding shares, resulting in the share prices of $57.96 and $92.45 respectively.

Similarly, the high and low industry EV/Sales ratios of 1.2 and 2.5 are multiplied with the Valspar’s sales in 2015, out of which the value of debt is subtracted and divided by the total number of outstanding shares, resulting in the share prices of $41.42 and $110.69 respectively. The share price through both the multiples are less than the offered price of $106 by Sherwin William except the at the high EV/Sales multiple.

Question 4

The stock prices calculated through DCF valuation ranges from $212.97 per share to $689.99 per share, and the stock value calculated through multiple valuation has a range of $101.23 to $107.00 per share, as shown in the following chart:

Question 5

The offer price above $106 would be attractive to the Valspar’s management, and it would also best serve the shareholders’ interest as the standalone value of the Valspar’s stock is $78.08 per share. Moreover, the offer price should be greater because of the various synergies providing the strategic collaboration,i.e., the acquisition would reduce the company’s expenses as given below, which would ultimately lead towards higher profitability and EPS per share, which is a very attractive measure for the firm’s shareholders.

Question 6

As shown in the stock summary; the better valuation results are offered by the DCF valuation as compared to multiple valuation. It is because, the DCF valuation takes into account the future cash flows and terminal value and determines the share value by discounting all of the future cash flows at the current level, while the multiple valuation does not take into account these future cash flows.

So, according to DCF valuation; the price offered by Sherwin William should range between $78.08 to $118.84.............

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