Atlantic Corporation – Abridged Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

Atlantic Corporation – Abridged Case Study Help

Scenario 3:

In Scenario 3, the estimation of the enterprise value was based on the combination of both scenario 1 and scenario 2. The enterprise value was calculated as ($20.67) and the discount rate of 106%. In Scenario 3; the enterprise value is more negative as compared to other two scenarios.

Based on the analysis of each scenario; the assumptions made in Scenario 1 would be questioned because due to the change in utilization rate, price per ton, cash cost and Box plant EBTD; there was a significant increase in the discount percent, which led towardsa negative enterprise value as shown in Appendix C.

Comparable transactions analysis

A number of players are offering their products in the forest products industry, which mainly include: Atlantic Corporation, Stone Container, Champion International, Union champ, International Paper, and Royal Paper. Thus, the comparable analysis was performed by using three factors, i.e. stock price, EPS 1983, and DPS 1983.

In the stock price analysis, Union Champ represented highest stock price i.e.82 and Champion International had the lowest stock price i.e. 29. Comparatively, the stock price of Atlantic Corporation and Royal Paper was 32 and 37. Similarly, in the EPS analysis, Union Champ represented highest EPS value i.e.5.45 and Atlantic Corporation had the lowest DPSvalue i.e. 0.98. Comparatively, the EPS value of Atlantic Corporation and Royal Paper was 0.98 and 2.4. Furthermore, in the DPS value analysis, Union Champ represented highest DPS value i.e.4 and Champion International had the lowest DPS value i.e. 0.4. Comparatively, the DPSvalue of Atlantic Corporation and Royal Paper was 0.8 and 1.12 as shown in Appendix D.

Magnitude of Atlantic’s total external financing needs

Line Credit

The evaluation of the line credit to determine the financial needs of the organization for next four years,was based on the assumed acquisition cost i.e. $319 million. Based on the analysis the forecasted common equity of the four years i.e. 2242 was divided by the current share price i.e. 32.Theestimated share price was calculated as: 70.0625.

Issuance of $400 million debentures over 25 years of maturity

The evaluation of the Issuance of $400 million debentures over 25 years of maturity to determine the financial needs of the organization for next four years, was based on the assumed acquisition cost i.e. $319 million. Based on the analysis the forecasted common equity of the four years, i.e. 2242 was divided by the current share price i.e. 32; the estimated share price was calculated as: 70.0625.

Issuance of $300 million of common stock

The evaluation of the Issuance of $300 million of common stock to determine the financial needs of the organization for next four years, was based on the assumed acquisition cost i.e. $319 million. Based on the analysis, the forecasted common equity of the four years i.e. 2252 was divided by the current share price i.e. 32, and the estimated share price was 78.8125 as shown in Appendix E.

Recommendation

Based on the financial analysis of the organization;Atlantic Corporation is recommended to pursue the third financing option i.e. issuance of common stock, in order to acquire the Royal Paper.Although the payout ratio is the same for all the three financing options,but the long-term debt is highest in the first option. Similarly, the dividend is less in option 2 as compared to the option 3,whichindicates toa lack of shareholder’s interest inthe organizational value and generation of less profit. Despite high percent of current assets in option 2; the share price value of option 3 is the highest. Thus, the approach to acquire Royal Paper is considered beneficial for the organization’s future growth. The acquisition would allow the organization to strengthen its capacity to linerboard production and sales and ensure the sustained profit generation of box plants....................................

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