PAGINAS AMARELAS Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

PAGINAS AMARELAS Case Solution

Introduction

Brasil Investments was a conglomerate in Brazil that was worth billions of dollars.The company hired J.P Morgan & Company, a financial intermediary, to advise the company regarding their phone directory business that was operated in three different countries as their subsidiary company “PAGINAS AMARELAS”.
The telephone directory industry was expecting major changes, which may result in increased competition in the industry due to the reason that the governments of developing nations were not privatizing the phone directories companies. Brasil Investments, therefore, had to decide whether to sell this business or restructure the company, hence allowing it to tackle the increased competition.
Therefore,J.P Morgan had the task of valuing the business and as a result advising Brasil Investments about their decision. J.P Morgan faced several issues while valuing the businesses as the company operated in three different countries and it became difficult to decide what techniques to use.

Parties Involved

The parties that were mainly involved in the case are as following;

Brasil Investments
Brasil Investments was a major Brazilian conglomerate company and it had an annual profit of $140 million. The company was a parent company of PAGINAS AMARELAS, the telephone directory company.
The management of the company was considering the impact of changes in the telephone directory industry and was planning to either sell the subsidiary or restructure it.

J.P. Morgan & Company

J.P Morgan was a financial services provider and was amongst the top 4 U.S commercial banks. J.P Morgan was hired by Brasil Investments for advice and to analyze the business conditions and environment and to identify the issues that made the valuation of the company more complex. Issues such as which discount rate to use or the currency to use in valuation etc. affected the valuation of the company.

Industry Background

The industry in which PAGINAS AMARELAS operated was telephone directory industry.The. main purpose of the business was to sell telephone directories to businesses and professionals. The main source of income of the companies in this industry was from advertising. Therefore, the industry could be said to be similar to newspaper industry as both derive revenue from advertising space and the main costs for both the industry are costs of paper, printer and distribution.
The main customers of the industry were generally municipality and therefore,companies in the industry generally placed contracts with municipalities. The contract was taken by an auction and as a result,the most economic bidder received the contract. The advertising income was shared with the local telephone authorities and about 40% to 45% of revenue was given to them.
Almost all Latin American countries were ruled under the military dictatorships and in the recent past democratic the systems were being adopted by these countries, therefore political stability was expected. Democratic systems usually promote better business relations with other countries. Therefore,PAGINAS AMARELAS was expected to benefit from these improved stable governments. The Mexican pesos crisis was a major incident that affected the economies of Latin America widely as many countries were forced to depression due to this incident.
The three countries in which PAGINAS AMARELAS operates have the following conditions in their telephone directory market;.................

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