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Hang Hong

on 14 October 2014

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Transcript of KOHLER

Best Strategy
Avoid of getting in the court——

Offer price converges to the
Multiples Approach
bath/kitchen section
What should the stock price be?
Control Premium & Minority Discount
Implied Median Minority Discount =
1 – [1/(1 + median control premium)]
Lead Group 8

Group member:

Qiwen Li, Fangli Ren,
Sijia Chang, Xuying Zhang,
Fei Xu, Yuhang Hong,
Zhuhan Wang

Private firm
Kohler stay in private aim to avoid reporting its financial results, which viewed as to be company’s continued success.

1. old restricted stock= 250 new restricted stock with voting class
2. 1 common stock = 1voting stock and nonvoting class series
Which dilute outsider’s control of the whole company

Ownership and Control of Kohler Co.
Our case’s main problem
Kohler Co. Share Price
Kohler’s offer price = $55,400 per share
Dissenter Group claimed price = $273,000 per share

Kohler’s Choices
Negotiate with outside stock holders
Fight with dissenter group on the court

Our Group’s Work
Value Kohler’s price per share by DCF model

Choosing comparable companies from two main groups in Kohler to estimate beta, D/E ratio and multiples

Calculating FCFF by FCFF = EBIT (1-T) + Depreciation - capital expense -changing in net working capital

Kohler Company has four different groups:
 Kitchen& Bath (NI percent=77.4%)
 Power Systems (18.06%)
 Interiors (3.54%)
 Hospitality (0.99%)

We use Kitchen & Bath and Power Systems as the main objects of study, as their total net income is over 95% of the company’s total net income.

DCF Model

Cost of Debt
= Interest Expense/Outstanding Debt
Outstanding Debt
is the sum of
Short-term borrowing
Current Maturities of LTD


Long-term Debt.

average them to get the estimated Cost of Debt 6.42%
Re=Rf+(Rm-Rf )×beta
Risk free rate: 6% (20-yr T-bill);

Market risk premium: 5.36% (historical data)
Tax Rate=Tax Expense/Pretax Income
Kohler's company by group
The D/E ratio of bath & kitchen division is 0.288; the power system division is 0.323, thus to get
weighted average D/E ratio is 0.2974.
unlever each company’s beta:unlevered beta=levered beta/(1+D/E)
Re=Rf+(Rm-Rf )×beta

FCFF=EBIT*(1-T)+ Depreciation and Amortization-capital expenditure-change in working capital.
Net debt
=Short-term borrowing + Current Maturities LTD + Long-term Debt-cash and equivalents
=195.526 million

Equity value
=Firm value – net debt = 785.06 m

=Equity value/ shares outstanding
= $

power system section
2-10% in countries with relatively effective investor protections (e.g., U.S. and U.K.)
Illiquidity Discounts
Analysts usually apply
illiquidity discount for private firms.
Four Determinants:
Type of Assets
Firm Size
Health of The Firm
Cash Flow Generating Capacity
We use 25% as illiquidity dicount
Sensitivity Analysis
Proposed Share Price:
Kohler: $55,400
Dissenting shareholders: $273,000
Price Range in Sensitivity Analysis:
From $65,840 to $81,147
EBITDA= Operating income after Depreciation
+ Depreciation and Amortization
EBIAT=opearting income after depreciation*(1-T)
3 year's data
Full transcript