Kraft and Cadbury have settled on terms, with Kraft increasing its offer from about $17 billion to $19.5 billion, in a deal that is part cash purchase, part stock-swap.
Hershey had apparently been planing a white-knight offer of $17.9 -- Kraft has obviously now leapfrogged past that. This purchase price is a multiple of 13 times Cadbury's underlying 2009 EBITDA.
I don't believe I've ever defined that acronym in this blog. Just for the record, then, EBITDA means "Earnings Before Interest, Taxes, Depreciation, and Amortization."
The acronym became popular when analysts noticed that the P/E ratio could otherwise be very misleading. According to an older theory, if a corporation's stock price reflected a low ratio of market cap to earnings, the stock itself was undervalued, and a good investment. Obviously, that is a theory that runs into some difficulty given the premise that capital markets are efficient (or even not horribly inefficient) at incorporating such data. But never mind that for now.
No ... the fatal problem for the P/E ratio, as it turned out, was that the earnings number incorporated a lot of fluff in terms of distinct ways of computing amortization, etc. EBITDA, then, is the "E" part of the P/E ratio with the subjective or fluffy stuff taken out, which is supposed to be a more relevant number for purposes of comparison.
As it happens, the "price" side of the old P/E ratio has been modified too over the years for the purposes of analysis. Instead of price-to-EBITDA, one often hears about Value to EBITDA, with value defined as price (i.e. market cap) + the market value of debt. That particular refinement is a subject for another day.
We'll give the final word to Cadbury Chairman Roger Carr: "We believe the offer represents good value for Cadbury shareholders and are pleased with the commitment that Kraft Foods has made to our heritage, values and people throughout the world. We will now work with the Kraft Foods' management to ensure the continued success and growth of the business for the benefit of our customers, consumers and employees."
Showing posts with label market capitalization. Show all posts
Showing posts with label market capitalization. Show all posts
Wednesday, January 20, 2010
Monday, February 11, 2008
More About That Furniture Company
As I indicated yesterday, Costa Brava, the hedge fund managed by Roark, Rearden, & Hamot, wants to take over the board of a Virginia based furniture company.
It is a challenging business in these days of disintermediation, and Bassett has been shrinking. Of course, they prefer words like "consolidating" and "cost-cutting." But they're shrinking.
In the words of their latest annual report, "Over the last seven years, we have reduced our number of facilities from 13 to 3 and reduced our headcount from approximately 4,200 to 1,450. During 2007, we closed a large wood manufacturing facility in Bassett, Va. This resulted in headcount reductions of approximately 280 employees and leaves us with one small wood assembly plant in Martinsville, Va., one fiberboard supply facility in Bassett, Va., and one upholstery facility in Newton, N.C."
They also seem nowadays to receive a lot of their income not from the furniture business at all, but from running their own portfolio. They have $51.8 million invested in The Bassett Industries Alternative Asset Fund LP.
Hmmm. So is Costa Brava actually trying to obtain control over the furniture company -- that wood assembly plant, the fiberboard supply facility, the upholstery facility -- or is this a matter of one hedge fund trying to merge with another. Except that the merger target still has some of the trappings of a furniture company around it?
There's 11.8 million shares of Bassett outstanding. The stock price is in the neighborhood of $12. Simply multiplying them gives us a market cap of about $140 million. So the "alternative asset fund" is more than one-third of that, raising the prospect (in my simple mind anyway) that the fund is the prize, not the fibreboard.
It is a challenging business in these days of disintermediation, and Bassett has been shrinking. Of course, they prefer words like "consolidating" and "cost-cutting." But they're shrinking.
In the words of their latest annual report, "Over the last seven years, we have reduced our number of facilities from 13 to 3 and reduced our headcount from approximately 4,200 to 1,450. During 2007, we closed a large wood manufacturing facility in Bassett, Va. This resulted in headcount reductions of approximately 280 employees and leaves us with one small wood assembly plant in Martinsville, Va., one fiberboard supply facility in Bassett, Va., and one upholstery facility in Newton, N.C."
They also seem nowadays to receive a lot of their income not from the furniture business at all, but from running their own portfolio. They have $51.8 million invested in The Bassett Industries Alternative Asset Fund LP.
Hmmm. So is Costa Brava actually trying to obtain control over the furniture company -- that wood assembly plant, the fiberboard supply facility, the upholstery facility -- or is this a matter of one hedge fund trying to merge with another. Except that the merger target still has some of the trappings of a furniture company around it?
There's 11.8 million shares of Bassett outstanding. The stock price is in the neighborhood of $12. Simply multiplying them gives us a market cap of about $140 million. So the "alternative asset fund" is more than one-third of that, raising the prospect (in my simple mind anyway) that the fund is the prize, not the fibreboard.
Subscribe to:
Posts (Atom)
