nternational listing
Post on 01-Oct-2015
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InternationalEquityListing
Case:NestleandAlcon TheValueofaListing
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NeedforRestructuring
Achievegrowthandsurvive
GainBetterCompetitivePosition
Focusoncoreactivities
Achieveeconomiesof
scaleFundsRaising UtilizationofExcesscash
TaxPlanning&Costreduction Bailouttakeover
DiversificationandUndiverisification FamilySeparation
Warding offPredators
ReasonsforCarvingOutAlconMarkettoreflectthefullvalueof
Alcon
OnlyfoodandbeverageanalystsfollowNestlegroup
PharmaceuticalAnalystdonotconsiderAlcon
beingpartofNestle
Tocomeoutconglomerate
discount
PayingofNestlesdebttomaintainstellarcreditrating
Canuseappropriatemarket
multiple
Canusestockoptiontopaycompensation
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UnbundlingtheValueofNestle
Company%F&B
IndustryEnterprise
Value EBITDAEBITDA
MultiplesCadbury Schweppes 51% 15,518 1,511 10.3Campbell 91% 16,254 1,475 11.0Danone NA 21,854 2,138 10.2General Mills 100% 28,104 1,484 18.9Heinz 100% 19,855 1,912 10.4Kellog 100% 18,262 1,640 11.1Kraft 100% 33,082 6,608 5.0Nestle 94% 97,500 7,662 12.7Unilever NA 50,038 NA NA
Mean 11.2Median 10.7
Food and Beverage (F&B) Industry
Company% PharmaIndustry
EnterpriseValue EBITDA
EBITDAMultiples
Allergan 63% 9,728 434 22.4Bausch & Lomb** 15% 2,150 222King 86% 10,429 426 24.5Teva 88% 8,345 448 18.6Forest 100% 14,128 449 31.5
Mean 24.2Median 23.4
Pharma Company
** Not included in analy sis because only 15% of its business is in pharmaceuticals
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UnbundlingtheValueofNestle
EnterpriseValue EBITDA
EBITDAMultiples
Nestle F&B 78,249.25 6,978.70 11.2L'Oreal 9,100.00 NAAlcon 16,568.09 683.3 24.2 Ex . 9 (EBITDA of 2 000)Nestle 103,917.34 7,662.00 13.6
Valuation of Nestle's Parts
Nestl'sActualmarketmultiple(EBITDAMultiple)=12.7Discountinvalue=103,917.34 (12.7*7662)=US$6609.94Millions
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WhatistheParticipationofAlconinGroup?
5%ofsales 12%ofEBIT
twicetheNestlegroupsgrowthrate
Nestles EBITDAmultiple:12.7X(in
linewithcompetitors)
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WhyEquityCarveOut?
Restructuring
Spinoffs
EquityCurveOut
Divestitures
TrackingStock
SplitUps
SplitOff
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PossibleAlternatives
1 MovetoUS.,becomeaUScorporationandlistinUS
2 ListinZurich
3 StayinSwissanddirectlylistinUS
4 ListinZurichandIssueADR
US
Alcon
Nestle
Switzerland
1
4
32
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PossibleAlternatives
US
Alcon
Nestle
Switzerland
1
4
32
Advantages ReincorporateAlconasaUSbasedsubsidiary KeepHQs,topmanagement,andR&Dfacilitiesin
Texas FromUS revenues:53%andoperatingincome:
58% MoveAlcontoUSandincorporateitasaUSfirm ListinNewYork Sensibleoption Alconsoperationsanditsnatural
investorbasearemainlyUSbased
Disadvantages FullysubjecttoUScorporateincometax NotabletoclaimdeductionsinUSforroyalty
paymentspaidtoSwissparentcompany Managementsignaledthatthisisnotanoption NestlewouldnotmoveAlconoutofSwitzerland RenamethefirmAlcon,Inc.ratherthanAlcon.AG., Amendtheincorporationdocumentationtoconform
toUSstandardswhereverpossible Createaboardofdirectors,withprominent
independentUSbusinessfigures;structuretheboardtoresembleotherUSboardswithcharacteristicssuchasstaggeredterms
RegularlyquarterlyreportingofearningsunderUSGAAP
DividendpaymentsinUSDbyestablishingahedgingfacilityconvertingdividendsdeclaredinSwissFrancsintodollardenominatedpayments
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PossibleAlternatives
US
Alcon
Nestle
Switzerland
1
4
32
Advantages SimpletoIPOAlconinZurich SwisssubsidiaryofanotherSwiss
company AlreadyoperatedunderSwiss
securitieslaws Wouldsimplifyrelationsbetween
NestleandAlcon Minimizefutureadministrativecosts
ofoutstandingcommonshares WouldlimitNestleandits
underwriterstothepoolofcapitalinSwitzerland
Switzerlandisadevelopedmarketwithfewrestrictions
Disadvantages USinvestorshavetodealinforeign
currencyincurringhighertransactioncostsmakingthesharelessattractive
USpensionandMFsarerestrictedfrombuyingforeignshares
LimitAlconsinvestorsbase
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PossibleAlternatives
US
Alcon
Nestle
Switzerland
1
4
32
Advantages Avoidspotentialproblemofflowback
sinceAlconssharestradedonlyinNewYork
AlconwillbeabletofullyenjoythebenefitsofbeingaUSfirmwithaprimarylistinginNewYorkwithoutanyofthedrawbacksofreincorporatingasaUSfirm
Helptargetspecialtypharmaceuticalinvestors
Disadvantages Accountingstandardsanddisclosure
rules Efficiencyofbusinesspractices Governanceconcerns Legalregimes Transactioncosts ForcedtoabidebyUSaswellasSwiss
securitieslaws notalwaysconsistentwitheachother
Tradingnormallyseemedtocenterononemarket,eveniftheshareswereinitiallyintroducedintwoplaces
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PossibleAlternatives
US
Alcon
Nestle
Switzerland
1
4
32
Advantages Mostfamiliarinstrument MaybetargetedbyUSpharma funds Maybeseenascandidateforinternationaldiversifications Minimizescrossnationaldifferencesinsecuritiesregulations
andtradingconventions ListedonNYSE,AMEX,andNASDAQ Formofequityownership IssuedagainstsharesrepresentedthroughADS Canbeissuedformorethanoneunderlyingshareorfora
fractionofshare ADRratio Reversibleprocess ConsiderationindecidingADRratio ~matchingofvalueof
sharesofUScompaniesinthesameindustrybybundlingaspecificno.ofsharesintooneADR
Europeancompanies:72% AsianCompanies:21% LatinAmericaandAustralia:7% Top50ADRprogramsrepresented>90%oftradingvolumein
1999 NonUSfirmsraisingequityinUS Programmanagementdoneby Citibank,JPMorgan Othersimilarstructures GDR,EDR,IDR Accessmoreinvestors Broadershareholderbase Increasesliquidityofsharesandmakingitlessrisky Goodcorporategovernance filingUSGAAPaccounts,
meetingcertainstandardsofcorporategovernance Increasedfirmsvaluation Crosslistedfirmshavehigherreturnsandalowercostof
capital MaymakeafirmanditsproductsmorerecognizableinUS Maybeusefulasanacquisitioncurrency Easierforforeignfirmstocompeteformanagerialtalentsince
theycanoffermanagersstockoptionsintheformofADRs Mayalsoincreaseexecutivepay universeofcomparable
companiesbroadenstoUSandglobalfirmswhichusuallyhavehigherlevelsofcompensation
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PossibleAlternatives
US
Alcon
Nestle
Switzerland
1
4
32
Disadvantages Donoteliminatecurrencyrisk MaynotretainitsSwissidentity Requiresmoretransparencyin
operationsandresults Maybecomeatakeovercandidate UnderminingNestles corporate
cultureandprotectionitenjoysfromtakeover
Activeinvestors:hedgefundsandspecializedsectorfunds
ListAlconinSwitzerlandandissueADRinUS
StillUSinvestorshaveanunderlyingeconomicexposuretoUSD/CHFexchangerate
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ADRMechanics
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FactorsConsideredforIssuingADRs
Visibility Broaderinvestorbase
Moresophisticatedinvestorbase
Investorbasewithdifferentpreferences
Accesstoretailinvestors
Acquisitioncurrency
Stockoptionsforemployees
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TypesofADRs
Level I Level II Level III Rule 144 A GDR
Description UnlistedListed on a US stock exchange
Shares offered and listed on a US exchange
Private placement to QIB
Global offering of securities outside issuer's home market
Trading OTC market
AMEXNASDAQNYSE
AMEXNASDAQNYSE
US private placement market
US exchangeNon US exchange
SEC Registration
Registered under Form F-6
Registered under Form F-6
Registered under forms F1 and F6 None
Varies depending on structure of US offering
US reporting requirements
Exempt under Rule 12g3-2(b) Form 20-F Form 20-F
Exempt under rule 12g3-2(b)
Varies depending on structure of US offering
Features
Most basic formIssuer cannot raise capitalWide bid-ask spread
No new capital can be issuedFinancial statements need to be prepared as per US GAAP
Can raise new capitalMost eloborate form of ADRHiger liquidty and visibilityIPO type prospectus to be filed
No SEC approval required
No standard structureHeterogeneous in nature
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ADRPremiumforIndianStocks
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PercentagePremiumsonADRs
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MarketDisciplineFails..
Marketexpectationsaboutpriceconvergencearetimeboundedandmarketliquidityis
limited
Marketsegmentationduetodifferentmarket
characteristics
Differentmarketcharacteristics
Differentindexmembership Homebias
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Marketdisciplinefailsincase
Marketexpectationsaboutpriceconvergencearetimeboundedandmarketliquidityis
limited
Marketsegmentationduetodifferentmarket
characteristics
Differentmarketcharacteristics
Differentindexmembership Homebias
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ConcernsinCrossBorderListing
Accountingstandardsanddisclosurerules
Efficiencyofbusinesspractices
Governanceconcerns
Legalregimes Transactioncosts
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KeyCharacteristicsofAlternativeExitandRestructuringStrategies
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