Assignment: MERGERS, ACQUISITIONS AND CORPORATE RESTRUCTURING
Business case: CANADIAN PACIFIC LTD.: UNLOCKING SHAREHOLDER VALUE IN A CONGLOMERATE
Case questions:
1. How has CPL evolved as a company? Why did a conglomerate structure make sense for CPL in the past? Does it still make sense? Explain.
2. How are CPL's businesses currently performing? Which one contributes the most to CPL's sales and net income? Which one is the most profitable? Which one is the riskiest'?
3. Use the data provided in the case to estimate CPL's conglomerate discount.
4. What options was David O'Brien considering to address this conglomerate discount? How didtaxation affect the attractiveness of each of these options?
5. If CPL pursued the starburst strategy, how much of CPL's corporate debt ($2.1 billion) should be allocatedto eachof the new companies? (Hint: use the EBITDA/interest coverage ratios at credit ratings targets and of comparable companies to determine debt allocation).
6. What would be the implied price per share for each business in a spinoff (after accounting for the corporate debt allocation stated question 5)?
7. As CEO of CPL, which strategy would you recommend and why?