Case: Empresas Polar vs. Bavaria, S.A.: Acquisition of minority blocks of Backus & Johnston’s voting stock.
Case Questions :
Note: Questions should be answered from the perspective of an Investment Bank advising the Peruvian Conasev, i.e. an independent and objective party.
1.
(a) Do a DCF of Backus. Spell out your assumptions about the company, the industry and Peru. In addition to assumptions about the growth of beer demand in Peru, you will need to use information about price and income elasticities to make your projections.
(b) Can you think of an alternative way to value Backus based on the information of the case? Explain how you would do it, what the value would be and how it would differ from the DCF
2. Based on your valuations, can you make sense of the market price of Class A shares? Is that price the right one? How could you make sense of that price compared to the price of your valuation?
3. The value of Class A shares and Class I shares differs. How would you explain this difference? Provide corporate governance reasons and also consider the impact of the level of efficiency of stock markets in emerging countries.
4. The report commissioned by Polar argues that “premiums of 30%-50% are typically paid for control of a company and substantially smaller premiums are paid for acquisitions of minority blocks.” In your opinion, is the premium on Class A shares paid by Bavaria and Cisneros a “premium for control” that reflects an act of collusion on the part of these two firms, as the report seems to suggest? Are there any corporate governance reasons that could justify this premium if it is not a premium for control of the firm?
5. Besides the corporate governance reasons that you have thought of in questions 3 and 4, what other reasons could Bavaria or Cisneros have for paying such a high premium?