Nestlé-Alcon Case Study
Karol M. Klimczak
Transactions between stock-listed companies allow us to verify our calculations of value. In this assignment you have the opportunity to use the skills and methods you learned in Value Based Management in a real company setting. This is an open-ended case study: there is a range of possible approaches to solving it, and all of them can be “right”. What is essential is that you use the calculations to substantiate your solution, make a good argument using your own results.
Prepare your solution to this case in the form of a 5-page report, accompanied by an Excel or Scalc spreadsheet with relevant calculations. When writing the report, assume that the intended audience is the budget committee of Nestlé's major competitor which finds itself in a similar situation right now. It is considering whether it is better to spin-off non-core segments, as Nestlé did. The board is highly interested in learning from the Nestlé-Alcon case. Make sure that your report is concise and to the point. The crucial challenge for you is to provide conclusions substantiated with concrete, analytical results. You may structure the report any way you like, as long as all the issues outlined below are covered.
In contrast to the report, the attached excel file must contain clear references to the questions below. Make sure that the teacher can easily find out how your arrived at the numbers which you present in the report as evidence for your case. In a separate sheet provide all the data you used. Remember that you are solving this case as part of your Value Based Management course. This means that the main objective of this task is for you to master the use of methods that were covered in the course. The second objective is for you to learn how to make an argument supported with the results of your analysis. It is crucial that all of your claims are supported by numbers. You may speculate, or refer to other sources only in a separate section called “Discussion” - if you want to add it.
The Alcon IPO: A nearsighted deal from Nestlé
The initial public offering for its Alcon unit will be only suffer, lifting demand for Alcon products. sweet for Nestlé's bottom line, but the eye-care-products
maker will be left far weaker financially
This hope seems likely enough. Yet some less
appealing aspects of the IPO also deserve attention. While
Mix eyedrops, intraocular lenses, and gear for laser Sear declined to comment, Alcon's securities filing offers eye surgery with ice cream, tea, and chocolate bars. What the details. Amid a flurry of paperwork due right before do you get? A mess, of course, but you might also say and after the deal, Alcon is set to pay a $1.2 billion Nestlé. Way back in 1977, the Swiss food giant diversified dividend to Nestlé. Nestlé also has arranged to take nearly by acquiring Alcon, a tiny Fort Worth eye-care company. all of the cash raised from buyers of the IPO--an estimated But even as Alcon has since grown into the world's top $2.2 billion, after fees--for itself. In other words, besides maker of ophthalmic drugs and equipment, its value has converting an operation few investors know it owns into a been buried beneath Nestlé's considerable pile of visible, controlling stake worth an estimated $7.6 billion, consumer brands.
Nestlé now is bringing Alcon public in a $2.3
billion deal to be led by Credit Suisse First Boston and
Merrill Lynch. At a time when other initial public stock
offerings are dribbling out in the tens of millions of
Nestlé will clear $3.4 billion in cash. That should prove
welcome. Last year, as it spent $10.3 billion to buy
Ralston Purina, Nestlé's total debt ballooned to $21 billion, from $7.8 billion.
Yet what's good for Nestlé won't be great for Alcon.
dollars, this IPO figures to draw lots of interest. Nestlé Its balance sheet will take a serious drubbing. Alcon aims to...
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