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2AFF5300 Case studies in finance: Case 2 Paginas Amarelas Jizhe Li 23847050 Introduction
In July 1996, with the current and expected privatization trend occurred in telephone business, the market environment and competition extent changed and expected to change dramatically in Latin America. As consequence, Brasil Investimentos, a Brazilian industrial conglomerate, interested in sale or restructuring its subsidiary: Paginas Amarelas which mainly involved in telephone-directory business in three Latin America countries. A new associate of J.P. Morgan Latin America M&A group: Juan Lopez was in charge of this task in order to measure the value this business. In order to achieve the objective of this task, Lopez followed the process of fundamental analysis. During the analysis, as a challenge, estimate WACC of Paginas Amarelas become critical. For the sake of enhance the relationship with Brasil Investimentos and strengthen the leading position in Latin America, J.P. Morgan take the task fairly serious.

* Macro economy analysis
To estimate the value of a firm, there were 3 methods available for J.P. Morgan: DCF, trading multiples and transaction multiples. Those methods are based on different perspectives. DCF is more precisely focus on measure the fundamental value by obtain free cash flow, discount factors and WACC of a firm. Trading multiples measures the value based on peer group and transaction multiples provide a benchmark of acquisition value of the firm. In order to start the fundamental analysis approach (top-down), Lopez put his effort on investigate the overall economy situation of Latin America, especially on Argentina, Brazil and Chile which were the countries Paginas Amarelas operated in. Since 1980s those countries had built the democratic system, the political situations were considered stable. The overall economies were increasingly stable and growth moderately, the current government of those countries in favor of free...