Paramount valuation -1993
Cash flow forecast
year 0 year 1993 Sales EBITD Depreciation EBIT Tax 34% EBIT(1-t) Operating Cash Flow (EBITD-Tax) Capital expenditures Change WC Asset sale Net Cash Flow Discount rate (1+WACC)^t PV (1-5) $ 1,973.63 1 1994 $ 4,905.00 $ 660.60 $ (162.00) $ 498.60 $ (169.52) $ 329.08 $ 491.08 $ (160.10) $ (45.60) $ 285.38 $ 258.70 2 1995 $ 5,264.30 $ 737.00 $ (172.00) $ 565.00 $ (192.10) $ 372.90 $ 544.90 $ (177.30) $ (62.10) $ 900.00 $ 1,205.50 $ 990.66 3 1996 $ 5,648.60 $ 790.80 $ (184.00) $ 606.80 $ (206.31) $ 400.49 $ 584.49 $ (176.70) $ (66.50) $ 341.29 $ 254.25 4 1997 $ 6,060.00 $ 848.40 $ (196.00) $ 652.40 $ (221.82) $ 430.58 $ 626.58 $ (202.90) $ (71.20) $ 352.48 $ 238.04 5 1998 $ 6,500.70 $ 910.10 $ (209.00) $ 701.10 $ (238.37) $ 462.73 $ 671.73 $ (216.60) $ (76.20) $ 378.93 $ 231.98
Terminal value
g2 CF6 TV year5 TV 0 Enterprise Value Equity P0 5% $ 397.87 $ 7,490.76 $ 4,585.87 $ 1,973.63 $ 4,585.87
$ 1,007.10
$ 7,566.61 $ 6,553.61 $ 54.61
WACC Calculation
S B S/B+S Rf Rs Rb t Rb*(1-t) WACC 5.68% 11.18% 7.05% 34.00% 4.65% 10.31% 1990 32% 120 55 $ 6,600.00 $ 1,013.00 0.867 Rm-Rf 1 5.50%
Beta
Historical tax rate
1991 37%
1992 31%
1993 Average 34% 34%
1 2 3 4 5 1994 1995 1996 1997 1998 Estimated synergies: Paramount -Viacom merger 134 150 171 216 223 Discount rate (1+WACC)^t $ 121.47 $ 123.27 $ 127.39 $ 145.87 $ 136.52 PV (1-5) $ 654.52
Hard synergy calculation
Terminal value of synergies
g2 Synergies year 6 5% $ 234.15
TV of synergies year5 PV of TV of synergies PV of all synergies Synergies per share Current share price
$ 4,408.35 $ 2,698.81 $ 654.52
$ 2,698.81
$
-
$ 3,353.34 $ $ $ 27.94 54.61 82.56
Total value of paramount shares to Viacom
Paramount valuation -1993
EBITD multiple
EBITD Multiple Wald Disney Time Warner Turner Broadcasting Median Average Time Warner
1993 Est 1994 13.3 12.2 11.2 10.4 14.8 11.9 13.3 13.1 11.2 11.9 11.5 10.4
Parmount EBITD Estimated capital (medians) Estimated capital (Average) Time Warner multiple
$ 560.50 $ 7,454.65 $ 7,342.55 $ 6,277.60
$ 660.60 $ 7,861.14 $ 7,596.90 $ 6,870.24
Estimated equity (medians) Estimated equity (Average) Estimated equity (TW)
$ 7,448.75 $ 7,855.24 $ 7,336.65 $ 7,591.00 $ 6,271.70 $ 6,864.34 62.07 $ 61.14 $ 52.26 $ 65.46 63.26 57.20
Estimated stock price (medians) $ Estimated stock price (averages) $ Estimated stock price (TW) $
Paramount 1993
Income statement
Revenues Cost of Goods Sold SG & A Operating Income Other Income (expense) Interest Expense Interest Income Earnings before Taxes Provision for Taxes Extraordinary Items Net Earnings Depreciation and Amortization Working Capital Capital Expenditures
1993
4,641.60 -3,047.60
-1,254.60
339.4 (6.6) (94.0)
78.5 317.3
(109.2) (9.1)
199.0
221.1 802.7 111.8
Balance sheet
ASSETS Cash Short-term investments Trade receivables Inventories Other current assets Total Current Assets Property, Plant, & Equipment Accumulated Depreciation Net PP&E Intangibles Other Assets Total Assets
1993
1993
380.6 626.50 1,062.20
633.7 538.3
LIABILITIES Current Maturities of LT debt Trade Accounts Payable Income taxes Payable Accrued Expenses and other Total Current Liabilities Deferred Liabilities Long-Term debt Total Liabilities EQUITY Common Stock Paid-In Capital Retained Earnings Translation Adjustments Total Net Worth Total Liabilities and Equity
3,241.30 1,572.20 -382.4 1,189.80 1,560.30
1,454.1
7,455.5
Price per share Shares outstanding
54 120
Short term solvancy Current ratio Quick ratio 2.248 1.435
Finacial leverage Debt/Assets Debt/book equity Debt/Market equity Interest coverage (gross) Interest coverage (net) 0.136 0.245 0.156 3.611 21.897
Profitability Gross operating margins Return on assets, ROA Return on equity, ROE 0.073 0.046 0.048
Activity Asset turnover Receivables turnover Inventory turnover 0.623 4.370 7.325 82 day credit 49 days
Market value EPS Price to earnings P/E Market to book 1.658 32.563 1.569
Bankruptcy prediction X1 X2 X3 X4 X5 Z score Ratio Coeficient product 0.241 1.2 0.290 0.437 1.4 0.612 0.046 3.3 0.150 6.397 0.6 3.838 0.623 1 0.623 5.512
1993
10.1 196.5 64.5
1,170.50
1,441.60 871.2
1,002.9
3,315.7
119.6 778.1 3,252.2
(20.1) 4,129.8
7,445.5