Anatomy of a Leveraged Buyout - NYU Stern School of Business

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Why control matters… When valuing a firm, the value of control is often a key factor is determining value. For instance, • In acquisitions, acquirers often pay a premium for control that can be substantial • When buying shares in a publicly traded company, investors often pay a premium for voting shares because it gives them a stake in control.\ • In private companies, there is often a discount atteched to buying minority stakes in companies because of the absence of control. Aswath Damodaran 30
What is the value of control? The value of controlling a firm derives from the fact that you believe that you or someone else would operate the firm differently (and better) from the way it is operated currently. The expected value of control is the product of two variables: • the change in value from changing the way a firm is operated • the probability that this change will occur Aswath Damodaran 31
Page 1 and 2: Anatomy of a Leveraged Buyout: Leve
Page 3 and 4: One Example: The Harman Deal Pre-de
Page 5 and 6: I. Value and Leverage Aswath Damoda
Page 7 and 8: The fundamental question: Does the
Page 9 and 10: 1. Tax Benefit: Debt: The Basic Tra
Page 11 and 12: The Miller-Modigliani Theorem In a
Page 13 and 14: Tools for assessing the effects of
Page 15 and 16: How the debt trade off manifests it
Page 17 and 18: Harman : Working out the mechanics.
Page 19 and 20: Limitations of the Cost of Capital
Page 21 and 22: Estimating the Distress Effect- Har
Page 23 and 24: c. The APV Approach to Optimal Capi
Page 25 and 26: Harman: APV at Debt Ratios Based up
Page 27 and 28: The macro environment has a relativ
Page 29: II. The Value of Control Aswath Dam
Page 33 and 34: Reinvestment Rate 42.00% Current Ca
Page 35 and 36: Reinvestment Rate 70.00% Current Ca
Page 37 and 38: Implications for the control premiu
Page 39 and 40: III. The Public/ Private Transition
Page 41 and 42: Perceived Risk: Private versus Publ
Page 43 and 44: Why go private? Agency issues: The
Page 45 and 46: Good candidates for going private..
Page 47 and 48: Leverage and Control The good: A f
Page 49 and 50: Leverage and Going Private The Goo

Anatomy of a Leveraged Buyout - NYU Stern School of Business

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