问答题
3.In order to raise funds for future projects, the management of Bento Co, a large manufacturing company, is considering disposing of one of its subsidiary companies, Okazu Co, which is involved in manufacturing rubber tubing. They are considering undertaking the disposal through a management buy-out (MBO) or a management buy-in (MBI). Bento Co wants $60 million from the sale of Okazu Co.
Given below are extracts from the most recent financial statements for Okazu Co:
Year ending 30 April (all amounts in $000)
问答题
(a) Distinguish between a management buy-out (MBO) and a management buy-in (MBI). Discuss the relative benefits and drawbacks to Okazu Co if it is disposed through a MBO instead of a MBI. (5 marks)
【正确答案】A management buy-out (MBO) involves the purchase of a business by the management team running that business. Hence,an MBO of Okazu Co would involve the takeover of that company from Bento Co by Okazu Co’s current management team.However, a management buy-in (MBI) involves purchasing a business by a management team brought in from outside the business.
The benefits of a MBO relative to a MBI to Okazu Co are that the existing management is likely to have detailed knowledge of the business and its operations. Therefore they will not need to learn about the business and its operations in a way which a new external management team may need to. It is also possible that a MBO will cause less disruption and resistance from the employees when compared to a MBI. If Bento Co wants to continue doing business with the new company after it has been disposed of, it may find it easier to work with the management team which it is more familiar with. The internal management team may be more focused and have better knowledge of where costs can be reduced and sales revenue increased, in order to increase the overall value of the company.
The drawbacks of a MBO relative to a MBI to Okazu Co may be that the existing management may lack new ideas to rejuvenate the business. A new management team, through their skills and experience acquired elsewhere, may bring fresh ideas into the business. It may be that the external management team already has the requisite level of finance in place to move quickly and more decisively, whereas the existing management team may not have the financial arrangements in place
yet. It is also possible that the management of Bento Co and Okazu Co have had disagreements in the past and the two teams may not be able to work together in the future if they need to. It may be that a MBI is the only way forward for Okazu Co to succeed in the future.
【答案解析】
问答题
(b) Estimate, showing all relevant calculations, whether the restrictive covenant imposed by Dofu Co is likely to be met. (12 marks)
【正确答案】Annuity (8%, 4 years) = 3·312
Annuity payable per year on loan = $30,000,000/3·312 = $9,057,971
Interest payable on convertible loan, per year = $20,000,000 x 6% = $1,200,000
Annual interest on 8% bond
(All amounts in $ 000s)
【答案解析】
问答题
(c) Discuss, with supporting calculations, whether or not an MBO would be beneficial for Dofu Co and Okazu Co’s senior management team. (8 marks)
【正确答案】Net asset valuation
Based on the net asset valuation method, the value of the new company is approximately:
1·3 x $40,800,000 + $12,300,000 – $7,900,000 approx. = $57,440,000
【答案解析】