...Competitors •Hulu: 7.99$ per month (Hulu), –In 2007, NBC and Fox—joined, two years later, by ABC—created Hulu, a Web site that lets viewers watch current and many past television shows but is subsidized by the same complement of commercials seen on broadcasters’ Web sites. –Five million viewers subscribe to Hulu Plus, which, for eight dollars per month, offers more current content and past shows, on multiple devices and with fewer commercials. •Amazon Prime: costs $79 a year or $6.60 per month) –The advent of the Internet and streaming video brought new competitors. In 2011, Amazon made its streaming-video service, Instant Video, available free to every customer who signs up for its Amazon Prime program, which, for seventy-nine dollars a year, also provides free two-day shipping. –The arrangement inverts the traditional advertising model: instead of forcing you to view commercials, video is the gift you get for shopping. –Amazon Prime subscribers number about twenty million, although the number of those who are Instant Video viewers is certainly smaller. –Last fall, Amazon released its first original series, “Alpha House,” created by Garry Trudeau. •YouTube -owned by Google: –A billion unique visitors watching six billion hours of video every month. Ynon Kreiz, the executive chairman of Maker Studios, the world’s largest provider of online content, noted that its series “Epic Rap Battles of History,” broadcast on YouTube, and which offers comical face-offs...
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...The Buyout of AMC Entertainment (AMC) 1. What are the current strengths and weaknesses of AMC (before the proposed buyout) and the movie theater industry as a whole? 2. In what ways does AMC conform or not conform to an "ideal LBO target"? 3. Why does JPMP want to own AMC? In particular, what are the value-creating opportunities for this transaction? 4. What are the main risks of the transaction? Does the existence of Apollo Management , L.P. make the deal more or less risky? If things do not go as planned, what downside protection, if any, does JPMP have? Obviously, explain your answer. 5. What is the per share value of AMC to JPMP under the proposed LBO? Use the APV approach to value AMC. You can use an exit multiple of the adjusted EBITDA of 8 as an estimate of the terminal value. Calculate the price based on the 2 following assumptions. Obviously, parts a and b will be done using Excel. When you do your case, make sure the spreadsheet printouts are easy to follow, label everything, etc. a. Using the APV, calculate the per share value assuming the debt level will stay constant after 2009 to calculate the terminal value of the interest tax shield. b. Using the APV, calculate the per share value assuming the terminal value of the interest tax shield is zero. c. Comment on the impact of the terminal value of the tax shield on the overall value of this deal. d. Comment on the appropriateness of...
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...The Buyout of AMC Entertainment Private Equity & Leveraged Buyout November 30, 2009 FI 8320 – Corporate Finance Strategy Kevin Mullally Aaron Nowak Regina Ordonez Joel Pierce Jeff Smith The Buyout of AMC Entertainment Table of Contents Executive Summary....................................................................................................................................... 1 The Market for LBOs ..................................................................................................................................... 2 LBOs in the Movie Industry ........................................................................................................................... 3 JPMP and AMCE ............................................................................................................................................ 3 Transaction Risks........................................................................................................................................... 4 The Buyout Proposal ..................................................................................................................................... 4 Conclusion ..................................................................................................................................................... 5 Appendix A: Top 10 US. Theater Circuits (as of June 1st, 2004) .................................................................... 6 Appendix B: Industry...
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...the verge of bankruptcy. At the time, brothers Aldo and Rodolfo controlled equal 50% shares of the company, though contributed less to the company than he and his sons did. In 1979, Aldo developed the Gucci Accessories Collection, or GAC, intended to bolster the sales for the Gucci Parfumes sector, which his sons controlled. GAC consisted of small accessories, such as cosmetic bags, lighters, and pens, which were priced at considerably lower points than the other items in the company’s accessories catalogue. Aldo relegated control of Parfums to his son Roberto in an effort to weaken Rodolfo’s control of the overall operations of the company. Aldo Gucci expanded into new markets including an agreement with American Motors Corporation (AMC). The 1972 AMC Hornet compact "Sportabout" station wagon became one of the first American cars to offer a special luxury trim package created by a famous fashion designer. The Gucci cars sported boldly striped green, red, and buff upholstery and on the door panels, as well as the designer's emblems and exterior color selections. Though the Gucci Accessories Collection was well received, it proved to be the force that brought the Gucci dynasty crashing down. Within a few years, the Perfumes division began outselling the Accessories division. The newly-founded wholesaling business had brought the once-exclusive brand to over a thousand stores in the United States alone with the GAC line, deteriorating the brand’s standing with fashionable customers...
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...AMC theaters is and American movie theater and it is operated by AMC Entertainment Inc. The Durwood brothers founded it in 1920 and nowadays AMC Company occupies the second-largest place on the chain of the American cinema market share, behind Regal Entertainment group and ahead of Cinemark Theaters. The theatres welcome approximately 200 million guests annually through the doors of its more than 300 locations and with 4960 screens. With innovative amenities and a focus on providing a bunch of movies in the best theatre environment. In hence, AMC is recognized as an industry leader and an iconic destination. The company has 346 locations around the USA, mostly in North America. They also have more location outside USA in Mainland China, home of its corporate parent. Moreover, the headquarters of AMC is located in Leawood, Kansas. AMC’s objective is based to welcome every people to their theaters gates to all associates and make them to live every experience amazing. Also, on the other hand, AMC plans to expand their structure worldwide with the idea of having icon locations in major urban areas and other select areas. On the competition section, AMC was the first cinema who created multiplexing, which is the act of building a movie theater complex with multiple screens converting a unique environment using motion picture exhibitors (traditional method) to increase operating activities efficiencies. However, multiplexing has been discontinued to be a competitive advantage for AMC...
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...The Buyout of AMC Entertainment 1. Describe how the environment for leveraged buyouts has changed from the late 1980s to the present. In your opinion, which of these changes has had or will have the most influence on LBO sponsor returns going forward? The environment for leveraged buyouts (LBO) has changed a lot since the 1980s. From 1985 to 1989 the annual total leveraged buyout volume grew from around $15 billion to about $77 billion. Needless to say the market was booming and everyone was trying to get a piece of the pie. The growth was “aided by the development of the high-yield bond market, which provided public market financing for the deals.” Issuance of these bonds grew from $1.3 billion to $30.3 billion from 1980-1986. No one expected for the LBO market to unravel but by the late 1980’s this market began to “fray.” In 1991 the total leveraged buyout volume dropped to less than $10 billion. The crash was due to the high valuations paid due to the vast amount of ready financing such as the high-yield debt. Ultimately excessive leverage, movement toward risky LBO targets, and an “overheated” market led to a collapse. In the late 90s LBO activity began to spark back up and both volume of LBOs and the average value grew significantly. Exit multiples were growing as well, the financing however became much different. Equity contributions grew almost 3 fold from the late 80s to the late 90s and early 2000s. The components of returns in LBOs also shifted drastically from...
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...The Hertz buyout is one of the largest private equity deals. It drew criticism in the media and from union members, after the company’s new owners paid themselves $1.3 billion in dividends not long after the transaction closed and ultimately financed the payments by selling stock to the public. The company has realized hundreds of millions of dollars in improved financial results annually, but also has cut thousands of jobs as it has sought to make operations more efficient. Background: Hertz says it is the world’s largest general use car rental company, with approximately 8,100 locations in about 145 countries. Hertz also operates an equipment rental company with about 380 locations worldwide, although car rentals accounted for 80 percent of 2007 revenues. Ford Motor Co. had purchased an ownership stake in Hertz in 1987 and purchased the company outright in 1994. CD&R executives said that the firm emphasizes making operational improvements in companies it acquires. The firm has long had an interest in multilocation service businesses, they said, as evidenced by investments including Kinko’s and ServiceMaster. The Carlyle Group is one of the biggest private equity firms and says it has demonstrated expertise in the automotive and transportation sectors. Its investments include Dunkin’ Brands, AMC Entertainment, Inc., and Grand Vehicle Works, which provides products and services to truck fleets and recreational vehicle users. Merrill Lynch Global Private Equity is the private...
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...Appendix VI: Hertz Corp. Case Study Overview: The Hertz buyout is one of the largest private equity deals. It drew criticism in the media and from union members, after the company’s new owners paid themselves $1.3 billion in dividends not long after the transaction closed and ultimately financed the payments by selling stock to the public. The company has realized hundreds of millions of dollars in improved financial results annually, but also has cut thousands of jobs as it has sought to make operations more efficient. Figure 7 provides an overview of the LBO transaction, including a time line of key events. Background: Hertz says it is the world’s largest general use car rental company, with approximately 8,100 locations in about 145 countries. Hertz also operates an equipment rental company with about 380 locations worldwide, although car rentals accounted for 80 percent of 2007 revenues. Ford Motor Co. had purchased an ownership stake in Hertz in 1987 and purchased the company outright in 1994. CD&R executives said that the firm emphasizes making operational improvements in companies it acquires. The firm has long had an interest in multilocation service businesses, they said, as evidenced by investments including Kinko’s and ServiceMaster. The Carlyle Group is one of the biggest private equity firms and says it has demonstrated expertise in the automotive and transportation sectors. Its investments include Dunkin’ Brands, AMC Entertainment, Inc., and Grand Vehicle Works, which...
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...idea into what IB is and understanding the basics of Trading, we would study in detail the capital-raising process, mainly Underwriting and Syndication. Here, we would learn about IPO and SEO and ADR and GDR as well as about NIF and RUF. We would also get familiar with Euromarket and the innovative Euro instruments like Euronote and Euro-CP as well as Eurobond and Euroequity. This would also give an opportunity to get a glimpse into Financial Engineering in debt and equity instruments as well as about Structured Financing. We would then talk about MADS (merger, acquisition, divestiture, and spinoff) and learn how to evaluate them. Wealth Management and Mutual Fund would commence one of our focus areas, and, here, we would learn how an AMC works. This would lead to an insight into Hedge Funds and Private Equity. In that light, we would also talk about LBOs and LBO valuation. Project Financing (PF)...
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...The movie exhibition industry holds one of the largest retail spaces after shopping complexes/malls. The greatest opportunity of this industry lies here. Being an industry that has been constantly adopting new technology and trends, I am of the opinion that leveraging this retail space not only for advertising space (standees, posters, etc.) but also for enhancing the cinema experience, would make profits soar in the long term. By having Bowling centers, Billiards tables and other in-house sporting activities, it lures the young adults and children alike. Introducing a diversified alternate content during the weekdays and off-peak hours would be another mechanism of generating greater profits. The experience of being at a movie theatre is the sole differentiator and maximizing it without adversely affecting the consumer interests should be the goal of exhibitors. The external threats to this industry lies in the very hands that feed it – the studios. Studios are poaching that sacred territory of exclusivity by introducing Video-On-Demand and reducing the gap between movie and DVD releases. This could be attributed the ever changing needs of the consumer. The rise of streaming options such as Netflix and Hulu have further bitten into the exhibitor’s share of the pie. The barriers to entry in the movie exhibition industry are relatively high. The major players, by their sheer number outpace any new entrant. The profitability levels also depend on the economies of scale here....
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...2013 Chevy Camaro I. The Chevrolet has an abundant product family that is versatile across the entire automobile spectrum. Chevrolet offers any type of car that is on the consumer market, with the Camaro as their affordable sport car selling at a basic price of $23,000. The Camaro is an affordable and economical rear-wheel-drive performance sports car with a V-6 or V-8 engine. The Camaro is a two door coupe that seats four people comfortably with an estimated 30 miles per gallon. The Camaro can be classified as a red ocean as it competes directly with other retro-inspired muscle cars, including the Dodge Challenger and Ford Mustang. This car is geared for optimal customer user experience. The powerful engine and old American muscle car style gives the user a full exclusive sports car experience. For Chevrolet, safety is extremely important to their brand. The innovation of having high performance headlights with multiple air bags helped give the car the rating of a perfect NHTSA Crash Test Ratings of 5 stars. II. The Chevy Camaro is targeted and segmented to a specific market because there is a particular customer group who is interested in this product. For starters, Chevy cannot start marketing and targeting families with children because this car would be impractical for that situation. It would be just as impractical for Chevy to target businesses and market this car as a flexible all work condition vehicle. This car is clearly a sports car, and should be...
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...Directions: Think about individual products and the company that makes them. Describe three generations of that product (past, present, and future). Then in a multipage write-up, answer why was there change, what changed, and what will be the challenges and issues (business and technical) of the future generation. On September 12, 1966, General Motors first displayed a preview of their next generation car, the Camaro. There were two main reasons why General Motors came out with this car. First, General Motors was trying to create a new type of car to satisfy consumer’s desire for a strong and faster type of car. Second, it was General Motor’s way to compete with Ford’s new Mustang. When the Camaro first came out, it was classified as a compact car. However, they later changed the classification to a pony car, and it has been seen more as a touring car, sports car, or muscle car. Along with the changes in names, there have also been many changes in style, technology, features, and specifications. General Motors is now in production of their 5th generation Chevrolet Camaro. On January 6th, 2006, General Motors started brainstorming ideas and concepts for this new generation car with a new body, wheelbase, engine, transmission, suspension, and much more. After two years of designing, engineering, manufacturing, and problems, on July 21, 2008, General Motors officially unveiled the production of the 2010 5th generation Camaro. This new generation Camaro was able to enhance...
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...TANYA NOLAN: Struggling clothes-maker Pacific Brands is the latest company to become a private equity takeover target. The maker of Bonds undies, Berlei bras, Sheridan sheets and Dunlop, among other well-known brands, has been approached by US-based investment firm Kohlberg Kravis Roberts. It's the latest in a string of buyout offers for listed companies that have seen their share prices hit by market jitters and an exodus of investors from struggling industries. Business reporter Michael Janda reports. MICHAEL JANDA: Private equity firms are the predators of the investment world, looking for weak companies they can buy on the cheap and turnaround before selling them on to someone else, or floating them on the share market. Katherine Woodthorpe is the chief executive of the Australian Venture Capital and Private Equity Association. KATHERINE WOODTHORPE: The bottom line is that they see a company that they believe they can double the value of in a period of something like three to five years. MICHAEL JANDA: The latest firm to join the list of targets is Pacific Brands. It confirmed this morning that it's been approached by the US-based investment firm Kohlberg Kravis Roberts, but it says negotiations are ongoing and there's no certainty of an offer even being made. If a successful offer is forthcoming it would be a return to private ownership for Pacific Brands, which was floated by its previous private equity owner CVC for $2.50 a share in 2004. At...
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...This PDF is a selection from an out-of-print volume from the National Bureau of Economic Research Volume Title: Mergers and Acquisitions Volume Author/Editor: Alan J. Auerbach, ed. Volume Publisher: University of Chicago Press Volume ISBN: 0-226-03209-4 Volume URL: http://www.nber.org/books/auer87-1 Publication Date: 1987 Chapter Title: The Growth of the "Junk" Bond Market and Its Role in Financing Takeovers Chapter Author: Robert A. Taggart, Jr. Chapter URL: http://www.nber.org/chapters/c5819 Chapter pages in book: (p. 5 - 24) 1 The Growth of the “Junk” Bond Market and Its Role in Financing Takeovers Robert A. Taggart, Jr. 1.1 Introduction “Junk” bonds, as they are popularly called, or “high-yield’’ bonds, as they are termed by those wishing to avoid pejorative connotations, are simply bonds that are either rated below investment grade or unrated altogether.’ Fueled by the introduction of newly issued junk bonds in 1977, this segment of the bond market has grown rapidly in recent years and now accounts for more than 15 percent of public corporate bonds outstanding. However, the growth of junk bond financing, particularly in hostile takeover situations, has been bitterly denounced. For example, Martin Lipton, a merger specialist with the firm of Wachtell, Lipton, Rosen, and Katz, has argued that junk bond financing threatens “the destruction of the fabric of American industry” (Williams 1984). In a similar vein, twelve U.S. senators signed a letter in support...
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...Although high-net-worth investors have been buying large positions in companies since the days of Carnegie and Rockefeller, the modern aspects of the industry took shape in the 1960’s through the efforts of Kohlberg, Kravis, and Roberts, three Bear Stearns bankers who would later form the eponymous private equity firm KKR. PE activity then grew rapidly in the 1970-80’s when a large number of family businesses that were started after WWII were struggling with succession concerns and an inability to continue organic growth. PE firms saw this uncertainty as an opportunity to “flip” these companies for a profit by acquiring them, restructuring their operations, and then either finding a strategic buyer or taking the company public. Around this same time was the start of the technology boom and rise of Silicon Valley, causing an influx of capital hoping to fund the next big growth story. This large amount of eager capital spurred the creation of PE firms to facilitate investment opportunities which led to the industry standards we have today. The first task for any aspiring private equity firm is to raise the pool of assets utilized for pursuing investment opportunities. Since its inception PE has been the domain of high-net-worth investors, and as a result PE firms source their capital from high value clients such as pension funds, university endowments, sovereign wealth funds, and the fund managers’ own personal wealth. Given a finite number of potential investors, PE firms compete...
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