Berg Electronics Corporation
Steven N. Kaplan
University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)
John D. Martin
Baylor University - Department of Finance, Insurance & Real Estate
University of Texas at Austin - Department of Finance
January 6, 2001
SUBJECT AREAS: Business Valuation, Financial Forecasting, Strategic Analysis.
CASE SETTING: 1996, U.S.
In the Spring of 1996 Berg Electronics is poised to become a publicly traded company after going through a "build-up" leveraged buyout by Hicks, Muse, Tate, and Furst (HMTF). HMTF purchased Berg from DuPont in 1993 for $370 million then added over $100 million in acquisitions between 1993 and 1995. In February 1996 Jack Furst, the HMTF partner in charge of the Berg acquisition, was contemplating whether the offering price for Berg shares suggested by Berg's investment banker was appropriate. The student is asked to analyze the suggested offering price for the shares using multiples based on comparable companies and discounted cash flow. In addition, the case provides an opportunity to perform a strategic analysis of Berg using SWOT (strengths, weaknesses, opportunities, and threats) analysis.
The case can be used to illustrate three basic points:
1. The application of the capitalized cash flow (CCF) valuation method proposed by Kaplan and Ruback (1995) as a tool for valuing highly levered transactions. The APV approach can also be illustrated.
2. The differences in firm valuations that can arise between discounted cash flow valuation estimates and value estimates from an analysis of comparable/guideline company multiples.
3. The role of a competitive analysis in analyzing a firm's intrinsic worth.
This case is used in an advanced course in corporate finance to illustrate the valuation of a highly leveraged firm. Alternatively, the case can be used to introduce the use of the Adjusted Present Value (APV) and Capital Cash Flow (CCF) (CCF is also known as Compressed APV) approaches to business valuation. A pedagogical note for CCF is appended to the case teaching note.
Number of Pages in PDF File: 16
JEL Classification: G30Case and Teaching Paper Series
Date posted: January 30, 2001
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