Berg Electronics Corporation

16 Pages Posted: 30 Jan 2001

See all articles by Steven N. Kaplan

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

Robert Parrino

University of Texas at Austin - Department of Finance

Date Written: January 6, 2001

Abstract

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.

JEL Classification: G30

Suggested Citation

Kaplan, Steven Neil and Martin, John D. and Parrino, Robert, Berg Electronics Corporation (January 6, 2001). Available at SSRN: https://ssrn.com/abstract=256107

Steven Neil Kaplan

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
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National Bureau of Economic Research (NBER)

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John D. Martin (Contact Author)

Baylor University - Department of Finance, Insurance & Real Estate ( email )

P.O. Box 98004
Waco, TX 76798-8004
United States
254-710-4473 (Phone)
254-710-1092 (Fax)

HOME PAGE: http://hsb.baylor.edu/html/martinj

Robert Parrino

University of Texas at Austin - Department of Finance ( email )

Red McCombs School of Business
Austin, TX 78712
United States
512-471-5788 (Phone)
512-471-5073 (Fax)

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