Discussion

Hopper Discussion

The case originally written under the assumption that Randy would go to the lunch with the private equity person at the airport and just listen without saying much.  All he was looking for was whether any monetary offer would be “in the ballpark” and worth pursuing or just some guy trying to find a cheap deal.  But if we change the scenario so that Randy goes to the airport with an offer then the case becomes both more realistic and complicated.  Given the complexity of this case, I will award more points than I will for the W. F. Price case.  You should “go with the flow” of the conversation but to get started, consider the following:

* The most important thing for you to understand is that it is unlikely Randy would take the calculations that you have performed as immutable, unarguable truths.  The calculations you have performed are reasonable but not bargaining positions.  (a) It would be easy to find a pretext to justify a slightly lower required rate of return than the one assumed.  (b) It might be possible to find a pretext to goose up the multiple used to calculate the enterprise value of the firm.

* You can use the solution spreadsheet or your own to make minor changes without having to perform any calculations.  The main thing when changing numbers is not to come up with something so high that it evokes anger on the part of the private equity person and causes the lunch to further communication.

* The firm has no debt.  That’s a crazy artifact of the now deceased widow.  It is certain that if the private equity company buys the Hopper for cash, the first thing they will do is have Hopper borrow all kinds of money to get as much of their cash outlay back as they can.  But Randy could do the same thing himself.  If Randy has Hopper borrow enough money to purchase the preferred shares from the estate he could keep his job and his equity stake.  You may assume that Hopper could handle that amount of debt without doing any...