Newgrade Energy a Case Study in M&a

Submitted by: Submitted by

Views: 10

Words: 1365

Pages: 6

Category: Business and Industry

Date Submitted: 09/10/2016 08:34 AM

Report This Essay


Blair Swystun, the Senior Vice-President and Chief Financial Officer of Crown Investments Corporation of Saskatchewan (CIC), was faced with a challenging decision. CIC was contemplating the sale of its fifty percent (50%) interest in a heavy oil upgrader, NewGrade Energy Inc. (NewGrade), and wanted an assessment of the worth of the company. To obtain a reasonable estimate, Swystun has instructed an independent adviser with expertise in the industry to provide input. In addition to receiving an estimate of value, Swystun also needed to formulate a strategy for selling off the company.

The learning objectives include:

• How to value a company utilizing the free cash flow method, the comparables method and the precedent transactions method

• Strategies for arranging a strategic sale

Based on your analysis, please answer the following questions. The quality of the case analyses should be based on the originality and rigor of the answers provided for the questions related to the case and the thoroughness of the power point presentation documents. The groupss also need to do adequate outside research to complement their findings and analyses.

1. Describe the various constraints of the valuation faced by NewGrade.

2. Describe the calculation underlying the Free Cash Flow to the Firm Method utilizing

a. The Value of the Firm using Free Cash Flow

b. The Cash Flow Forecast

c. The Capital Structure

d. The Cost of Capital

i. The Capital asset Pricing Model

ii. Beta of Comparable Companies

iii. Adjusting the Beta for Leverage

iv. Cost of Equity

v. Adjusting for an Illiquidity Premium

vi. The Cost of Debt

vii. Weighted Average Cost of Capital

e. Valuation Using Discounted Cash Flow

3. Describe the Valuation using Comparables Method

4. Describe the Valuation using Precedent Transactions Method

5. As the adviser to Swystun, assess the value of CIC’s equity interest in NewGrade by employing the free cash flow...