The listing of Alcon DDIM 2010/2011 Group 7 Yuhan FANG Yiqin REN Yuanjun ZHOU Chun ZUO Alberto SEVERI Elena BIANCO Gabriele FALCONE Roberto TOSCANO
What is Nestlé todayYou probably already know all of this… But: _with estimates of market share of 1,4 % of the food and beverage industry and 2,6 % of the processed and branded products to Nestlé, _ with more than 250.000 people employed in 508 locations in over than 80 countries, _ with a brand portfolio that includes: by today, Nestlé is the world’s number one food company
What is Nestlè todayThe non-food investments: Nestlé is a minority partner (49%) in Gesparal, the holding company for the French cosmetics company L’Oréal. This enables Nestlé to held the 26% of L’Oréal’s shares. Wholly owned ophthalmology company.
What is Alcon todayIs the world’s leading ophthalmology company:- net earnings of $331 mln- sales of $2.5 bln-about 11.000 employees in 75 countriesAlthough Alcon legally became a Swiss domiciled company after Nestlé’sacquisition, top management and R&D offices remained in the US. More thanhalf of company sales and earnings are in fact generated there.
What if we tell you that…The value of Nestlé can be increasedAs today, the Enterprise Value ofthe Nestlé as a conglomerate,including Alcon and L’Oréal,accounts for 97.500 USD.A carve-out of Alcon, through an IPO, would increase this value –we’ll show youhow.Furthermore, there are other important reasons that justify such operation.
Why carving out Alcon is beneficial- Separation between food and non-food business: increase awareness of the company value among both managers and investors- Disclosure of Alcon’s real value- Financial sustaining and downgrading avoidance- Widening of customer base- Investment perspective: make money- Increasing of managerial motivation
Our evaluationThe carve-out of Alcon will increase the value of Nestlè conglomerate.In order to show this we will:- Calculate a proxy of the value of Alcon if it was independent from Nestlé,- Calculate a proxy of the value of the food&beverage business alone, within Nestlé- Sum these two values to the value of l’Oréal- Compare this sum to the current enterprise value of Nestlé (97500 USD)Both the proxies were calculated with the multiples EV/EBITDA; we also wightedthe obtained index with the enterprise value of the company in order to considerthe size of each company on the total industry.We decided not to take into consideration in our analysis all the companies with alow percentage of presence in the businesses (<60%) and the one with lacks ofdata.
Alcon’s disclosed valueOut of Nestlé, Alcon would be evaluated in line with the other companies ofthe pharmaceutical industry.Here is the data we used to shape an average multiple index of the industry.By multiplying this multiple times Alcon’s EBITDA we get a proxy of Alcon’s Enterprisevalue: 25.1784 * 704.1556= 17729.4891 USD We obtained this value by adding the amortization and depretiation back to the operating income.
Nestlé F&B disclosed valueA similar approach should be applied to evaluate the Food&Beverage business ofNestlé.By multiplying the average multiple of the Food&Beverage industry times Nestlè’s EBITDA wecan get a proxy of Nestlè’s Enterprise value: 11.1331 * 6957.8444= 77462.1667 USD We obtained this value by subtracting Alcon’s EBITDA from Nestlé’s one.
Value-added from the carve outIf we now sum everything…We get 104291.6558 USD, which is 6791.6558 USD more than 97500 USD, theactual value of Nestlé.The carve out of Alcon should thus create about 7% more value.
Listing Alcon, but where?Proven that the carve-out of Alcon increases the value of Nestlé conglomerate,the next question is: where should we list it?There are four different alternatives about where to list Alcon: - The Swiss listing - The dual listing - The US listing - The American Depository Receipt (ADR)We do suggest to go for the US listing, here is why:
Listing Alcon, but where?The Swiss listing CONS • Few institutional investors • Low liquidity in the market • Small size of the market PROS • Lower administration costs • Lower information asymmetries • Proximity between firms and old investors
Listing Alcon, but where?The dual listing PROS - attraction of a large number of investors - target of pharmaceutical investors CONS - higher administrative costs - low success rate (statistics) - financing resource conflictsThe American Depository Receipt (ADR)PROS - target of US specialty pharmaceutical funds - lower administrative costsCONS - higher commissions and inflexibility for investors - loose of interest from investors due to the overspecialization of the funds - time differences
Listing Alcon, but where?The US listingPROS - high levels of liquidity - well developed regulation market - attraction of a larger investors’ base - easier comparison with competitors - lower information assymetries - largest number of expert pharmaceutical investors - high visibiliyCONS If you choose a SWISS BASED SUBSIDIARY COMPANY -impossibililty of forecasting investors’ interest -need of stuctural adjustments in order to adapt the company to the US listing market. If you choose an AMERICAN BASED SUBSIDIARY COMPANY -inadaptability with tue US standards -subjection to the US corporate income tax -impossibility to claim
Listing Alcon, but where?The US listingBEST OPTION!!!We do suggest to list Alcon in the US market, while maintaining a Swiss companystructure.The gains will over come the cost of transformation: considering that Alcon’smajor part of revenues comes from the American market, it will be able to earneven more if we consider the fiscal deductions and the lower control that thecompany will face.
This is it!That’s what we think about the carve out of Alcon We told you why this is a good move, how it would increase your value, and where you should do it… Now it’s your time to go on with us.We wish we will able to say: “…well, we told you!” Group 7