USF Corporation Valuation and Merger Analysis

VALUATION PROJECT
WORKBOOK
CONFIDENTIAL
SUMMER ANALYST PROGRAM – 2007
PRELIMINARY | SUBJECT TO FURTHER REVIEW AND EVALUATION
THESE MATERIALS MAY NOT BE USED OR RELIED UPON FOR ANY PURPOSE OTHER THAN AS SPECIFICALLY CONTEMPLATED BY A
WRITTEN AGREEMENT WITH CREDIT SUISSE.

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nnyc14p20005training_summer analystsScheduled Credit Suisse PresentationsValuation Project Overview (TRAINING LEADERS)2007 Summer Analyst Valuation Book.ppt /1
If you have any questions regarding materials in this book, or the valuation project in general, don’t hesitate to call us:
Anna Golynskaya Phil Kohn
Training Leader Training Leader
anna.golynskaya@credit-suisse.com phil.kohn@credit-suisse.com
(212) 538-5442 (212) 538-0558
Miriam Roshan Jeff Volling
Training Leader Training Leader
(212) 325-1822 (212) 325-5529
miriam.roshan@credit-suisse.com jeffrey.volling@credit-suisse.com
Table of Contents
1 Overview of Valuation Project
2 Sample Project
3 Weekly Assignments and Resources
A Public Information Book (PIB)
B Company Profile
C Equity Comps / M&A Comps
D DCF and WACC Analysis
E Merger Consequences Analysis

CONFIDENTIAL nnyc14p20005training_summer analystsScheduled Credit Suisse PresentationsValuation Project Overview (TRAINING LEADERS)2007 Summer Analyst Valuation Book.ppt /2
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1. Overview of Valuation Project

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Overview of Valuation Project
Welcome to Credit Suisse! In addition to meeting a ton of new people and having fun for the next
10 weeks, we figured it would be helpful for you to return to college your senior year having
learned something about what Investment Bankers do
 Several analysts, associates, and Vice Presidents from across the division have worked hard to put the
following materials together as your “one-stop shop” for banking how to’s
 In addition to your group staffing assignments over the next two months, you will also be asked to
complete a group valuation project to be submitted by Week 9 of your program. The submission will
include the following:
 A company profile
 Equity comps and M&A comps
 DCF valuation
 Merger consequences analysis
 At the end of the summer, August 2nd, your team will be asked to present, in a short session, your
analyses and conclusions to a team of bankers
 This project will be completed gradually over the course of the summer and we will be holding 4
sessions (1 every week) to cover each of the topics or analysis we will be asking you to do
 You will be required to turn in you work for the topic covered each week at the following weeks session
(i.e., you will go over profiles in first session and turn them in at the second session)
 We plan to return your assignment within one week so you can see if you are on the right track and
where you may need to improve

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Project Schedule and Key Dates
Date Session Details Next Steps
Session 1 June 29
10 am & 2 pm
 Finding public information and creating a PIB
 Creating a company profile
 Create Knight Ridder PIB
 Create Knight Ridder profile
Session 2 July 6
10 am & 2 pm
 Equity Comps and Acquisition Comp Analysis  Find Knight Ridder trading comparables
 Find important average trading stats
 For given comparable acquisitions, find key
multiples
Session 3 July 13
10 am & 2 pm
 Discounted Cash Flow  Create projected Knight Ridder income
statement
 Determine WACC based on comps
 Project free cash flows and discount at WACC
Session 4 July 27
10 am & 2 pm
 Merger Consequences  Evaluate transaction consequences including
EPS accretion/dilution, pro forma credit stats,
pro forma ownership
 Create premiums paid and synergies sensitivity
tables
PRESENTATION August 6  Present final projects  Good Luck!!
This schedule provides a set of guidelines to help you plan your final project.
Note: Due to the fact that the deal was announced on 3/13/06, for all valuations, please use all
public information available as of then (latest filing would be the 12/25/05 10-K) and stock prices
and research as of 3/10/06.

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2. Sample Project

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 Provides comprehensive supply chain management services in four
business segments:
 “Less-than-truckload” segment, carriers provide regional and inter-
regional delivery throughout the United States
 “Truckload” segment offers premium regional and national truckload
services
 “Logistics” segment provides dedicated fleet, cross-dock operations,
supply chain management, contractual warehousing, domestic ocean
freight forwarding and reverse logistics services
 “Information Technology” segment provides support activities including
corporate sales and various financial management functions
 USF provide services to a wide variety of customers, with no single
customer accounting for more than 3.3% of revenue
Management and Board of DirectorsCompany Overview
USF Corporation – Company Profile
 1/28/2005: USF Corporation reported fourth quarter and full
year 2004 results, missed Wall Street earnings
 12/13/2004: Announced opening of two new terminals serving
the Southern Minnesota and Decatur, Alabama areas
 11/2/2004: Richard P. DiStasio stepped down as CEO, Paul
Liska was named interim CEO
 10/22/2004: Reported third quarter 2004 results, missed Wall
Street earnings
 9/9/2004: USF Holland announced the opening of eight (8)
Northeast terminals, service city includes: Baltimore, MD
Albany, NY, Allentown, PA, Harrisburg, PA, Philadelphia, PA,
Wilkes Barre, PA, Syracuse, NY, and Richmond, VA
Recent News Ownership
Status: Public (Nasdaq: USFC) Headquarters: Chicago, IL
Website: www.usfc.com Employees: 21,000
Source: Company filings, and website.
Name Position and Affiliation
Thomas E. Bergmann Interim CEO, CFO
Steven Caddy President and CEO, USF Holland
Edward R. Fitzgerald President and CEO, USF Reddaway
Douglas R. Waggoner President and CEO, USF Bestway
Paul J. Liska Chairman of the Board
Morley Koffman Director
Stephen W. Lilienthal Director
Anthony J. Paoni Director
Glenn R. Richter Director
Neil A. Springer Director
Michael L. Thompson Director
HOLDERS SHARES % OF TOTAL
Citigroup Inc. 2,595,871 9.9%
Fidelity Management & Research 2,410,515 9.2%
Dimensional Fd Advisors, Inc. 1,831,607 7.0%
Barclays Bank 1,567,377 6.0%
Allianz Dresdner Asset Mgmt. 1,234,140 4.7%
Top 5 Institutions 9,639,510 36.8%
Other Institutions 15,892,218 60.7%
Total Institutions 25,531,728 97.4%
Insiders 473,040 1.8%
Other 196,072 0.7%
Total 26,200,840 100.0%
Source: Company filings and Capital IQ. Source: Company filings and FactSet.
Source: Company filings and ShareWorld.

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Stock Price Performance
Financial Overview
$25
$28
$31
$34
$37
$40
2/4/04 4/5/04 6/5/04 8/5/04 10/5/04 12/5/04 2/4/05
StockPrice
0
500
1,000
1,500
2,000
VolumeinThousands
USF Corp. Volume USF Corp. Stock Price
Stock Price (2/4/05) $32.44
% of 52-Week High 83.6%
52-Week High / Low $38.80 / $27.51
Diluted Shares 28.2
Equity Market Value 916.0
(+) Debt 250.1
(–) Cash & Equivalents 150.8
Enterprise Value $1,015.3
Enterprise Value to:
2004E Revenue $2,516.9 / 0.4x
2005E Revenue $2,658.8 / 0.4x
2004E EBITDA $169.2 / 6.0x
2005E EBITDA $253.7 / 4.0x
EPS Estimates / P/E Ratio
2004E EPS $0.85 / 38.2x
2005E EPS $2.48 / 13.1x
Source: Company filings and Wall Street equity research.
Note: EPS projections based on I/B/E/S consensus.
USF Corporation (Cont’d)
Market and Trading Data
Source: Company filings and Wall Street equity research.
($ in millions)
December 31,
2004A 2005E 2006E
Revenues $2,394.6 $2,516.9 $2,658.8
% Growth 4.5% 5.1% 5.6%
EBIT $112.1 $130.0 $150.1
% Margin 4.7% 5.2% 5.6%
EBITDA $169.2 $253.7 $273.1
% Margin 7.1% 10.1% 10.3%
Net Income $55.8 $66.5 $78.8
% Margin 2.3% 2.6% 3.0%
EPS $0.85 $2.48 $2.82
Capex 145.0 185.0 190.0

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Comparable Company Analysis
($ in millions)
SHARE % OF ENTERPRISE VALUE AS A LONG-TERM LTM
PRICE 52-WEEK EQUITY ENTERPRISE MULTIPLE OF SALES MULTIPLE OF EBITDA EPS OPERATING
COMPANY 02/04/05 HIGH VALUE VALUE 2004E 2005E 2004E 2005E 2004E 2005E GROWTH RATIO
Truck Load
JB Hunt Transportation $45.00 97.7% $3,682 $3,697 1.3x 1.2x 8.2x 7.2x 17.5x 15.5x 15.8% 92.9%
Swift Transportation
(1)
22.61 99.4% 1,671 2,265 0.8x 0.7x 6.2x 5.9x 14.8x 12.6x 12.6% 93.6%
Werner Enterprises
(1)
20.94 90.1% 1,679 1,570 0.9x 0.9x 5.5x 4.9x 19.6x 16.1x 15.3% 91.6%
Heartland Express
(1)
20.93 90.2% 1,570 1,311 2.9x 2.6x 10.8x 9.7x 25.2x 22.0x 13.8% 79.6%
Knight Transportation
(1)
25.71 99.3% 1,460 1,434 3.5x 2.9x 11.9x 10.1x 29.4x 23.1x 16.6% 80.7%
Covenant Transportation 20.86 97.8% 312 372 0.6x 0.6x 4.8x 4.1x 18.9x 15.8x 12.0% 94.0%
Mean 1.7x 1.5x 7.9x 7.0x 20.9x 17.5x 14.4% 88.7%
Median 1.1x 1.0x 7.2x 6.5x 19.3x 16.0x 14.6% 92.3%
Less Than Truckload
CNF Inc
(1)
$46.49 91.2% $2,457 $2,400 0.6x 0.6x 6.2x 5.3x 17.8x 14.3x 14.1% 92.3%
Overnite Corp
(1)
30.35 78.5% 850 925 0.6x 0.5x 5.3x 4.6x 13.2x 11.0x 15.5% 82.8%
Arkansas Best Corp
(1)
41.77 89.5% 1,069 1,000 0.6x 0.5x 4.9x 4.7x 13.0x 11.2x 12.5% 92.8%
Old Dominion Freight
(1)
35.60 97.5% 885 961 1.2x 0.9x 7.9x 6.6x 21.6x 16.9x 17.5% 91.4%
SCS Transportation
(1)
22.55 81.6% 354 470 0.5x 0.4x 5.2x 4.6x 17.8x 13.0x 15.0% 95.6%
Yellow Roadway Corp(1)
56.31 97.8% 2,769 3,320 0.5x 0.5x 6.3x 5.0x 14.2x 10.9x 10.5% 94.6%
Mean 0.7x 0.6x 6.0x 5.2x 16.3x 12.9x 14.2% 91.6%
Median 0.6x 0.5x 5.8x 4.9x 16.0x 12.1x 14.5% 92.6%
Logistics
C.H. Robinson Worldwide $51.38 91.1% $4,435 $4,201 1.0x 0.9x 18.5x 16.1x 32.9x 28.4x 14.5% 94.9%
UTi Worldwide Inc 71.88 98.5% 2,307 2,297 1.5x 1.1x 30.8x 13.0x 27.9x 21.6x 20.0% 94.0%
Sirva Inc 9.40 36.2% 693 1,165 1.1x 1.0x 6.9x 5.2x 11.1x 7.4x 20.0% 94.6%
EGL Inc 31.18 89.1% 1,461 1,475 0.5x 0.5x 19.1x 14.7x 27.7x 23.1x 17.4% 97.2%
Landstar System Inc
(1)
35.25 91.4% 1,083 1,113 0.6x 0.5x 8.3x 7.2x 29.0x 23.8x 17.0% 94.1%
Pacer International 22.19 91.0% 837 1,007 2.6x 2.4x 11.2x 9.8x 16.2x 13.7x 14.6% 94.8%
Forward Air Corp 43.33 91.7% 944 840 3.0x 2.6x 13.9x 11.5x 27.7x 23.1x 14.5% 81.1%
Hub Group 56.46 96.6% 529 529 0.4x 0.4x 10.2x 8.9x 25.3x 22.6x 25.0% 96.6%
Quality Distribution Inc 8.62 53.4% 164 436 0.7x 0.6x 6.6x 5.5x 12.3x 8.5x NA 93.9%
Mean 1.3x 1.1x 14.0x 10.2x 23.3x 19.1x 17.9% 93.5%
Median 1.0x 0.9x 11.2x 9.8x 27.7x 22.6x 17.2% 94.6%
USF Corp
(1)
$32.44 83.6% $916 $1,015 0.4x 0.4x 6.0x 4.0x 38.2x 13.1x 10.2% 97.3%
Source: Public filings and Wall Street research reports.
(1) Based on 4Q '04 earnings releases.
P/E

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Selected Precedent Transactions
($ in millions)
EQUITY ENTERPRISE
ENTERPRISE
VALUE/ TARGET
DATE TARGET TARGET DESCRIPTION ACQUIROR VALUE VALUE
(1)
EBITDA
(2) UNIONIZED
Jul-03 Roadway Corporation
(US)
LTL carrier providing freight services on major
city-to-city routes in North America
Yellow Corporation $966 $1231 6.7x NA
Nov-01 Motor Cargo Industries Provides regional less-than truckload services
in the western U.S.
Union Pacific Corp. 83 78 4.0 No
Nov-01 Arnold Industries Provides regional less-than-truckload services
in northeastern states and also provides
truckload and logistics services
Roadway Corp. 558 510 5.7 Yes
Aug-01 Arnold Industries (US) N/A Roadway Corporation 539 510 5.4 No
Aug-01 G.I. Trucking Company Provides regional less-than-truckload services
in western and southwestern states
Investor Group (Estes) 40 40 5.0 No
Nov-00 American Freightways
Corporation
Operates as a scheduled common and
contract carrier transporting primarily less-
than-truckload shipments of general
commodities.
FedEx Corp. 934 1,196 6.3 No
Jun-99 Jevic Transportation
Inc.
Provides regional and interregional
transportation of general commodity freight
Yellow Corp. 158 197 5.9 No
Jun-98 Preston Trucking Provides les-than-truckload transportation of
general commodity freight
Management Group NM NA NA Yes
Oct-97 Caliber
System, Inc.
Provides transportation, logistics and related
information services through its five
subsidiaries
FedEx Corp. 2,489 2,681 10.3 No
Jul-95 Worldway Corp. Transporter of freight throughout United
States; also provides truckload services and
driver leasing services through its subsidiaries
Arkansas Best Corp. 82 153 9.0 Yes
Nov-92 Central Freight Lines
Inc.
Carrier of intrastate and foreign commerce
within Texas, Arizona, and New Mexico
Roadway Services Inc. 102 148 6.8 No
Nov-92 Preston Trucking Provides less-than-truckload transportation of
general commodity freight
Yellow Freight Systems 24 146 5.8 Yes
Jul-88 Viking Freight Inc. Provides regional carrier services in California
and 9 other Western States
Roadway Services Inc. 135 172 7.8 No
Jun-88 Arkansas Best Corp. LTL and TL carriage, furniture manufacturing
and tire retreading
Kelso & Co. 317 472 6.2 Yes
Median 6.1x
Average 6.5x
High 10.3x
Low 4.0x
Source: Securities Data Corporation, public filings and news reports.
(1) Enterprise Value = Value of Common + Total Debt – Cash.
(2) EBITDA, EBIT and Net Income exclude extraordinary items and accounting changes.

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WACC Schedule
Industry Statistics
(in millions)
Total Mkt Debt / Tax Levering Unlevered
Company Beta (1)
Debt Equity Mkt Equity Rate (2)
Factor (3)
Beta (4)
Assumptions
Arkansas Best Corp 0.83 15 1,069 1.4% 40.1% 1.01 0.82 Target Marginal Tax Rate 38.0%
Cnf Inc 0.89 714 2,457 29.1% 41.0% 1.17 0.76 Risk Free Rate (5) 4.330%
Old Dominion Freight 0.62 81 885 9.2% 39.1% 1.06 0.59 Equity Risk Premium (6) 7.20%
Overnite Corp 0.95 127 850 14.9% 40.0% 1.09 0.87 Size Premia ("Sp") (7) 1.59%
Scs Transportation Inc 0.63 123 354 34.7% 37.6% 1.22 0.52
Yellow Roadway Corp 1.00 728 2,769 26.3% 39.1% 1.16 0.86
Mean 0.82 19.3% 39.5% 1.12 0.74
Median 0.86 20.6% 39.6% 1.12 0.79
Schedule A (Sensitivity of Capital Structure)
Weighted Average Cost of Capital (10)
Debt / Debt / Average Levering Levered Cost of Pre-tax Cost of Debt
Capital Mkt Equity Unlev'd Beta Factor Beta (8) Equity (9) 5.0% 6.0% 7.0% 8.0% 9.0% 10.0%
0.0% 0.0% 0.74 1.00 0.74 11% 11.2% 11.2% 11.2% 11.2% 11.2% 11.2%
10.0% 11.1% 0.74 1.07 0.79 12% 10.7% 10.8% 10.9% 10.9% 11.0% 11.1%
20.0% 25.0% 0.74 1.16 0.85 12% 10.3% 10.4% 10.5% 10.6% 10.8% 10.9%
30.0% 42.9% 0.74 1.27 0.93 13% 9.8% 10.0% 10.1% 10.3% 10.5% 10.7%
40.0% 66.7% 0.74 1.41 1.04 13% 9.3% 9.5% 9.8% 10.0% 10.3% 10.5%
50.0% 100.0% 0.74 1.62 1.19 15% 8.8% 9.1% 9.4% 9.7% 10.0% 10.4%
Schedule B (Sensitivity of Unlevered Beta)
Weighted Average Cost of Capital (10)
Debt / Debt / Levering Unlevered Pre-tax Cost of Debt
Capital Mkt Equity Factor Beta 5.0% 6.0% 7.0% 8.0% 9.0% 10.0%
0.0% 0.0% 1.00 0.65 10.6% 10.6% 10.6% 10.6% 10.6% 10.6%
10.0% 11.1% 1.07 0.70 10.5% 10.5% 10.6% 10.7% 10.7% 10.8%
20.0% 25.0% 1.16 0.75 10.3% 10.5% 10.6% 10.7% 10.8% 11.0%
30.0% 42.9% 1.27 0.80 10.2% 10.4% 10.5% 10.7% 10.9% 11.1%
40.0% 66.7% 1.41 0.85 10.0% 10.2% 10.5% 10.7% 11.0% 11.2%
50.0% 100.0% 1.62 0.90 9.8% 10.1% 10.4% 10.7% 11.0% 11.3%
(1) Barra US equity Book predictions (7) Cost of equity premia based on equity market capitalization.
(2) Based on marginal tax rate low-cap ($797mm - $1,167mm) = 1.59%. Amounts per 2004 Ibbotson.
(3) Levering Factor: 1 + [ ( 1 - Tax Rate ) * ( Debt / Equity ratio ) ] (8) Levered Beta: (Beta * Levering Factor)
(4) Unlevered Beta: ( Beta / Levering Factor ) (9) Cost of Equity: Rf + B * ( Rm - Rf ) + Sp, or the risk-free rate plus the beta * the eq
(5) Yield on Interpolated 20-Year US treasury Bonds which corresponds to Ibbotson's long-term equity (10) WACC: Rd = Return on Debt; Re = Return on Equity
risk premium (as of 2/04/05). Source: Bloomberg. [ Rd * (1 - tax rate) * (D / (D + E) ) ] + [ Re * (E / (D + E) ) ]
(6) The average historic period between the return on stocks and L-T bonds (2004 Ibbotson Associates).

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Discounted Cash Flow Analysis
($ in millions)
2005E 2006E 2007E 2008E 2009E
EBITDA $250.7 $278.5 $307.2 $317.6 $328.2
Less: D&A (113.6) (121.6) (130.3) (134.2) (138.2)
EBIT $137.1 $156.9 $176.9 $183.4 $190.0
Less: Tax Effect (52.1) (59.6) (67.2) (69.7) (72.2)
Unlevered Net Income $85.0 $97.3 $109.7 $113.7 $117.8
Plus: D&A 113.6 121.6 130.3 134.2 138.2
Less: Capex (103.2) (110.5) (118.4) (122.0) (125.7)
Plus: Changes in WC (13.7) (7.2) (7.7) (3.2) (3.2)
Unlevered Free Cash Flow $81.7 $101.1 $113.9 $122.7 $127.1
Source: Wall Street research projections and Credit Suisse estimates.
($ in millions, except per share data)
Terminal Value EBITDA Multiple
Discount Rate 4.50x 5.00x 5.50x 6.00x
9.0% $417.5 $417.5 $417.5 $417.5 Present Value of Free Cash Flows
960.0 1,066.7 1,173.3 1,280.0 Present Value of Terminal Value
$1,377.5 $1,484.2 $1,590.9 $1,697.5 Enterprise Value
(99.3) (99.3) (99.3) (99.3) Less: Net Debt
$1,278.2 $1,384.9 $1,491.6 $1,598.2 Equity Value
$44.42 $47.92 $51.42 $54.92 Equity Value per Share
36.9% 47.7% 58.5% 69.3% Implied Premium / (Discount) to Current
(1)
0.4% 1.2% 1.8% 2.4% Implied Perpetuity Growth Rate
917.1 1,019.1 1,121.0 1,222.9 Present Value of Terminal Value
(99.3) (99.3) (99.3) (99.3) Less: Net Debt
$1,224.0 $1,325.9 $1,427.8 $1,529.7 Equity Value
31.4% 41.8% 52.1% 62.4% Implied Premium / (Discount) to Current
(1)
876.6 974.0 1,071.4 1,168.8 Present Value of Terminal Value
(99.3) (99.3) (99.3) (99.3) Less: Net Debt
$1,172.5 $1,269.9 $1,367.3 $1,464.7 Equity Value
26.2% 36.1% 45.9% 55.8% Implied Premium / (Discount) to Current (1)
(1) Based on share price of $32.44 as of 02/04/05.

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Projections USF Corporation and Yellow Roadway projections based on Wall Street equity research;
estimated marginal tax rate of 38%
Prospective acquiror net income based on Wall Street equity research
Financing 50% Stock – 50% Cash Consideration assumed; financed by 100% bank debt at 3-Months
LIBOR plus 100 basis points
Purchase Price Range of $1,015 – $1,410 mm, corresponding to 4.0x – 5.6x 2005E EBITDA
FMV Adjustments Fair market value adjustment estimated at 12% of book value; depreciated over 20 years
Goodwill Goodwill not amortized
Timing Assumed to gain full 2005 earnings
Fees M&A Fees of 0.5% of transaction value
Financing fees of 2.5% of debt raised
Synergies None assumed; pre-tax synergies required to achieve acquiror break-even EPS inferred
Potential Merger Assumptions
Key Assumptions

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Merger Consequences Analysis
Yellow Roadway Acquisition of USF Corporation
($ in millions)
50% Cash / 50% Stock Consideration
Premium to Share Price – 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 40.0%
Price Per Share $32.44 $34.06 $35.68 $37.31 $38.93 $40.55 $42.17 $43.79 $45.42
Equity Value $918 $966 $1,014 $1,062 $1,111 $1,160 $1,210 $1,259 $1,309
Net Debt
(1)
99 99 99 99 99 99 99 99 99
Enterprise Value 1,017 1,065 1,114 1,162 1,210 1,259 1,309 1,358 1,408
Enterprise Value / 2005E EBITDA 4.1x 4.2x 4.4x 4.6x 4.8x 5.0x 5.2x 5.4x 5.6x
Enterprise Value / 2006E EBITDA 3.7x 3.8x 4.0x 4.2x 4.3x 4.5x 4.7x 4.9x 5.1x
Equity Value / 2005E Net Income 13.3x 14.0x 14.7x 15.4x 16.1x 16.9x 17.6x 18.3x 19.0x
Equity Value / 2006E Net Income 11.4x 12.0x 12.6x 13.2x 13.8x 14.4x 15.0x 15.6x 16.2x
2005E Stand Alone Diluted EPS $5.25 $5.25 $5.25 $5.25 $5.25 $5.25 $5.25 $5.25 $5.25
2005E Pro Forma Diluted EPS 5.59 5.53 5.48 5.43 5.38 5.33 5.28 5.24 5.19
2005E Accretion / (Dilution)
Acc / (Dil) – $ $0.34 $0.28 $0.23 $0.18 $0.13 $0.08 $0.03 ($0.01) ($0.06)
Acc / (Dil) – % 6.4% 5.4% 4.4% 3.5% 2.6% 1.6% 0.7% (0.3%) (1.2%)
Pre-Tax Breakeven Synergies – – – – – – – $1.3 $6.1
Pro-Forma Debt / LTM EBITDA
(2)
1.6x 1.7x 1.7x 1.7x 1.8x 1.8x 1.8x 1.9x 1.9x
Debt-to-Capitalization (at closing) 45.28% 45.36% 45.45% 45.53% 45.61% 45.69% 45.76% 45.83% 45.91%
% Shares issued as currency 14.2% 14.9% 15.5% 16.1% 16.7% 17.3% 17.9% 18.5% 19.1%
ProForma Ownership% 85.8% 85.1% 84.5% 83.9% 83.3% 82.7% 82.1% 81.5% 80.9%
Source: Wall Street Projections, Credit Suisse Estimates.
(1) Net Debt numbers as of 12/31/04.
(2) Based on LTM EBITDA of $697mm.

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3. Weekly Assignments and
Resources
A. Public Information Book (PIB)

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Summer Assignment – PIB
Assignment
 Prior to the June 30th training session, please assemble a PIB on Knight Ridder
 Make sure that your PIB has all the sections outlined on the next page
 Insert numbered tabs between each section “blue sheets” between each item in the same tab, if
multiple items exist. For example, put a blue sheet between each research report
 Have the Copy Center make a double-sided bound copy of your PIB
Key Takeaways
 After completing this section, you should be familiar with most of the tools that are available to
access public information
 Research reports are expensive!!! Purchase only those that are appropriate
 Be prepared to answer questions like:
1. Where do I go to get the latest SEC filing?
2. Where do I go to get an ownership run?
3. Have any major events occurred at the Company in the recent quarter?

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16
Public Information Book Resources
1. General Public Information
– S&P Stock Report
– Bloomberg Data
– Price/Volume
– Web Site Company Website
2. Prospectus
– Usually follows a major event (M&A, Equity offering, Debt offering)
3. Annual Report Company Website
4. Form 10-K
– Annual filing with the SEC, similar to an annual report
5. Form 10-Q
– Quarterly filing with the SEC
6. Proxy Statement
– Covers information about company shares and shareholders
7. Research Report
– Include CS if available
– Look for longer, more recent research
CS Research & Analytics
8. News Run
– Back two – six months is standard Company Website
9. Ownership Run
– Tracks ownership structure of company
Sample Table of Contents Where to Get the Material

17
Resources
B. Company Profile

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18
Summer Assignment – Company Profile
Assignment
 In the format shown on the sample pages, create a two page company profile for Knight Ridder
Corporation
 Make sure you include:
 Company Overview
 Market Statistics (download from FactSet)
 Financial Overview
 Stock Price Performance
 Directors and Officers
 Products
 Current Ownership
Helpful Hint: The financial overview summary sheet in your Abacus shell (see Tab C) is a good
template from which to copy and paste market stats and financial overviews
Key Takeaways
 At the end of this section, you should be able to answer the following:
1. What are Knight Ridder Corporation’s primary business segments?
2. How has Knight Ridder Corporation performed in the last year with respect to:
– Earnings?
– Stock price?
– Any relationship between the two?
3. Any important events occur at the Company over the past year?

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19
Agenda
 Creating a general two page company profile
 Keys to a successful acquisition ideas presentation

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20
Keys to a Successful Acquisition Ideas Presentation
 Know Your Audience
 Use a Systematic Approach
 Remember the Formula: Strategic Fit + Availability = A Good Idea
 Demonstrate Industry Knowledge
 Revisit “Old” Ideas Selectively
 Stimulate Discussion and Ask Questions
 Summarize Conclusions and Develop Follow-up Plan
A successful acquisition ideas presentation delivers a focused set of ideas with a point of
view and a rationale.

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21
Considerations in Determining Fit
 Client specified
 Size
 Industry
 Technology
 Geographic scope
(international vs. domestic)
 Product synergies
 Markets
 Customers
 Distribution
 Manufacturing
 Operating synergies
 Corporate cost savings
 S,G & A cost savings
 Other
Strategic
 Organic growth prospects of
target
 Management talent
 Technology or other
proprietary assets
General
 Leverage
 Accretion / dilution
 Market perception
Financial

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22
 Parent is a LBO sponsor
 Filed equity offering with large secondary component
 Previous failed attempt to sell (“busted auction”) or spin-off
(“busted IPO”)
 Takeover speculation
 Undervalued, depressed or declining stock price
 Shareholder activism
 Potential odd man out in rapidly consolidating industry or
segment
 Changes in senior management or aging senior management
with no obvious successor
 Dramatic revisions in corporate strategy
 Need to expand internationally or to retrench
 Need for capital
 Failure or inability to grow new products organically
 Parent reorganizing or realigning businesses, possibly in
preparation for a sale
 Division with no logical strategic fit with the parent (“corporate
orphan”)
 Division underperforming or less profitable than core business
 Insiders control a meaningful percent of the stock and have no
evident need for liquidity
 Family-owned with the next generation preparing or prepared
to assume leadership
 Majority owned by another company that has obvious reason to
hold onto the business
 Strong and consistent stock performance
 The current parent is the most obvious best owner for the
business
The current parent has identified the business as a core
business and/or the equity market is in favor of current
parent owning the business
Consider the target’s defensive posture vis-a-vis a hostile
offer, but remember … the valuation/rationale must be even
more compelling to justify an unsolicited approach
Note: It is also important to review the valuation multiples of
the publicly-traded Parent Company which owns the “target”
subsidiary. If sale proceeds (after tax) imply lower valuation
multiples (EBITDA, EBITA and Net Income) than those at
which the parent stock is selling, the transaction would be
dilutive to overall value and thus would probably be a non-
starter as a sale candidate today
Signals of Availability / Lack Thereof
Signs of Availability Signs of Lack of Availability

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Acquisition Screening – Information Sources
 SIC code lists
 Equity analyst research
 “Competition” sections of prospectuses and 10-Ks of comparable companies
 Research reports relating to the Client and its core industry group competitors
 Value Line for Client and its competitors
 S&P Tear Sheets (with word search)
 OneSource (U.S. Public, U.S. Private, and U.K. Public SIC Code Summary Analyses)
 Industry trade association lists
 Trade publications
 WorldScope database (Global Buyers List)
 FactSet “comp builder”
 SDC M&A summaries

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Creating a General Company Profile
Business Description
The Boeing Company is an aerospace firm. The Company operates in
principal areas that include commercial airplanes, military aircraft,
missile systems, space and communications and customer and
commercial financing.
Business Segments
 The Commercial Airplanes segment is involved in development,
production and marketing of commercial jet aircraft and providing
related support services, principally to the commercial airline
industry worldwide.
 The Military Aircraft and Missile Systems segment is involved in the
research, development, production, modification and support of
military aircraft including fighter, transport and attack aircraft, as well
as helicopters and missiles.
 The Space and Communications segment is involved in the
research, development, production, modification and support of
space systems, missile defense systems, satellites and satellite
launching vehicles, rocket engines and information and battle
management systems.
 The Customer and Commercial Financing segment is primarily
engaged in the financing of commercial and private aircraft and
commercial equipment.
Competitors
The Company competes with Lockheed Martin, Raytheon, BAE
Systems, Northrop Grumman, Matra BAe Dynamics Alenia and The
European Aeronautics Defense & Space Corporation.
Company Overview
 Business section of 10K / Annual Report
 finance.yahoo.com business profile
 Research reports
 Company Web site
 VentureSource (private companies)
 Your PIB can be a great resource (See
Tab A)
 10K / Annual Report
 PIB
 10K / Annual Report
 finance.yahoo.com business profile
 PIB

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Financial Overview
Therapeutic Focus – 2003
CNS
$5.4 BN
Diabetes/
Metabolic
$2.1 BN
Osteoporosis
$1.0 BN
Sexual
Dysfunction
$0.2 BN
Oncology
$1.0 BN
Antibiotics
$0.7 BN
Cardiology
$0.5 BN
 You can find the historical information
from company filings
 The projections will come from
research
 PIB
Highlight product mix or any particular
asset that might be of interest to your
Audience
 10K / Annual report
($ in millions)
December 31,
2004A 2005E 2006E
Revenues $2,394.6 $2,516.9 $2,658.8
% Growth 4.5% 5.1% 5.6%
EBIT $112.1 $130.0 $150.1
% Margin 4.7% 5.2% 5.6%
EBITDA $169.2 $253.7 $273.1
% Margin 7.1% 10.1% 10.3%
Net Income $55.8 $66.5 $78.8
% Margin 2.3% 2.6% 3.0%
EPS $0.85 $2.48 $2.82
Capex 145.0 185.0 190.0
Note: Currently there is no similar pie graph in USF profile but it
is a possibility for your Knight Ridder profile (or other
profiles you will be expected to do in your respective
groups).

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26
Market and Trading Data
 This should come from your equity
comp shell (See Tab C)
 Keep in mind, you may update this
profile often (e.g. latest stock price or
estimates) so keeping your comps
flexible is key
Stock Price (2/4/05) $32.44
% of 52-Week High 83.6%
52-Week High / Low $38.80 / $27.51
Diluted Shares 28.2
Equity Market Value 916.0
(+) Debt 250.1
(–) Cash & Equivalents 150.8
Enterprise Value $1,015.3
Enterprise Value to:
2004E Revenue $2,516.9 / 0.4x
2005E Revenue $2,658.8 / 0.4x
2004E EBITDA $169.2 / 6.0x
2005E EBITDA $253.7 / 4.0x
EPS Estimates / P/E Ratio
2004E EPS $0.85 / 38.2x
2005E EPS $2.48 / 13.1x

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27
Stock Price Performance
 ActiveGraph made from Excel and
FactSet
 Keep in mind, you may update this
often
 Plot either standalone or against peer
group. If showing peer group, use the
companies in your equity comps (see
Tab C) but exclude the company you
are profiling
$25
$28
$31
$34
$37
$40
2/4/04 4/5/04 6/5/04 8/5/04 10/5/04 12/5/04 2/4/05
StockPrice
0
500
1,000
1,500
2,000
VolumeinThousands
USF Corp. Volume USF Corp. Stock Price

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28
Ownership
Recent News
 ShareWorld
 Proxy (for insider ownership)
 FactSet
 Company news releases
 Factiva
 Equity research
 1/28/2005: USF Corporation reported fourth quarter and full
year 2004 results, missed Wall Street earnings
 12/13/2004: Announced opening of two new terminals serving
the Southern Minnesota and Decatur, Alabama areas
 11/2/2004: Richard P. DiStasio stepped down as CEO, Paul
Liska was named interim CEO
 10/22/2004: Reported third quarter 2004 results, missed Wall
Street earnings
 9/9/2004: USF Holland announced the opening of eight (8)
Northeast terminals, service city includes: Baltimore, MD
Albany, NY, Allentown, PA, Harrisburg, PA, Philadelphia, PA,
Wilkes Barre, PA, Syracuse, NY, and Richmond, VA
HOLDERS SHARES % OF TOTAL
Citigroup Inc. 2,595,871 9.9%
Fidelity Management & Research 2,410,515 9.2%
Dimensional Fd Advisors, Inc. 1,831,607 7.0%
Barclays Bank 1,567,377 6.0%
Allianz Dresdner Asset Mgmt. 1,234,140 4.7%
Top 5 Institutions 9,639,510 36.8%
Other Institutions 15,892,218 60.7%
Total Institutions 25,531,728 97.4%
Insiders 473,040 1.8%
Other 196,072 0.7%
Total 26,200,840 100.0%

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29
Management and Board
 Proxy
 finance.yahoo.com
 Sometimes you will see profiles with a
brief biography of the directors and
officers
Name Position and Affiliation
Thomas E. Bergmann Interim CEO, CFO
Steven Caddy President and CEO, USF Holland
Edward R. Fitzgerald President and CEO, USF Reddaway
Douglas R. Waggoner President and CEO, USF Bestway
Paul J. Liska Chairman of the Board
Morley Koffman Director
Stephen W. Lilienthal Director
Anthony J. Paoni Director
Glenn R. Richter Director
Neil A. Springer Director
Michael L. Thompson Director

30
Resources
C. Equity Comps

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31
Summer Assignment – Equity Comps
 For your assignment, you are to submit an Equity Comp output page for Knight Ridder AS OF THE
DATE OF THE ACQUISITION (3/10/06)
 You must first find comparable companies. For this project, you need only Knight Ridder
Corporation and three comparable companies
 Include McClatchy Company and New York Times Co as comps and find one comp on your
own
 Input ABACUS shells for these comps using FactSet, the companies’ financials and Wall Street
research to find the following multiples:
 2006E and 2007EV/revenue
 2006E and 2007E EV/EBITDA
 2006E and 2007E EV/EBIT
 2006E and 2007E P/E
 2006E and 2007E EBITDA margins
 When necessary, make sure to calendarize the financials
 Make sure to check your output and see if something looks abnormal
 If so, you’ve likely made a mistake

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Summer Assignment – Equity Comps (Cont’d)
Helpful Hint #1: If you’ve inserted your data properly into the input pages, ABACUS will generate
a formatted and linked output page for you: Go to ABACUS / New Summary Sheet / Forward
Multiple Analysis
Helpful Hint #2: The output page converts all currencies to US$. If you are using a foreign
company, make sure you input the proper exchange rate in the appropriate section of the shell
Key Takeaways
 At the end of this section, you should be able to answer the following:
 1. On what basis did you choose your one other comparable?
 2. In retrospect, are they “good” comps? Why or why not?
 3. How is Knight Ridder trading relative to its peer group?
 4. Can you explain its relative valuation? Why does it trade at a premium or discount to its
peers? Think of its relative earnings, margins, market share, size, etc.
 5. What does this mean to a potential buyer?

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33
Agenda
 What are Equity Comps and Why Do We Do Them?
 Finding Comparable Companies
 Collecting the Data
 Using the Compco Model
 Common Pitfalls
 Interpreting the Results
 USF Corporation: sample equity comps

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34
What Are Equity Comps and Why Do We Do Them?
 A big part of an investment banker’s job is to value companies
 More than anything else, clients want to know what their companies are
worth – especially relative to their peers
 One way to value companies is to infer (or compare) their value based on the public trading
values of other companies with similar characteristics
 Because not all companies are the same size or have the same capital structure, we need to
establish universal metrics that can apply to all companies within a group
 These metrics almost always take the form of a ratio or “multiple”, where the numerator is a
measure of trading value (Enterprise Value; Market Value) and the denominator is an
operating statistic (EBITDA, Net Income)
 The most common metrics are Enterprise Value / EBITDA and Market Value / Net Income (or
P/E)
 The calculation and interpretation of these metrics is a Comparable Company Analysis, or
Compco Analysis
Helpful Hint: The right terminology for this analysis is the Comparable Company Analysis, but
since bankers like to complicate matters, this analysis is referred to differently by each group.
Don’t get confused if you’re asked to do equity comps, compcos, comps, and a comparable
company analysis all in one night: They all mean the same thing!

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OK, So What Are Enterprise and Equity Value?
 Enterprise Value is the total dollar value of a business, represented by the sum of all of the
ownership interests in the business
 Note: Enterprise Value is sometimes referred to as Adjusted Market Value, Firm Value or (in
early-stage biotech) Technology Value
 In broad terms, there are two types of ownership interests in a business – Debt and Equity
 The public market value of a business’ equity is referred to as its equity value, market value
or market capitalization
 We calculate a business’ Enterprise Value by summing the public market values of its debt and
equity
 Caveat: Because the trading value of debt securities is less volatile than equity securities, we
typically use the book value of debt rather than the market value to save time
 Enterprise Value is an important measure because it makes companies with different capital
structures more comparable

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OK, So What Are Enterprise and Equity Value?
Enterprise Value = Value of All Business’ Assets = Equity Value + Net Debt(1)
Equity Value = Value of the Shareholders’ Equity = Current Stock Price x Shares Outstanding(2)
(1) Net Debt equals long-term debt + short-term debt + “out of the money” convertible debt + minority interest + preferred stock + capitalized leases – cash and
cash equivalents.
(2) The proper way to calculate Equity Value is to use the diluted number of shares outstanding, which includes all “in the money” and exercisable stock options.
Enterprise Value
Net Debt
Equity Value
Enterprise
Value
Assets
Liabilities and
Shareholders’ Equity

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Fair Enough, But Help Me With This EBITDA Thing
 EBITDA is an accounting measure of how much cash flow a business generates from its
operations
 EBITDA excludes interest, taxes and depreciation and amortization because these items vary
from company to company – for reasons which generally do not impact value – making them
harder to compare on a consistent basis
 Interest is a function of capital structure
 Taxes are a function of incorporation and tax structure
 Depreciation is a function of depreciation policy / asset lives
 Amortization is a function of how acquisitive a company has been
EBITDA = Earnings before Interest, Taxes, Depreciation and Amortization
 We place emphasis on Enterprise Value / EBITDA because this metric excludes most variables
which do not affect value (or can be easily changed) making companies more comparable for
valuation purposes

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38
Let’s Recap
 The absolute value of a business is expressed by its Enterprise and Equity Value
 Enterprise Value is the total value of all ownership interests in a business
 Equity Value is the value of the equity in a business
 The relative value of a business is expressed by a “multiple” of its absolute value to its operating
results
 “GE is trading at 22x its 2006E projected EBITDA” – Translation: The ratio of GE’s
Enterprise Value to its forecasted 2006E EBITDA is 22
 “Walmart’s 2006E P/E multiple is 18x” – Translation: The ratio of Walmart’s equity value to
its forecasted 2006 net income is 18
 Enterprise Value / EBITDA is an important metric because it eliminates non-value impacting
variables which otherwise make companies less comparable
Enterprise Value / Sales
Enterprise Value / EBITDA
Enterprise Value / EBIT
Industry Specific Metrics (EV / Fiber Miles)
Equity Value / Net Income
Price / Earnings
Equity Value / Tangible Book Value
Other Industry Specific Metrics
Enterprise Value Multiples Equity Value Multiples

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39
Finding Comparable Companies
Sources to check to initially select comparables:
 Your colleagues (before you start, make sure someone hasn’t done it already!)
 Associates and Officers – most of the time they will pick them for you
 Proxy Statements
 Equity research reports and analysts
 SIC code searches – FactSet, OneSource, Library
 S&P Tearsheets
 Value Line
 Trade publications
 IPO or other prospectuses
 10K – Competition section
 Industry
 Products
 Distribution Channels
 Markets
 Size
 Growth Profile (Sales, EBITDA, Earnings)
 Margins (Gross Profit, EBIT, Net Income)
 Leverage
Operational Financial
Look for companies with characteristics similar to those of the business being valued:
Note: This rule
does not apply to
your summer
valuation project –
sorry guys!
 Seasonality
 Cyclicality
 Strategy
 Customers

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Collecting The Data – What Do I Need?
 Most recent financial statements – LTM financials
 10-K, 20-F or Annual Report (available 90 days after end of period)
 10-Q quarterly or interim report (available 45 days after end of period)
 Earnings Releases (typically available 2-3 weeks after the end of the quarter)
– Don’t miss these – they are the most updated information available
– Often have complete income statements and balance sheets
 Other Press Releases
 EPS Forecasts – Be Consistent!
 First Call
 I/B/E/S
 Operating Projections
 CS Equity Research
 Equity Research from other firm
 I/B/E/S
 Stock Price Information
 Current / 52 week high-low

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 Research analysts submit their EPS
estimates to publicly available centralized
databases (First Call, I/B/E/S)
 The mean or “consensus” estimate
represents the Street view of a Company’s
expected performance
 We use Street view to calculate P/E multiples
 FactSet (First Call, I/B/E/S) on your PC
 First Call website (InfoCentral)
 Detailed First Call reports (6th Floor)
 Bloomberg terminals (Nelson's)
Why Do I Need It and Where Do I Get It?
 10-K / Annual Report
 LTM Income Statement Information
 Options/Convertible Data
 10-Q / Quarterly Report
 LTM Income Statement Information
 Balance Sheet Information
 Basic Shares Outstanding
 8-Ks / Report of a Material Event
 Pro Forma Information for Acquisitions or
Other Transactions
 Earnings Announcements
Why Do I Need It?
 Thomson Research (from InfoCentral – IBD
Internal website)
 FactSet on your PC
 OneSource on your PC
 SEC Edgar Archives (www.sec.gov)
 Disclosure workstations (in library)
 Sedar.com (for Canadian companies)
 Documents Library on EMA 28 at x5-4000
(use library as a last resort – they will always
take longer to pull docs than you will)
Where Do I Get It?
10-Ks, 10-Qs,
8-Ks
EPS
Forecasts

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 To calculate equity and enterprise value  FactSet on your PC
 Investment Banking Workstation on your PC
 Bloomberg terminals
Why Do I Need It and Where Do I Get It?
 Research analysts project what a Company’s
income statement will look like in the future
 We use these models to calculate projected
EBITDA
 The research report you select is VERY
important and will influence your valuation
multiples
 You should always select a research report
which has an EPS forecast close to the
consensus
Why Do I Need It?
 CS Research & Analytics
 Call CS Research Analyst for updated model
 Research Bank Web (Info Central) – for
non-CS research
 Multex.com – for non-CS research
 Research Bank workstations (older reports)
 Library request at x5-4000 (for older or hard
to find research reports)
Where Do I Get It?
Operating
Projections
Stock Price
Information
 To calculate equity and enterprise value  FactSet on your PC
 Investment Banking Workstation on your PC
 Bloomberg terminals
Other
Information

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43
Data Collection Best Practices (How To Keep
My Associate Happy and Get a Big Bonus)
 Keep a Record
 Print out hardcopies of all source documents (10-Ks, 10-Qs, EPS Projections, Analyst
Reports)
 Leave a Trail / Be Organized
 Highlight data and tab pages used from source documents and use folders for each company
 Use “Comments” function in Excel to footnote items that need explanation (i.e.,
approximations, assumptions, calculations and unusual items)
 Be Complete
 Supply your Associate with all source documents, a printout of the equity comps and an
electronic copy for all companies to be checked
 Be Efficient
 Work sequentially through companies, so that your Associate can start checking while you
continue working
 Be a Thinker
 Check your results. If something looks wrong, it probably is
 Never assume FactSet downloads or other people’s comps are correct

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44
1. General Company Information / User
 The ticker identifies the company you are
creating a comp file for and is used by
Factset to select data to download
 The financial statement dates identify which
historical and projected years you are
generating multiples for. These dates drive
the model’s column headings
 Note: The dates do not drive which data
FactSet downloads; FactSet defaults to
the most recently available data
 It is important to fill out the user information
so that other people using your model can
call you with questions
General Company Information
User Information
Primary Company Ticker CHRW
Last Fiscal Year Ended 12/31/04
Latest Balance Sheet as of 3/31/05
Source of Latest Balance Sheet 10-Q
LTM Earnings as of 3/31/05
Source of LTM Earnings 10-Q
First Projected Calendar Year End: 12/31/05
Calendarization Factor 0.0%
Research
Research Source Morgan Stanley
Analyst James Valentine
Date of Research 5/01/05
Recommendation
Target Price –
Analysis Prepared by kjackso3
Preparer Phone Number 62714
Analysis Checked by T_Bushey
Checker Phone Number 65888

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45
2. Diluted Share Calculation / Options and
Convertible Debt Schedules
 In general, Equity Value = Current Stock Price x Basic Shares Outstanding
 However, most companies have securities which represent contingent shares – meaning they
are not shares today, but can become shares if certain conditions are met – and as a result, we
need to make adjustments to basic shares outstanding
 The most common of these securities are options / warrants
 Options are a price right or option granted to management to purchase their company’s stock
at a pre-specified or strike price
 Management profits if the market price of the stock exceeds the strike price when they
exercise the options. Hence, Management is only likely to exercise his/her options under
these circumstances
 Options are reported in the 10-K. Companies typically disclose the number of options that are
outstanding and exercisable
 Exercisable options are vested and can be used to purchase shares today. Exercisable
options, NOT outstanding, are relevant for equity comp purposes
 The method we use for calculating the impact on basic shares outstanding of options is called
the Treasury Stock Method

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46
Scenario: 197.3 million basic shares outstanding
8.2 million exercisable options with a weighted average strike price of
$14.02
Current stock price is $17.74.
Translation: 8.2 million options are “in the money,” meaning they are exercisable at a
lower price than the current market price. This means the owner of these
options has the right to buy stock from the Company at $14.02 and could
sell it in today’s market at $17.74. If the owner of the options did this, he
would pay the Company $14.02 for each share, sell it in the market for
$17.74 and pocket the $3.72 spread.
Treasury
Method Calculations:
The treasury stock method assumes the above transaction occurs and that
the Company uses the $14.02 they receive to repurchase shares in the
market at $17.74, thus:
Basic Shares Outstanding 197.3
Plus: Shares Issued to Options Holder 8.2
205.5
Less: Shares Repurchased with Proceeds (6.5)
Diluted Shares Outstanding 199.0
Calculating Diluted Shares Outstanding
Using the Treasury Stock Method
($14.02 x 8.2) / $17.74

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47
What About Convertible Debt and Preferred?
 Investment Bankers have created hybrid securities which pay interest like straight debt, but
become common stock if certain conditions are met
 Convertible Debt
 Convertible Preferred
 Other Equity-Linked Securities
 Convertible securities are NOT evaluated using the Treasury Stock Method
 Most important thing to remember: Convertible Securities are treated as either debt or equity
for valuation purposes – NOT both

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48
What About Convertible Debt and Preferred?
Example: A company has a convertible preferred security with a face value of $1,114 million
that pays a dividend of 6.5% and has a conversion price of $18.00
 Income Statement Effect
 None
 Equity Value Effect
 None
 Net Debt Effect
 Should include full amount of convertibles
($1,114)
 Income Statement Effect
 Debt: Interest backed out
 Preferred: Dividend backed out ($1,114 x 6.5%
= $72.4)
 Equity Value Effect
 Additional shares outstanding from conversion
(add $1,114/$18 = 61.9 to shares outstanding)
 Net Debt Effect
 Debt does NOT include face value of converted
debt/preferred
Current Price < $18.00  Treated as Debt Current Price > $18.00  Treated as Equity

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49
2. Treasury Method Diluted Share Calculation /
Options and Convertible Debt Schedules
Treasury Method Fully Diluted Share Calculation
($ in millions, except per share data)
CLASS SHS. OUT. PRICE
A 1,129.5 74.36
B 0.0 0.00
C 0.0 0.00
D 0.0 0.00
E 0.0 0.00
Total Primary Shares Outstanding 1,129.5 74.36
New Shares Issued 0.0
Converted Debt shares (Schedule A) 0.0
Converted Preferred Shares (Schedule B) 0.0
Converted Options/Warrants (Schedule C) 59.6
Shares Buy-Back from Options/Warrants exercise proceeds (48.5)
Fully Diluted Shares Outstanding 1,140.6
Schedule A - Convertible Debt
ANNUAL BOOK TRADING # SHARES IMPLIED DEBT SHARES
MATURITY INTEREST VALUE VALUE CONV INTO CONV PR CONVTD ISSUED
Debt Series 1 1/00/00 0.00% 0.0 0.0 0.0 0.00 0.0 0.0
Schedule B - Convertible Preferred
ANNUAL BOOK TRADING # SHARES IMPLIED PREF SHARES
MATURITY INTEREST VALUE VALUE CONV INTO CONV PR CONVTD ISSUED
Preferred Series 1 1/00/00 0.00% 0.0 0.0 0.00 0.0 0.0
Schedule C - Options/Warrants using Outstanding
PRICE PRICE WEIGHTED
# EXER LOW HIGH # OUTS LOW HIGH AVERAGE PRICE # EXERCISED
Options/Warrants 1 6.760 21.29 21.29 6.760 21.29 21.29 21.29 6.8
Note: Option Schedule Includes all series.

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3. Debt & Preferred Schedule
 Debt can be listed on the balance sheet
under a variety of names
 Notes
 Commercial Paper (CP)
 Current Portion of LT debt
 Credit Facility
 Revolver
 Loans
 The ABACUS model allows you to calculate
the net debt based on book or market values
 If the Company issued additional debt or
convertible securities since its latest filing,
input these securities in adjustment rows
(additional equity securities would increase
shares outstanding and book equity)
 For Credit Stats identify Seniority of the
outstanding debt
 1 = Senior Debt
 2 = Sub. Debt
Debt & Preferred Schedule
($ in millions)
DESCRIPTION VALUE
NAME RATE SENIORITY BOOK MARKET
Long-Term 0.0% Sen 4,503.6 4,503.6
Long-Term 0.0% Sen 0.0 0.0
Long-Term 0.0% Sub 0.0 0.0
Long-Term 0.0% Sub 0.0 0.0
Long-Term 0.0% Sen 0.0 0.0
LT Debt Adj 0.0% Sen 0.0 0.0
Total Long-Term Debt 4,503.6 4,503.6
Out-of-the-Money Convertible Sub 0.0 0.0
Short-Term 0.0% Sen 807.1 807.1
Short-Term 0.0% Sub 0.0 0.0
ST Debt Adj 0.0% Sen 0.0 0.0
Total Short-Term Debt 807.1 807.1
Capital Leases 0.0% Sub 0.0 0.0
Capital Leases 0.0% Sub 0.0 0.0
Cap. L. Adj. 0.0% Sub 0.0 0.0
Total Capital Leases 0.0 0.0
Other 0.0% Sen 0.0 0.0
Other Adj. 0.0% Sen 0.0 0.0
Total Other Debt 0.0 0.0
Out-of-the-Money Convertible Preferred 0.0 0.0
Preferred 0.0% 0.0 0.0
Preferred 0.0% 0.0 0.0
Pref. Adj. 0.0% 0.0 0.0
Total Preferred 0.0 0.0
Total Debt & Preferred 5,310.7 5,310.7
Total Senior Debt 5,310.7 5,310.7
Total Subordinated Debt 0.0 0.0
Total Convertible Debt (assumes no conversion 0.0 0.0
Total Convertible Preferred (assumes no conve 0.0 0.0
Note: 1=Senior Debt, 2=Subordinated Debt.

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4. Historical / LTM Income Statement
Step 1
 FactSet downloads the historicals automatically. Check downloaded FactSet information and
make changes as required
 Fill in Last Fiscal Year column exactly as shown on financial statement (we’ll get to adjustments
later)
 You will find all the line items on the income statement, except Depreciation & Amortization, which
are on typically the cashflow statement
 If the latest fiscal year end is the most recent quarter, you can ignore the other two columns
Step 2
 Fill in the most current quarter and prior corresponding quarter to get to LTM
 Make sure you use cumulative amounts (i.e. if the fiscal year end is 12/31 and you are looking at
9/30 10-Q, use “nine months ended” data)
Step 3
 The model automatically calculates LTM for you. Make sure you set CS as the LTM source under
settings/options so the output picks up your hard work

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Great, But What’s LTM?
 LTM = Last Twelve Months
 Companies report financial results on a quarterly basis (every 3 months)
 LTM represents the sum of the last four quarters’ results
 LTM is important because it shows what the company’s reported performance has been over
the last year (though not necessarily a calendar year)

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5. Income Statement Adjustments –
Unusual and Non-Recurring Items
Companies often report one-time gains or extraordinary charges in accordance with GAAP.
As financial analysts, we do not view these charges as related to operations and thus
exclude them.
 Typical “non-operating” charges include gains/losses on sale of assets, inventory write-downs
and restructuring charges
 It is important to remember that not all unusual or non-recurring items will be broken out on the
financial statements. This is the result of:
 Accountants will not always allow companies to break-out certain charges on the financial
statements because they are not unusual in the strictest sense
 Some companies may not want to highlight that they “made their numbers” as a result of an
extraordinary gain
 Charges or gains not broken out in the financials can always be found in the MD&A – that’s why
you need to read it!

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6. Projected and Calendarized Income Statement
 Projected income statement data comes from the research report you have selected
 This data generates your projected EBITDA
 It is important to make sure your projected data is presented on the same basis as your
historical data
 Completing the equity comp projected data is similar to the historical / LTM data

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A Note On Calendarizing Estimates
Some companies do not have December 31 fiscal year ends. As a result, the earnings of
these companies are not comparable to the earnings of companies with a December 31 year
end. Therefore:
 EPS estimates must be adjusted to a December year end to make companies with different
fiscal year ends comparable on a P/E basis
 First Call and I/B/E/S generally download a CYEPS (Calendar Year EPS)
 This is intuitively clear when considering two companies – one with a fiscal year ending
September 30, 2005 and the other with a fiscal year ending December 31, 2005
 The 2005 earnings estimates associated with the “September” company have a higher
degree of certainty than the “December” company and thus should receive a higher multiple
than an identical “December” company
 Our objective is to eliminate this artificial valuation differential by “calendarizing” the estimates
 If you choose not to calendarize it, please set calendarization date equal to last fiscal year end
Helpful Hint: In the top right corner of your ABACUS shell, you have the option to calendarize
manually (meaning you do all the work) or by formula (meaning FactSet generates the formula for
you). In most cases, use the Formula option, but make sure you know how it is deriving its ratio.

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56
Calendarizing EPS Estimates
Example #1: “Fiscal year ends September 30”
What does this mean?
It means that 9 months (or ¾) of the Company’s fiscal 2004 results (Jan. 2004 – Sept. 2004)
are included in the 2004 calendar year with the remaining 3 months (or ¼) of the calendar
year estimated in the fiscal 2005 results.
Illustration:
FACTOR
2004A 2005E 2006E 75.0% 2004A 2005E
Sales $1,000 $1,010 $1,020 $1,002.5 $1,012.5
EBITDA 150 200 250 162.5 212.5
EPS 1.00 1.10 1.20 1.03 1.13
ENDED DEC. 31,FISCAL YEAR ENDED SEPT. 30,
CALENDAR YEAR
25%
75%

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57
The Sanity Check
How to avoid the dreaded, “This doesn’t look right” response
 Take 5 minutes to look at the output when you’re done – the team will wait
 Look for outliers in the data
 Comparable companies usually have comparable multiples
– If 9 out of 10 companies in your equity comps are trading between 8x and 10x EBITDA,
and one is trading at 20x, you might have a problem
– Possible explanations: 1. You’ve made a mistake, 2. This isn’t a good comp, or 3. There is
something unusual about this company
– In the unlikely event of Case 3, be sure you can explain the situation
 Likewise, the relationship between Enterprise Value / EBITDA and P/E should be roughly the
same across companies
– Not always true, but be prepared to explain why it’s not
 Check your multiples against research to be sure you’re in the right ballpark
 If the business is showing momentum and estimated annual operating statistics are improving
over current year figures, your consecutive multiples should be declining (e.g., 16.5x 2005E P/E
vs. 14.6x 2006E P/E)
 If the multiples are increasing, make sure you understand why

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58
Great Equity Comp Mysteries
 What do I do with Minority Interests?
 Include with total capital for Enterprise Value calculation, exclude from debt for credit
statistics
 Include with net income if it appears to be a “normal” part of business
 What do I do with Equity Earnings when I am calculating Net Income?
 Include if it is a “normal” part of the business
 How do I know if a company has “done something” recently?
 “Something’s not right”
 Common “light bulbs” – dramatic change in stock price or shares outstanding, jump in sales
or margins
 Look in News Runs, SDC, Documents Library
 What if a company has done something recently?
 Pro forma the event, e.g., for equity or debt offerings, use the prospectus
 Make sure your forecasts (EPS and operating) reflect the event
 Footnote!

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 What do I do with all those weird “extraordinary” charges?
 Is it really extraordinary?
 Most common are Environmental Charges, Restructuring, Gain/Losses on Sales, Changes in
Accounting
 Get rid of it – don’t forget tax effects
 Don’t forget to adjust historical EPS
 Can I trust FactSet (FDS) codes?
 In general, no (exception is security prices)
 Do I do anything different with options in an M&A situation?
 Assume all in-the-money options are exercisable (change of control provisions)

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What do I do if a company has had a stock split?
 Look in the Stock Guide, footnotes to financial statements, Bloomberg
 Make sure historical and forecast EPS reflect the split
 Example:
BEFORE
SPLIT
AFTER SPLIT:
CORRECT
AFTER SPLIT:
INCORRECT
Stock Price $100 $50 $50
EPS $10.00 $5.00 $10.00
P/E 10x 10x 5x
2:1 Stock Split

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61
Definitions
 Equity Value (also referred to as Market Value)
 The market value of a company’s equity: (Number of fully diluted shares x current stock
price) - option/warrant proceeds
 Number of fully diluted shares = “What the market thinks is outstanding”
= Primary shares + “in the money” exercisable options/warrants + shares from the
conversion of “in the money” convertible debt/convertible preferred stock
 What to do with option/warrant proceeds – Subtract from market value
 Enterprise Value (also referred to as Adjusted Market Value, or AMV)
 The market value of the total enterprise
 Market value of equity + net debt
 Net Debt =
Long-term debt (including current portion) + short-term debt + “out of the money” convertible
debt + minority interest + capitalized leases – (cash + equivalents)

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62
Interpreting the Results – A Few General Themes
 A larger business is viewed as less risky than a smaller business. However, smaller
entrepreneurial companies may get a premium valuation if they are growing quickly
 Higher projected earnings growth implies faster stock appreciation potential and will positively
impact valuation
 Higher leverage implies less financial flexibility and will negatively impact valuation
 Higher profitability margins imply better expense controls and better ability to stay price
competitive and will positively impact valuation
 The higher the economic cyclicality or seasonality of earnings, the riskier the stock
 Dividend payments positively impact valuation. Dividends are usually paid by mature
companies that need further incentives for investors. High growth companies do not need a
dividend to get a high valuation
 Higher trading multiples (e.g., price/earnings ratio) make the stock less attractive than a similar
company with lower statistics

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63
Your Enterprise Value Is Not Correct
 You forgot Minority Interest
 Should be included in total capital for enterprise value calculation
 Is not included in total capital when calculating credit stats
 You missed a debt instrument on the balance sheet
 You missed a cash equivalent on the balance sheet
 The Company may have done a debt offering after the balance sheet date
 You can find out in the “subsequent events” section of the 10-K or 10-Q, from a company
news run or Bloomberg
 Make sure that you check what the proceeds were used for – if they were used to pay down
other debt, then you should not change anything
 Your Equity Value is not correct

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64
Your Equity Value Is Not Correct
 The Company has done a stock split
 The Company has issued or repurchased shares after the 10-K or 10-Q date
 The Company has additional classes of common stock outstanding
 You forgot to include the stock options
 You forgot to include convertible debt or convertible preferred stock

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65
Your LTM Data Is Incorrect
 You forgot to pro forma for all the charges – make sure to thoroughly read the MD&A and
financial notes
 You forgot to use cumulative quarterly data (i.e. “three months ended” 9/30 vs. “nine months
ended” 9/30)
 You forgot to adjust your income statement for acquisitions/divestitures
 You forgot to check for press releases and are not using the most up-to-date data
 You assume D&A is included in operating expenses but it isn’t

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66
Your Projected Data Is Incorrect
 Your research report is outdated – make sure that the research report you are using has EPS
estimates in line with I/B/E/S or First Call
 You did not calendarize
 You did calendarize but used the wrong ratios
 Your research report had a mistake you did not catch
 Your research report currency does not match the rest of your input currency

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67
Comparable Company Analysis
($ in millions)
SHARE % OF ENTERPRISE VALUE AS A LONG-TERM LTM
PRICE 52-WEEK EQUITY ENTERPRISE MULTIPLE OF SALES MULTIPLE OF EBITDA EPS OPERATING
COMPANY 02/04/05 HIGH VALUE VALUE 2004E 2005E 2004E 2005E 2004E 2005E GROWTH RATIO
Truck Load
JB Hunt Transportation $45.00 97.7% $3,682 $3,697 1.3x 1.2x 8.2x 7.2x 17.5x 15.5x 15.8% 92.9%
Swift Transportation(1)
22.61 99.4% 1,671 2,265 0.8x 0.7x 6.2x 5.9x 14.8x 12.6x 12.6% 93.6%
Werner Enterprises(1)
20.94 90.1% 1,679 1,570 0.9x 0.9x 5.5x 4.9x 19.6x 16.1x 15.3% 91.6%
Heartland Express(1)
20.93 90.2% 1,570 1,311 2.9x 2.6x 10.8x 9.7x 25.2x 22.0x 13.8% 79.6%
Knight Transportation(1)
25.71 99.3% 1,460 1,434 3.5x 2.9x 11.9x 10.1x 29.4x 23.1x 16.6% 80.7%
Covenant Transportation 20.86 97.8% 312 372 0.6x 0.6x 4.8x 4.1x 18.9x 15.8x 12.0% 94.0%
Mean 1.7x 1.5x 7.9x 7.0x 20.9x 17.5x 14.4% 88.7%
Median 1.1x 1.0x 7.2x 6.5x 19.3x 16.0x 14.6% 92.3%
Less Than Truckload
CNF Inc(1)
$46.49 91.2% $2,457 $2,400 0.6x 0.6x 6.2x 5.3x 17.8x 14.3x 14.1% 92.3%
Overnite Corp(1)
30.35 78.5% 850 925 0.6x 0.5x 5.3x 4.6x 13.2x 11.0x 15.5% 82.8%
Arkansas Best Corp(1)
41.77 89.5% 1,069 1,000 0.6x 0.5x 4.9x 4.7x 13.0x 11.2x 12.5% 92.8%
Old Dominion Freight(1)
35.60 97.5% 885 961 1.2x 0.9x 7.9x 6.6x 21.6x 16.9x 17.5% 91.4%
SCS Transportation(1)
22.55 81.6% 354 470 0.5x 0.4x 5.2x 4.6x 17.8x 13.0x 15.0% 95.6%
Yellow Roadway Corp(1)
56.31 97.8% 2,769 3,320 0.5x 0.5x 6.3x 5.0x 14.2x 10.9x 10.5% 94.6%
Mean 0.7x 0.6x 6.0x 5.2x 16.3x 12.9x 14.2% 91.6%
Median 0.6x 0.5x 5.8x 4.9x 16.0x 12.1x 14.5% 92.6%
Logistics
C.H. Robinson Worldwide $51.38 91.1% $4,435 $4,201 1.0x 0.9x 18.5x 16.1x 32.9x 28.4x 14.5% 94.9%
UTi Worldwide Inc 71.88 98.5% 2,307 2,297 1.5x 1.1x 30.8x 13.0x 27.9x 21.6x 20.0% 94.0%
Sirva Inc 9.40 36.2% 693 1,165 1.1x 1.0x 6.9x 5.2x 11.1x 7.4x 20.0% 94.6%
EGL Inc 31.18 89.1% 1,461 1,475 0.5x 0.5x 19.1x 14.7x 27.7x 23.1x 17.4% 97.2%
Landstar System Inc(1)
35.25 91.4% 1,083 1,113 0.6x 0.5x 8.3x 7.2x 29.0x 23.8x 17.0% 94.1%
Pacer International 22.19 91.0% 837 1,007 2.6x 2.4x 11.2x 9.8x 16.2x 13.7x 14.6% 94.8%
Forward Air Corp 43.33 91.7% 944 840 3.0x 2.6x 13.9x 11.5x 27.7x 23.1x 14.5% 81.1%
Hub Group 56.46 96.6% 529 529 0.4x 0.4x 10.2x 8.9x 25.3x 22.6x 25.0% 96.6%
Quality Distribution Inc 8.62 53.4% 164 436 0.7x 0.6x 6.6x 5.5x 12.3x 8.5x NA 93.9%
Mean 1.3x 1.1x 14.0x 10.2x 23.3x 19.1x 17.9% 93.5%
Median 1.0x 0.9x 11.2x 9.8x 27.7x 22.6x 17.2% 94.6%
USF Corp(1)
$32.44 83.6% $916 $1,015 0.4x 0.4x 6.0x 4.0x 38.2x 13.1x 10.2% 97.3%
Source: Public filings and Wall Street research reports.
(1) Based on 4Q '04 earnings releases.
P/E

68
Resources
D. M&A Comps

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69
Summer Assignment – M&A Comps
Assignment
 For the following two acquisitions, create a deal list similar to that on the sample page
 Include target business description, as well as the the following statistics:
 EV / LTM sales
 EV / LTM EBIT
 EV / LTM EBITDA
Key Takeaways
 At the end of this section you should be able to answer the following:
1. At what multiples have similar transactions been closed in the past?
2. What valuation (approximately) does this imply for Knight Ridder?
3. Is this valuation different than what was implied from the equity comp analysis, can you
explain the difference?
Date Acquiror Target
Jan-05 Lee Enterprises Pulitzer
Jun-00 Gannett Central Newspapers

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Agenda
 What are M&A Comps and Why Do We Do Them?
 Finding Comparable Transactions
 Practical Guidelines
 M&A related SEC filings
 USF Corporation: Sample M&A comps

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Comparable Acquisitions Analysis
 Comparable acquisitions analysis values a company by reference to other sale transactions of similar
businesses. Comparable acquisitions analysis is based on the same multiples as those used in
comparable companies analysis
 Enterprise Value / EBITDA
 Equity Value / Net Income
 Enterprise Value / Sales (usually less relevant)
 Enterprise Value / EBIT (usually less relevant)
 The trick is to find the right comparable transactions and to ferret out the relevant information required
 As in comparable company analyses, look for acquisitions of companies with comparable operational and
financial characteristics
 Recent transactions are a more accurate reflection of the values buyers are currently willing to pay than
are acquisitions completed in the distant past. This is because market fundamentals are subject to
dramatic change over periods of time. In addition, cyclical businesses will trade at widely different
valuations at the peak and ebb of a cycle
 Multiples should be based on the latest public financial information available to the Acquiror at the time of the
acquisition
Helpful Hint #1: Unlike Equity Comps, which value companies off of forward looking estimates, M&A Comps are
historical looking
Helpful Hint #2: Comparable acquisition multiples include consideration which is paid for "control" of the Target.
Since this "control premium" is not reflected in the comparable company valuation, comparable acquisition
multiples tend to be higher and more indicative of the value of a company in a sale context

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Finding Comparable Acquisitions
Sources to check for comparable acquisitions include:
 Other comparable acquisitions schedules
 Previous presentations/valuation analyses
 SDC database (Securities Data Corporation)
 News runs
 Equity analysts
 Public tender offer documents and merger proxies
 Colleagues
Never rely on the multiples of a schedule with an unknown author or with an author who is
not sure that the multiples are correct.
Look for recent acquisitions of companies with operational and financial characteristics
similar to those of the business being valued.

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Total Transaction Value of an M&A deal is similar to Enterprise Value used in Comparable
Companies Analysis.
Calculation of Transaction Value
Total
Transaction
Value
Equity
Value
Total
Debt
Preferred
Stock
Minority
Interest
Cash and
Equivalents
Equity
Value
Fully Diluted
Shares
Outstanding
Purchase
Price
+ + + -=
= x
Helpful Hint: The major difference between a Transaction Value and an Enterprise Value lies in
the share count. In any “Change of Control,” all outstanding and “in-the-money” options, regardless
of whether they are exercisable or not , get converted at the weighted average strike price. This
differs from the Enterprise Value calculation, where only those options that are exercisable get
converted

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Calculation of Shares Outstanding
 Basic Shares Outstanding are taken from the cover of the most recent 10-K or 10-Q.
 Option/Warrant Shares are calculated using the treasury method, which assumes that all in-the-money
options/warrants are exercised and the proceeds are used to repurchase shares at today’s market price
 For example:
To calculate equity value, we must always use fully diluted shares outstanding.
Basic Shares Option/Warrant Shares
20 million shares 500,000 in-the-money options
$25 is the average strike price
$35 is today’s stock price
Fully Diluted
Shares
Outstanding
Basic
Shares
Outstanding
Option/
Warrant
Shares
= +
Helpful Hint: There are two independent concepts regarding option/warrants that tend to confuse people:
1. Outstanding versus Exercisable
2. “In-the-money” versus “out-of-the-money”
 In an acquisition context, all outstanding and “in-the-money” options/warrants get converted. In a market value
(equity comp) context, only those options that are both exercisable and “in-the-money” convert
 Options/warrants “out-of-the-money” never convert

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Calculation of Shares Outstanding (Cont’d)
 In-The-Money Option/Warrant Shares:
 Step 1: 500,000 x $25 = $12.5 million
 Step 2: $12.5 million / $35 = 357,143 shares
 Step 3: 500,000 - 357,143 = 142,857
 Finally . . . To Calculate Fully Diluted Shares Outstanding.
 Now You Can Solve For The Equity Value
Fully Diluted
Shares Outstanding
= 20,000,000 + 142,857 = 20,142,857

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Determination of Purchase Price per Share
 Cash consideration is straightforward
 Common stock issued by an acquiror is valued using the acquiror’s stock price on the day prior
to announcement of the transaction
 Other securities are valued at market
 Existing publicly traded securities should be valued at market on the day prior to
announcement
 New classes of securities should be valued at market value on the first day of trading
Calculating the purchase price per share is not always as simple as it may first appear

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Enterprise Value vs. Equity Value
General Overview
 There are typically two stakeholders in any firm, the Debt Holders and the Equity Holders. The
concept of Enterprise Value contemplates that the earnings of the Company are allocated to
both the Debt Holders (through interest payments) and the Equity Holders (through dividends
and appreciation in stock price)
When You Use Enterprise Value
 Typically, you will use Enterprise Value in circumstances when the financial statistic being
utilized is flowing to the debt and equity holders. In general, this means that any financial
statistic that is pre-interest expense will use an Enterprise Value concept to determine valuation
When You Use Equity Value
 Typically, you will use Equity Value in circumstances when the financial statistic being utilized is
flowing only to the equity holders. In general, this means that any financial statistic that is post-
interest expense will use an Equity Value concept to determine valuation
 Public market valuations tend to use earnings multiples (typically forward earnings multiples)
because the investment decision is being made based upon a capital structure that is already in
place and cannot be influenced by the common stock holder
When do you use what?

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Stock Price Premiums
 Often calculated from day prior to announcement of transaction
 Often news and rumors of a potential transaction often leak to the market and affect the stock
price prior to announcement. We also look at premiums over the stock price at other points in
time relative to announcement including:
 One Day
 One Week
 One Month
For public companies, we often look at the percent premium paid to shareholders.
% Premium
Paid
Purchase Price
Historical Price= 100
[ ]______________
- 1 *

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79
Practical Guidelines
1) Obtain SDC run to get general information regarding announcement dates, target/acquirors,
structure of transactions, etc. When doing an SDC run, you typically search by industry SIC
codes to find M&A deals for certain industries. If a deal has just been announced, you'll need
to get a news run done on the deal
2) Make sure the announcement date is correct by checking Bloomberg
3) Retrieve appropriate documents from SEC. You will need a merger document and 10-K
and 10-Q. Make sure that the 10-K and 10-Q are for the target company financials for the
LTM period before the announcement date. M&A comps are usually done on an LTM basis.
At some point you may have to do an M&A comp on a forward basis, but this is uncommon
4) Read a summary of the terms of the transaction in the merger doc. This is especially true
for stock-for-stock transactions. Understand whether the transaction was a stock-for-stock,
cash tender offer, asset sale, minority interest investment, etc. This will help you determine
the purchase price later on
5) Scan the notes of the 10-K and the 10-Q for any significant items not reflected in the
statements. Sometimes the target has been involved in other significant mergers,
divestitures, or other consequential events. If so, then read the appropriate 8-K or other
document in order to pro forma the financials. Also, do a quick Bloomberg scan to see if
anything has happened after the filing of the last financial statement and the announcement of
the merger, which could also affect the valuation

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Practical Guidelines (Cont’d)
6) Once you have checked SDC’s announcement date, enter this and the effective date.
Generally, you can trust SDC on the effective date
7) Get the business description from the Bloomberg or from the 10-K. Be brief but not vague
8) The type of merger doc you get will tell you what the structure of the deal is. If you’ve got a
stock deal, then you will have a merger proxy S-4. If you have a cash tender offer, then you
will have a 14D-1. Attitude (friendly vs. hostile) can be obtained from SDC. For the type of
consideration offered, read the summary of the terms of the merger. You may not always
need to show this in your comps
9) Calculate equity value using fully diluted shares outstanding and the offer price per
share. This sounds straightforward, but it is often easy to get tripped up here. Things to
consider:

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81
a) For a stock-for-stock deal, the price per share is implied. Some terms to get familiar with:
 The exchange ratio is simply the number of shares of the acquiror being offered for every
share of the target. So if Target Corp. received one share of Acquisition Corp. stock for
every five of its shares, then the exchange ratio would be 1/5, or 0.2.
 If you read the summary of the terms, you will either get a fixed ratio or a fixed price. In
the case of a fixed price, the exchange ratio adjusts to fit the price. For example, if
Acquisition Corp. knows it wants to pay $5 per share for Target Corp., then the number of
shares it must offer to get to that $5 will depend on its own stock price. If its price were $2
per share, then it would have to offer 2.5 of its own shares, and 2.5 would be the
exchange ratio. In other cases, the exchange ratio is fixed. So if Acquisition Corp. offered
2.5 of its shares for every Target share, then the implied value of the Target share is (2.5 x
Acquisition Corp. share price). Therefore, the implied price will fluctuate over time. So
you can see, either you hold the exchange ratio constant and vary the implied purchase
price, or you have a fixed price and vary the exchange ratio
 For our purposes, what we care about is what the shares were valued at prior to the
announcement. So if the Acquiror’s share price was $10 on the day prior to the
announcement and the exchange ratio was 2, then the implied price per Target share
would be $20. Often the merger proxy will state that the actual exchange ratio at the
closing will depend on “the average closing price of the twenty trading days prior to the
three days before the Effective Date...” Ignore it, unless for some reason this language is
related to the announcement date somehow, because this is the actual price to be paid.
Remember, our job is to determine how the transaction is valued as of the
announcement, so just assume that such a price is whatever it was on the day prior to
the announcement

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82
b) Check the capitalization of the company to see if they have any convertible securities
(debt and preferred stock). Often such securities have takeover provisions which allow
them to convert upon a merger, in which case you want to include their value in the equity
purchase price (of course, you will have to back out their value later when calculating the
enterprise value)
c) Options. Generally, upon a change of control in a company, the options are bought out
by the acquiror. We need to account for this in the equity purchase price, so there are
columns which will calculate this value for you. You can get this info either from the 10-K,
or if available, from the merger proxy (you generally wont find this info in a 14D-1). Since
we will usually not have a detailed breakout of what each individual option is, it is sufficient
to take the average exercise price. When doing so, you should never get to a negative
purchase price for the options because when the exercise price is less than the offer
price, the options are worthless (“out of the money”)
10) Calculate the enterprise value by entering the appropriate debt and cash figures.
Remember, include marketable securities in the cash figure, and if you converted some pieces
of debt or preferred in calculating them in the equity purchase price, do not include them here.
Otherwise, that would be double counting
11) For LTM figures, make sure the numbers you input do not include unusual or nonrecurring
items. Simply subtract them out from EBITDA and EBIT. For the net income line, make sure
you take these out tax-affected. This means that for a net income calculation you would back
out the unusual multiplied by (1-tax rate)

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12) There might have been significant events for which you did not pro forma the numbers. Did
the target purchase another company prior to being acquired that is not reflected in the
numbers? Did the target sell off assets or spin off a division? Use your judgment. Companies
in high-growth industries can trade at high multiples (for example, technology deals can be
done at 4x revenues, 15–20x EBITDA). Slow, prodding industries should not have such
multiples. Also, if it is a hostile deal, then you may have pretty high multiples since the
acquiror has to pay a big premium to get the deal done

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84
M&A – Related SEC Filings
SEC FORM/
SCHEDULE
DOCUMENT
NAME DESCRIPTION
14D-1 Tender Offer/Offer
to Purchase
Filed by the acquiror when launching a tender offer
Has to be opened for a minimum of 20 days
Must be amended for changes in deal/material events
Some information disclosed in document:
Price per share
Number of shares sought
Conditions to closing
Source of financing
Background and purpose of offer
Financial data on acquiror
Information on acquiror’s investment banker and fees
14D-9 Target’s
Recommendation
to Tender Offer
Filed by the target within 10 business days of the commencement of a tender offer
Contains a recommendation from the target’s Board of Directors about how to respond to the Tender
Offer, along with reasons for such recommendation
Also contains other disclosures
Background of transaction
Agreements involving management
Fairness opinion for target’s shareholders
Information on target’s investment banker and fees

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85
M&A – Related SEC Filings (Cont’d)
SEC FORM/
SCHEDULE
DOCUMENT
NAME DESCRIPTION
13D – Filed by any person or group which has acquired 5% of a public company within 10 days of such
acquisition
Required disclosures include:
Identity and background of acquiror
Amount and source of funds
Purpose/intent of purchase
Number of shares owned
Must be amended for material charges
Proxy/S-4
(if securities
involved)
Merger Proxy; Joint
Proxy/Prospectus
Filed by target and/or acquiror
Comprehensive document used to solicit votes to approve transaction
Serves as a registration statement if securities are to be issued as consideration (versus all cash)
Selected disclosures include:
Vote required for approval
Terms of transaction
Recommendation of board
Fairness opinions for target’s (and possibly acquiror’s) shareholders
May describe analysis supporting fairness opinions
Summary financial data, including pro formas
May have full financial statements as an exhibit
Form F-4 (versus S-4) is used by foreign acquirors

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M&A – Related SEC Filings (Cont’d)
SEC FORM/
SCHEDULE
DOCUMENT
NAME DESCRIPTION
8K – Filed for material corporate events or disclosures; not only used for M&A deals
In M&A context, filed to announce a material acquisition and/or sale of a division/subsidiary
Filed by either seller or acquiror if the transaction is material to such party
Typically gives the key terms of a transaction, with the sale/purchase contract filed as an exhibit
Financial statements and/or pro forma financials are often filed as an amendment on Form 8 as
companies are given time to include financials on the filing
10K, 10Q Annual, Quarterly
Filings
”Ks” and “Qs”
Contain required financial statements and MD&A filings
May also contain M&A-related disclosures which could have been made on Form 8K
13E-3 Going Private Filing Used in connection with a significant affiliated party M&A transaction (i.e., LBO or Minority Buyout)
Discloses fairness of transaction to such minority shareholders, usually determined by Special
Committee
Often contains filing of actual Board presentation by financial advisor to Special Committee

USF Corporation Valuation and Merger Analysis

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