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Restructuring at Neiman Marcus Group (A).pptx
- 1. Group 62 RESTRUCTURIN G AT NEIMAN MARCUS GROUP (A) Case 007
- 2. Jens Martensson 2 GROUP PROFILE Group No 62 NAME ID NO Shaikh Saifullah Khalid 23-2027 Nusrat Jahan 23-2009 Md. Ullash Hossen 23-2227
- 4. Jens Martensson • Increasing liberalization of trade policy can help the company to invest further. • The economic performance of the markets that the firm is present in – can grow because of increasing government expenditure, increasing disposable income, and increasing investment into the sector. • Also, the consumer expenditure is increasing and expected to increase upcoming years, which will affect the sales of electricity and energy industry. • Efficiency of financial markets – The company can access vibrant financial markets and easy availability of liquidity in the equity market to expand further globally. • Economic Cycles – The performance of The company in Finance & Accounting is closely correlated to the economic performance of the country it is present in. ECONOMY ANALYSIS 4
- 6. Jens Martensson PESTLE ANALYSIS Your Logo Here 6 • Intellectual property protection • Highly regulated political environment • Efficiency of financial markets – Does firm need to raise capital in local market? • Infrastructure quality • Technology's impact on product offering • Impact on cost structure in this industry • Intellectual property protection • Highly regulated political environment • Efficiency of financial markets – Does firm need to raise capital in local market? • Infrastructure quality • Technology's impact on product offering • Impact on cost structure in this industry
- 7. Jens Martensson Porter’s Five Forces Analysis 7 Competitive Rivalry- Low Suppliers Bargaining Power- High Buyers Bargaining Power- High Threat of New Entrants- High Threat of Substitutes- Moderate
- 9. Jens Martensson SWOT ANALYSIS 1. High Capital Expenditure 2. High risk for future. 3. Need more research ad development and training to human resources. WEAKNESSES 1. Has opportunity to influence the market. 2. Opportunities to expand oil prices and exports. OPPURTUNITIES 1. Has first mover advantage & good growth rate 2.Strong facilities and good infrastructure 3. Skilled Management. STRENGTHS 1. Delay of the project may affect the government supports.. 2. Risk from natural elements and events. THREATS
- 10. Jens Martensson DuPont Analysis of Neiman Marcus -1.000 0.000 1.000 2.000 3.000 4.000 5.000 6.000 7.000 8.000 9.000 10.000 Net Income/Total Sales Sales/Total Assets Total Assets/Total Equity ROE DuPont Analysis 2014 2015 2016
- 11. Jens Martensson Risk Analysis of Neiman Marcus -0.1 12.7 -2.0 0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 2013 2014 Degree Operating leverage CV 47.31 Average DOL 6.292 Business risk premium 3.5% 0.59 0.57 0.46 2012 2013 2014 Degree Financial leverage Financial risk premium 4%
- 12. Jens Martensson Altman Z Score Weight 2014 2015 2016 Working Capital/Total Assets 1.2 -0.168 -0.267 -0.157 Retained Earnings/Total Assets 1.4 0.00 0.00 0.00 EBIT/Total Assets 3.3 0.147 0.144 0.099 Market Value of Equity/Book Value of Long-term Debt 0.6 0.117 0.114 0.077 Sales/Total Assets 1 0.552 0.574 0.599 Altman Z SCORE 0.6482 0.5652 0.6188 Z > 2.9 Safe Zone 1.81 < Z < 2.99 Gray Zone Z < 1.81 Distress Zone
- 14. Which Steps and offer Neiman Marcus should take in the situation of Bankruptcy? Did it make any sense to revisit the idea of pursuing a traditional stand-alone reorganization plan? Neiman was confronting a serious situation. After a long and storied history of growth and profitability, the luxury department store group had experienced significant declines in its operating performance over the past few years, which rendered the heavy debt load raised during its 2013 leveraged buyout (LBO) unsustainable. PROBLEM STATEMENT
- 16. Jens Martensson Available Alternatives 16 Assuming company’s survival Debt Issue from Unrestricted Subsidiary Debt Issue from Unrestricted Subsidiary Assuming company’s failure Debt-to-equity swap Liquidation Valuation Extending Debt Maturity
- 18. Jens Martensson Base Case Valuation • Average revenue growth 1.21% • Credit card program revenue growth 5% • Tax rate 25.7% (Constant) • Adjusted WACC 13.5% • Terminal growth rate 0.5% • Net debt $4902 million • Debt weight 84%, equity weight 16% • Impairment cost will decrease at 35% rate
- 19. Jens Martensson Base Case Valuation PV of FCFF $3,126.67 Add: Cash Balance $62.00 Firm value $3,188.67 Less: Interest bearing debt $4,902.00 Less: Distress cost premium $717.45 Equity value $ (2,430.78) Share outstanding 94.3 Value per share ($25.78)
- 20. Jens Martensson Base Case Valuation • Coefficient of variations 0.691
- 21. Jens Martensson Alternative 1: Extending Debt Maturity Cost of equity 0.16342 Tax rate 0.257 Total equity 943 Total debt 5637.3 Total capital 6580.3 Interest rate 0.1 Weight of equity 14.33% Weight of debt 85.67% WACC 8.7% Business risk premium 3.5% Financial risk premium 4% Adjusted WACC 16.2% Issuance of new notes($735 mn) at 10% rate to pay 15% of term loan PV of FCFF $1,374.24 Add: Cash balance 62 Firm value $1,436.24 Less: Interest bearing debt 5,637 Less: Distress risk premium $323.15 Equity value ($4,524.21) Share outstanding 94 Value per share ($47.98)
- 22. Jens Martensson Alternative 1: Extending Debt Maturity • Coefficient of variations 0.6158
- 23. Jens Martensson Alternative 2: Debt-to-equity Swap New price(40%) 14.00 Debt before Restructuring 4,902 Debt after Restructuring 0 Equity 943 New Equity 5,845 No of New Shares 42 PV of FCFF $3,126.67 Add: cash balance 62 Firm value $3,188.67 Less: Interest bearing debt 0 Less: Financial distress cost $717.45 Equity value $2,471.22 Share Outstanding 136 Value per share $18.16
- 24. Jens Martensson Alternative 2: Simulation • Coefficient of variations 0.531
- 25. Jens Martensson 25 Alternative 3- Issue Debt Through Subsidiary Cost of equity 16.34% Interest rate 10.00% Tax rate 25.70% Total debt 4802 Total equity 943 Total capital 5745 Weight of equity 16.41% Weight of debt 83.59% WACC 8.89% Business risk premium 0.035 Financial risk premium 0.04 Adjusted WACC 16.39% PV of FCFF $2,974.25 Add: Cash balance 62 Firm value $3,036.25 Less: Interest bearing debt 4,802 Less: Financial distress cost $819.79 Equity value ($2,585.54) Share outstanding 94 Value per share ($27.42)
- 26. Jens Martensson 26 Alternative 3- Simulation • Coefficient of variations 0.471
- 27. Jens Martensson 27 Alternative 4- Liquidation Valuation Cash $ 42.00 Tangible Assets $ 8,466.00 Subtotal $ 8,508.00 Chapter 7 Fees and Expenses Legal Cost $ 510.48 Transaction Cost $ 340.32 Net Estimated Liquidation Proceeds $ 7,657.20 Weighted average cliams $ 3,384.78 Value to equity holders $ 4,272.42 Share outstanding 94 Value per share $45.31
- 29. Jens Martensson RECOMMENDATION & JUSTIFICATION 29 Debt Equity Swap Alternatives Firm Value Preference level Debt-Equity SWAP $3,188.67 Low Debt issue through subsidiaries $3,036.25 High Extending debt maturities $1,436.20 Moderate $3,188.67 $3,036.25 $1,436.20 1 Comparables Debt-Equity SWAP Debt issue through subsidiaries
- 30. Jens Martensson 30 RECOMMENDATION & JUSTIFICATION Value to equity holders $4272.4 2 Value per share $45.31 Liquidation: Go for liquidation
- 31. Jens Martensson 31 Road Graphics 1 2 3 4 Short run Loan thorugh subsidiary Bankruptcy filing Long run
- 33. Thank You