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Below are historical financial statements and other pertinent data for Supervalu Inc. Please use these data in the following exercises.
Below are historical financial statements and other pertinent data for Supervalu Inc. Please use these data in the following exercises. You may assume for the purposes of your calculations that "today" is February 25, 2012—that is, you do not have to worry about partial year calculations. Round your answers to the nearest 1,000 (consistent with 2012 reporting). A recent article in the Wall Street Journal reports that Supervalu (owner of grocery stores such as Albertsons and Jewel-Osco) is considering putting itself up for sale. Supervalu's earnings have taken a hit in the most recent quarter, falling 45%. Its share price has been falling as well, and management seems to be abandoning its previously optimistic outlook. Let's say you are the CEO of a competing grocery store chain and are considering the acquisition of Supervalu. You are confident that you will be able to achieve synergies, and you plan to operate the target as a subsidiary. You are now ready to calculate the value of Supervalu to determine if these synergies will be enough to make this a deal worth pursuing, and what price you should offer. Use these assumptions and the provided historical financial statements to answer the following questions. Assumptions Please consider the following assumptions: • Supervalu expects the expansion will increase revenues and operating expenses by 25% in 2013, 15% in 2014 and 6% in 2015-2017. • Beginning in 2018, Supervalu will settle into a permanent free cash flow growth rate of 3% per year. • The levels of cash and interest-bearing debt are expected to remain constant through 2017, then they will grow at the same rate as free cash flows. Any liabilities labeled as "other" are non-interest-bearing. • Supervalu's marginal cost of debt is 7.5%, and WACC is 11.5%. The marginal tax rate is 38%. • "Total Other Income/Expenses, Net" is expected to be zero in the future, beginning in 2013. • Make any other assumptions you feel are necessary to perform the following tasks, and explain why you are making them. a. (15 points) In Excel, create a pro forma income statement for Supervalu for 2013 through 2017. b. (15 points) Refer to your pro forma income statement from part (a) and the pro forma balance sheet provided. All numbers are in thousands of dollars. What are Supervalu's free cash flows for 2012 through 2017? You may provide your answer in Excel. c. (10 points) Based on your previous answers and using a DCF analysis, what is Supervalu's current (as of February 25, 2012) enterprise value? Equity value? Use the EBITDA multiple method to calculate the terminal value. The appropriate EBITDA multiple is 7x. d. (4 points) Given your calculations in part (c), what is the maximum price (equity value) you would be willing to pay for Supervalu? Briefly explain why you wouldn't be willing to pay more than this.
Period Ending 25-Feb-12 26-Feb-11 27-Feb-10 157,000 172,000 211,000 AssetsCurrent AssetsCash And Cash EquivalentsShort Term InvestmentsNet ReceivablesInventoryOther Current AssetsTotal...