What must the analyst believe that division is worth

Reference no: EM133333823

Case Study: Most people think of the Lowry Company as an unrelated diversifier. Suppose that the Lowry Company's total market capitalization equals $8 billion. The company has three divisions. Division #1 has a total net income of $150 million, and its competitors have an average P/E multiple of 15. Division #2 has a total net income of $250 million, and its competitors have an average P/E multiple of 18. An investment banking analyst has argued that the sum of the parts exceeds the value of the whole by 12.5%.

Questions:

A) What must the analyst believe that Division #3 is worth?

B) Suppose that the Lowry Company CEO argues that the firm is not an unrelated diversifier. She argues that the firm generates substantial economies of scope. According to her, those economies show up almost entirely in higher earnings for Division #2 than would otherwise be the case if it was a stand-alone entity. Consequently, she explains that a break-up of the firm would only yield a sum-of-parts value of $7.5 billion. How much less is she assuming that Division #2 would earn in net income if it were a stand-alone entity?

C) The Lowry Company CEO also argues that the firm should not be broken up because it is headquartered, and largely operates, in an emerging market. Why might she be right that the location of the firm perhaps justifies its diversification strategy?

Reference no: EM133333823

Questions Cloud

What about those arguments did you find compelling : You should utilize the outside article from Smithsonian Magazine to bolster your examples from Thoreau's narrative. What, specifically, about those arguments

What have you learned about managing responsibly in course : What have you learned about managing responsibly in the course? How will you think, speak and act differently because of this?

Kind of get-rich-quick scheme : How would you respond to someone who casually dismissed federally/publicly funded science as some kind of get-rich-quick scheme?

Define and discuss performance appraisal and its purposes : Define and discuss performance appraisal and its purposes Describe the basic considerations in creating performance criteria

What must the analyst believe that division is worth : What must the analyst believe that Division #3 is worth?Suppose that the Lowry Company CEO argues that the firm is not an unrelated diversifier.

What suggestions you can make to employers and graduates : What are the key characteristics ofthe chosen industry sector in terms of growth and development? How have these characteristics impacted on employers

Summarize the key points that chittister makes : Identify one chapter title question that is most meaningful to you -- that you strongly agreed with, strongly disagreed with, or was very interesting

What did you make and why did you choose this medium : What did you make and why did you choose this medium? What is your art depicting? And what, from the material, does this piece relate to - what concept/topic

Summarize the important points of the case study : Summarize the important points of the case study Sitting in his room at the Hawthorn Arms Hotel in Shannon, Ireland, waiting for a morning flight to London

User Account

All Pages