Bain Capital, a world-driving private value firm, tries to put resources into a nonfood retail location called Edgar Consolidated Stores in South Africa. Edgar gives various open doors, for instance, stable monetary and political environment, developing retail and rebate stores and rising white collar class salary of Black South Africans. In any case, the interest in South Africa additionally postured genuine coin danger and complexities concerning the wellspring of influence. By and large, the key elements for quality creation are required rate of return, potential expense decrease, potential for expanding worth by expansion in influence and development rate in the economy. In light of our suppositions of 23% rate of return, 10% development in retail part with 1.5% incremental development in markdown stores, cost lessening of 100bp and a P/E different of 12x, the proposed offer cost for the second round is R53 per offer. Moreover, Thers has been recommended this ought not be the last offer and Bain Capital ought to hold the adaptability of altering the offer ought to circumstances change positively or unfavorably. At long last, Bain Capital ought to get vital changes the administration of Edgars and bring better use of assets to expand the arrival on resources in the event that they win the offer. Then again, they ought to hold the present CEO as he has demonstrated great results for the organization.
1. What are the opportunities and risks to consider in the proposed Edcon bid? What are the key sources of value creation?
2. Why may it not be feasible to use only bank debt to leverage Edcon? Would it be better to use all bond financing or a combination of bank and bond debt? Explain the advantages and disadvantages of each approach.
3. Using Exhibit 13, calculate what premium to the required rate of return would be needed for an investment in South Africa. Why might Bain Capital use an alternate premium?
4. Restricting yourself to the set of parameters and values in Exhibit 14, justify what price you would be willing to pay for Edcon. Specifically address the rationale behind your base case assumptions that led you to that particular bid price. What degree of confidence do you have in paying this amount?
5. Should Bain Capital make their bid “final”?
6. If Bain Capital wins the bid, should they make changes to the management team?