Corporate Recovery & Turnaround:

 

Comparison of two alternative recovery proposals for Express Dairies (ED) to return maximum value to shareholders.

(January 2002)

 

 

Contents:                                                                               Page

 

Executive Summary                                                            1

 

1. Current state analysis                                                      2

            Current Liquidation Valuation                             3

            DCF Valuation                                                         4

           

2. Proposal 1. Sharpbender                                                4

            Efficiency analysis                                                   5

            Sensitivity analysis                                                  6

 

3. Proposal 2. Break-up & asset sale                                 7

            Asset valuation                                                        8

            Asset realisation                                                       9

            Payout analysis                                                        10

 

4. Conclusion                                                                        11

            Option analysis                                                        11

            Recommendation                                                     11

 

 

Appendices                                                                          Appendix

Current state, 5 yr DCF                                                       1

Current state, WACC calculation                                      2

Cost of Goods Sold analysis                                              3

Proposal 1, WACC calculation                                          4

Proposal 1, 5 yr DCF                                                           5

 

 

Comparison of alternative recovery proposals for Express Dairies (ED) to return maximum value to shareholders.

 

Executive Summary

Two recovery proposals have been considered for ED.

  1. Improve operating efficiencies and enhance revenue.
  2. Systematically break up ED, realising all assets.

 

Initially the current state of ED was analysed and key performance measures compared to the closest ‘best of class’ performer in the liquid milk industry, Robert Wiseman Dairies’ (RWD) to identify where ED was failing. To establish the seriousness of the situation a liquidation payout ratio was calculated to be only 46% to creditors with nothing for shareholders. A 5 yr DCF was prepared in the current state and it was found that all parties would gain if the business could continue trading.

 

A 5 yr DCF was then prepared implementing the proposal 1 operational efficiencies and it was found that all creditors would be paid out 100% and even assuming that a terminal value in the DCF could not be reliably used in a business with negative growth, the payout to shareholders was in the £1.01 to £1.14 per share range.

 

As ED might be in breach of loan covenants whereby banks and loan note holders might be unwilling to support management any longer, a systematic break up by trade sale and asset realisation analysis was undertaken as proposal 2 and found that banks and loan note holders could be repaid in full if they took priority over other unsecured creditors. Other unsecured creditors would receive a payout of 91.7%, but shareholders would not realise any value.

 

It is therefore proposed that shareholders mobilise immediately and negotiate the support of banks, loan note holders and management to appoint a ‘turnaround specialist’ and implement proposal 1.

 

 

Further information, business plan, strategy, implementation, available from; paul@paulbrianblack.com