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Giddy/ING Barings Investment Banking 1 Investment Banking at a Crossroads Prof Ian Giddy New York University Copyright ©2000 Ian H. Giddy www.giddy.org Investment Banking 2 Investment Banking Sales Capital Markets Corporate Finance Customer-Driven Securities
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Page 1: Investment Banking at a Crossroads Prof Ian Giddy - NYUpages.stern.nyu.edu/~igiddy/ing-barings/investmentbanking.pdf · Giddy/ING Barings Investment Banking 11 Copyright ©2000 Ian

Giddy/ING Barings Investment Banking 1

Investment Bankingat a Crossroads

Prof Ian GiddyNew York University

Copyright ©2000 Ian H. Giddy www.giddy.org Investment Banking 2

Investment Banking

Sales

CapitalMarkets

CorporateFinance

Customer-DrivenSecurities

Page 2: Investment Banking at a Crossroads Prof Ian Giddy - NYUpages.stern.nyu.edu/~igiddy/ing-barings/investmentbanking.pdf · Giddy/ING Barings Investment Banking 11 Copyright ©2000 Ian

Giddy/ING Barings Investment Banking 2

Copyright ©2000 Ian H. Giddy www.giddy.org Investment Banking 3

What is Investment Banking?

l Sales and Tradingl Funds Managementl Underwriting and Distributionl Advisory Services, including M&Al Research

Copyright ©2000 Ian H. Giddy www.giddy.org Investment Banking 4

Investment Banking’s Future

l Banks vs. Marketsl Relationships vs. Transactionsl On Balance Sheet vs. Offl Domestic vs. Regional vs. Globall Debt vs. Equityl Bricks vs. Bytes

Page 3: Investment Banking at a Crossroads Prof Ian Giddy - NYUpages.stern.nyu.edu/~igiddy/ing-barings/investmentbanking.pdf · Giddy/ING Barings Investment Banking 11 Copyright ©2000 Ian

Giddy/ING Barings Investment Banking 3

Copyright ©2000 Ian H. Giddy www.giddy.org Investment Banking 5

Banks vs. Markets

l Where are investors going?l What do today’s shareholders expect?l Where are corporate clients going?l Where is your bank going?

l Common theme: “The end of entitlement” (which implies the end of special responsibilities)

Copyright ©2000 Ian H. Giddy www.giddy.org Investment Banking 6

Relationships vs. Transactions

l Lower barriers to entry – more price competition

l Frequent re-calculation of benefits: “What will you do for me next?”

l Shareholder pressure weakens traditional relationships, obligations

l In business, the effect is toward alliances, contract manufacturing, out-sourcing

l Stability requires “new communities,” the more broadly-based the better

Page 4: Investment Banking at a Crossroads Prof Ian Giddy - NYUpages.stern.nyu.edu/~igiddy/ing-barings/investmentbanking.pdf · Giddy/ING Barings Investment Banking 11 Copyright ©2000 Ian

Giddy/ING Barings Investment Banking 4

Copyright ©2000 Ian H. Giddy www.giddy.org Investment Banking 7

Financial Innovation and the Shorter Product Life Cycle

l More financial innovationl But most innovations faill Fewer geographic barriers to entryl Fewer information barriers to entry

Excessreturns

Time

Copyright ©2000 Ian H. Giddy www.giddy.org Investment Banking 8

Innovation as Value Creation

l Innovations are costly to develop and produce, and easily copied, so

l For an innovation to succeed, it must create differentiated value for issuer, investor, or risk manager, by:uUnbundling: create simple, more primitive

instruments to isolate risks, or

uBundling: create tailor-made instruments to reduce costs, minimize taxes, or circumvent restrictions or imperfections.

Page 5: Investment Banking at a Crossroads Prof Ian Giddy - NYUpages.stern.nyu.edu/~igiddy/ing-barings/investmentbanking.pdf · Giddy/ING Barings Investment Banking 11 Copyright ©2000 Ian

Giddy/ING Barings Investment Banking 5

Copyright ©2000 Ian H. Giddy www.giddy.org Investment Banking 9

On Balance Sheet vs. Off

l “All my assets are for sale, all the time”l Maximize ROE by increasing capital

turnover – become originators instead of lenders

5,4 5,71,6

5,39,1 6,9

33,135,4

38,8

61,7

0,0

10,0

20,0

30,0

40,0

50,0

60,0

70,0

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999(YTD)

Market value of transactions in Europe (1990-present) Euro bn

Asset-BackedSecurities

Asset-BackedSecurities

Copyright ©2000 Ian H. Giddy www.giddy.org Investment Banking 10

Domestic, Regional or Global?

l Which are more mobile?uGoods markets

uLabor

uServices

uFinancial services

l Even domestic institutions must be able to compete in the world arena

Page 6: Investment Banking at a Crossroads Prof Ian Giddy - NYUpages.stern.nyu.edu/~igiddy/ing-barings/investmentbanking.pdf · Giddy/ING Barings Investment Banking 11 Copyright ©2000 Ian

Giddy/ING Barings Investment Banking 6

Copyright ©2000 Ian H. Giddy www.giddy.org Investment Banking 11

Debt vs. Equity

0.1

1

10

100

1000

10000

1925 1935 1945 1955 1965 1975 1985 1995

Index ($)

$4,495.99

$33.73

$13.54$8.85

$1,370.95

Small Company Stocks

Large Company StocksLong-Term

Government Bonds

Treasury BillsInflation

Year-End

A $1 Investment in Different Types of Portfolios: 1926-1996

Copyright ©2000 Ian H. Giddy www.giddy.org Investment Banking 12

Passive vs. Active Investors

l It’s an internet information agel Domestic shareholders want global

returns – asset managers must beat benchmarks

l Corporations or financial institutions which cling to underperforming assets will have lower ROE and share prices

l Which makes them vulnerable to restructuring or takeover – Europe’s new market for corporate control

Page 7: Investment Banking at a Crossroads Prof Ian Giddy - NYUpages.stern.nyu.edu/~igiddy/ing-barings/investmentbanking.pdf · Giddy/ING Barings Investment Banking 11 Copyright ©2000 Ian

Giddy/ING Barings Investment Banking 7

Copyright ©2000 Ian H. Giddy www.giddy.org Investment Banking 13

Passive vs. Active Investors

uInvestors expect results or sell their shares; “friendly holdings” become too costly, opportunity costs become explicit

uVenture capital, private equity funds attract investors by offering higher returns

uMarket-based returns now expected by investors and lenders, and required of managers; local differences persist, but diminishing

Copyright ©2000 Ian H. Giddy www.giddy.org Investment Banking 14

Bricks vs. Bytes

l It’s a Nasdaq world, and it’s moving at “internet time”

l The old economy needs the new economy to meet shareholder expectations

“To B2B, or not to be?”l E-business or m-business?l Equity, not debt, is financing the new

economy

Check your ownbank’s onlineand mobilefinancial services

Check your ownbank’s onlineand mobilefinancial services

Page 8: Investment Banking at a Crossroads Prof Ian Giddy - NYUpages.stern.nyu.edu/~igiddy/ing-barings/investmentbanking.pdf · Giddy/ING Barings Investment Banking 11 Copyright ©2000 Ian

Giddy/ING Barings Investment Banking 8

Copyright ©2000 Ian H. Giddy www.giddy.org Investment Banking 15

Whither European Financial Services?

l The Anglo-Saxon model of transparent financial markets is coming, at internet speed

l All assets must meet the test of the market – global shareholder return standards

l Otherwise…

Copyright ©2000 Ian H. Giddy www.giddy.org Investment Banking 16

Example: Deutsche-Dresdner

l What is Deutsche’s strategy?l Does the Dresdner acquisition advance

that strategy?l What does it take to succeed in

investment banking?

Deutsche-Dresdner case study

Page 9: Investment Banking at a Crossroads Prof Ian Giddy - NYUpages.stern.nyu.edu/~igiddy/ing-barings/investmentbanking.pdf · Giddy/ING Barings Investment Banking 11 Copyright ©2000 Ian

Giddy/ING Barings Investment Banking 9

Copyright ©2000 Ian H. Giddy www.giddy.org Investment Banking 17

The Commercial Banking Model

Assets Liabilities

Loansn Net interest

revenues

Loansn Net interest

revenues

Depositsn Net interest

costs

Depositsn Net interest

costs

Goal: Add assets with positive net interest margin

Copyright ©2000 Ian H. Giddy www.giddy.org Investment Banking 18

The Investment Banking Model

Sales

CapitalMarkets

CorporateFinance

Customer-DrivenSecurities

Goal: Originate deals and sell them in the capital marketas quickly as possible

Page 10: Investment Banking at a Crossroads Prof Ian Giddy - NYUpages.stern.nyu.edu/~igiddy/ing-barings/investmentbanking.pdf · Giddy/ING Barings Investment Banking 11 Copyright ©2000 Ian

Giddy/ING Barings Investment Banking 10

Copyright ©2000 Ian H. Giddy www.giddy.org Investment Banking 19

What Strategy?Client-Arena-Product Matrix

Pro

du

cts

off

ered

Clients servedMarkets covered

Copyright ©2000 Ian H. Giddy www.giddy.org Investment Banking 20

Products

l Credit productsl Trading and positioningl Risk management productsl Financial engineering and structured

financel Underwriting and distributionl Asset managementl Retail and private client servicesl Transactions services

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Copyright ©2000 Ian H. Giddy www.giddy.org Investment Banking 21

Range of Financial Services

Firms FDICInsuredDepository

ConsumerLoans

CreditCards

MortgageBanking

Commercial Lending

MutualFunds

Securities Insurance

American Express • • • • • • • •

AT&T • •

Bankers Trust • ¤ • • • •

Citicorp • • • • • • • •

Ford • • • • • •

General Motors • • • • •

General Electric • • • • • • • •

ITT • • • • • •

John Hancock • • • • • • • •

J.P. Morgan • ¤ • • •

Merrill Lynch • • • • • •

Primerica • • • • • •

Prudential • • • • • • • •

Sears, Roebuck • • • • • • • •

Transamerica • • • • •

¤ minor involvmentSOURCE: The National Journal, the American Financial Services Associationand Annual Reports.

Copyright ©2000 Ian H. Giddy www.giddy.org Investment Banking 22

NatWest Bank?

NatWest BankClients

Corporations Government Institutions High net worth RetailProductsSecurities custody x xAsset Management x x xPrivate Equity xInsurance x xLending x x x xDeposits x x x xSecuritization/Structured and Project Finance x xEquity underwritingBond underwritingMergers and AcquisitionsCredit cards x x xTrading - Money market x x - FX and derivatives x x - Interest rate derivatives x x - Bonds x x - Securitized products x x- Futures x xMortgages xStock brokerage x xCorporate Advisory xPrivate Banking x

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Copyright ©2000 Ian H. Giddy www.giddy.org Investment Banking 23

Product Profitability Cycle

Excess returns

Time

n Do you want to be a Nescafe bank?

n Or a Starbucks bank?

n Do you want to be a Nescafe bank?

n Or a Starbucks bank?

Copyright ©2000 Ian H. Giddy www.giddy.org Investment Banking 24

Client-Arena-Product Matrix

Pro

du

cts

off

ered

Clients servedMarkets covered

Build versus buy?

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Copyright ©2000 Ian H. Giddy www.giddy.org Investment Banking 25

Client-Arena-Product Matrix

Pro

du

cts

off

ered

Clients servedMarkets covered

Deutsche Bank in USA

Copyright ©2000 Ian H. Giddy www.giddy.org Investment Banking 26

Client-Arena-Product Matrix

Pro

du

cts

off

ered

Clients servedMarkets covered

Sell?

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Copyright ©2000 Ian H. Giddy www.giddy.org Investment Banking 28

Using Industry Structure Analysis

COMPETITIVE

ADVANTAGE

SUBSTITUTESQuestions:l Do substitutes exist?l What is their price/

performance?

Potential Action:l Fund venture capital and

joint venture to obtain key skills

l Acquire position in newsegment

CUSTOMERSQuestions:l Is the customer base

concentrating?l Is value added to

customer end product high,changing?

Potential Actions:l Create differentiated

productl Forward - integrate

BARRIERS TO ENTRYQuestions:l Do barriers to entry exist?l How large are the barriers?l Are they sustainable?

Potential Actions:l Acquire to achieve scale in

final product or critical component

l Lock up supply of critical industry input

SUPPLIERSQuestions:l Is supplier industry

concentrating?l Is supplier value/cost

added to end product high,changing?

Potential Actions:l Backward - integrate

Copyright ©2000 Ian H. Giddy www.giddy.org Investment Banking 29

Complementarity and Cross-Selling

WholesaleRetail

Insurance

Asset Management

Citigroup?

Page 15: Investment Banking at a Crossroads Prof Ian Giddy - NYUpages.stern.nyu.edu/~igiddy/ing-barings/investmentbanking.pdf · Giddy/ING Barings Investment Banking 11 Copyright ©2000 Ian

Giddy/ING Barings Investment Banking 15

Copyright ©2000 Ian H. Giddy www.giddy.org Investment Banking 30

The Future of Banking:Where Do You Want To Go Today?

l Banks vs. Marketsl Relationships vs. Transactionsl On Balance Sheet vs. Offl Domestic vs. Regional vs. Globall Debt vs. Equityl Bricks vs. Bytes

Raising Moneyfor Companies

Prof Ian GiddyNew York University

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Copyright ©2000 Ian H. Giddy www.giddy.org Investment Banking 32

Corporate Finance

CORPORATE FINANCEDECISONS

CORPORATE FINANCEDECISONS

INVESTMENTINVESTMENT RISK MGTRISK MGTFINANCINGFINANCING

CAPITAL

PORTFOLIO

M&ADEBT EQUITY

TOOLS

MEASUREMENT

Copyright ©2000 Ian H. Giddy www.giddy.org Investment Banking 33

The CFO Questions

l How fast can we grow? What criteria for spending money? Acquisitions? Divestitures?

l How should we finance our growth? What kind of equity? What’s our exit plan? Private or public?

l How much (cheap) debt should we have?

l What kind of debt should we have? Maturity? Fixed/floating? Currency? Asset-backed? Hybrids, such as convertibles?

l How should we manage our financial risks?

Page 17: Investment Banking at a Crossroads Prof Ian Giddy - NYUpages.stern.nyu.edu/~igiddy/ing-barings/investmentbanking.pdf · Giddy/ING Barings Investment Banking 11 Copyright ©2000 Ian

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Copyright ©2000 Ian H. Giddy www.giddy.org Investment Banking 34

Financing X Inc

Copyright ©2000 Ian H. Giddy www.giddy.org Investment Banking 35

Financing X Inc

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Copyright ©2000 Ian H. Giddy www.giddy.org Investment Banking 36

Financing X Inc

Copyright ©2000 Ian H. Giddy www.giddy.org Investment Banking 37

Corporate Financing Life-Cycle

Growth companies Mature companies

Leverage

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Copyright ©2000 Ian H. Giddy www.giddy.org Investment Banking 38

Firm Characteristics as Growth Changes

Variable High Growth Firms tend to Stable Growth Firms tend toRisk be above-average risk be average risk

Dividend Payout pay little or no dividends pay high dividends

Net Cap Ex have high net cap ex have low net cap ex

Return on Capital earn high ROC (excess return) earn ROC closer to WACC

Leverage have little or no debt higher leverage

Earnings

Gearing

0

Copyright ©2000 Ian H. Giddy www.giddy.org Investment Banking 39

Financing Growth Companies:The Agenda

l Where can we get the initial equity financing we need to grow?

l Do we want money, management, or more?

l When do we want to sell out, and how?l When is the right time for debt for a

growth company? What kind?

Page 20: Investment Banking at a Crossroads Prof Ian Giddy - NYUpages.stern.nyu.edu/~igiddy/ing-barings/investmentbanking.pdf · Giddy/ING Barings Investment Banking 11 Copyright ©2000 Ian

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Copyright ©2000 Ian H. Giddy www.giddy.org Investment Banking 40

First, Why Equity?

l Benefits of EquityuFlexibility: cannot afford to have fixed

obligations

uStrategic partners

uInterventionist partners

l DisadvantagesuNo tax shield

uExpensive!

Copyright ©2000 Ian H. Giddy www.giddy.org Investment Banking 41

What Kind of Equity?

l Sources of EquityuPrivate investors

uStrategic investors

uInterventionist investors

uPublic market

l And KindsuCommon stock

uStock with restricted voting rights

uHybrids, including convertibles

Page 21: Investment Banking at a Crossroads Prof Ian Giddy - NYUpages.stern.nyu.edu/~igiddy/ing-barings/investmentbanking.pdf · Giddy/ING Barings Investment Banking 11 Copyright ©2000 Ian

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Copyright ©2000 Ian H. Giddy www.giddy.org Investment Banking 42

.comfax

l Started in September 1997, .comfax enables users to send faxes and receive faxes over the internet at a low cost.

l By June 1998 the company had expanded its services and was signing up subscribers at the rate of 100,000 a day.

l Initial funding was “Angel” finance, but now the expansion was exceeding the company’s financial, physical and managerial capacity. On two occasions it had literally run out of money.

l What form of equity financing would be appropriate for .comfax?

Copyright ©2000 Ian H. Giddy www.giddy.org Investment Banking 43

Pre-IPO Equity Financing

l Friends and familyl Angell Venture capitall Strategic partners

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Copyright ©2000 Ian H. Giddy www.giddy.org Investment Banking 44

Pre-IPO Equity Financing

l Friends and familyl Angell Venture capitall Strategic partners

asiajack.com

Copyright ©2000 Ian H. Giddy www.giddy.org Investment Banking 45

Private Equity Funds

l Private equity funds are generally structured as partnerships specializing in venture capital, leveraged buyouts, and corporate restructuring.

l The private equity fund mobilizes funds, selects and monitors investments, eventually exiting the investment and paying back the investors.

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Copyright ©2000 Ian H. Giddy www.giddy.org Investment Banking 46

Silipos Inc

Copyright ©2000 Ian H. Giddy www.giddy.org Investment Banking 47

Silipos Inc, 1999

Where do you want

to go?

Debt?Debt?

Acquisition?Acquisition?

IPO?IPO?

Sell?Sell?

Page 24: Investment Banking at a Crossroads Prof Ian Giddy - NYUpages.stern.nyu.edu/~igiddy/ing-barings/investmentbanking.pdf · Giddy/ING Barings Investment Banking 11 Copyright ©2000 Ian

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Copyright ©2000 Ian H. Giddy www.giddy.org Investment Banking 48

IntraLinks

Copyright ©2000 Ian H. Giddy www.giddy.org Investment Banking 49

IntraLinks’ Choices

Ø Issue debt, either by borrowing from one of the big New York banks keen to get more involved in promising Internet businesses, or by means of a private placement of debt notes, possibly with “sweeteners” such as warrants to attract a lender.

Ø Seek out one or more private equity investors, ones who believed in the company’s product and its management.

Ø Do an initial public offering (IPO).Ø Find another corporation who would be willing to

acquire IntraLinks.

Page 25: Investment Banking at a Crossroads Prof Ian Giddy - NYUpages.stern.nyu.edu/~igiddy/ing-barings/investmentbanking.pdf · Giddy/ING Barings Investment Banking 11 Copyright ©2000 Ian

Giddy/ING Barings Investment Banking 25

Copyright ©2000 Ian H. Giddy www.giddy.org Investment Banking 50

Why Venture Capitalists Prefer Preferred

l Senior status in bankruptcyl Does not put a value on the sharesl Is convertible into common stock before

the IPOl Conversion price is set such that if there

is a liquidation all the money goes to the preferred shareholders (equity is worth zero)

Copyright ©2000 Ian H. Giddy www.giddy.org Investment Banking 51

Case Study: Photronics

Page 26: Investment Banking at a Crossroads Prof Ian Giddy - NYUpages.stern.nyu.edu/~igiddy/ing-barings/investmentbanking.pdf · Giddy/ING Barings Investment Banking 11 Copyright ©2000 Ian

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Copyright ©2000 Ian H. Giddy www.giddy.org Investment Banking 52

Case Study: Photronics

Photronics is the world's leading and fastestgrowing manufacturer of photomasks.Photomasks are high precision quartz plates thatcontain microscopic images of electroniccircuits. A key element and enabling technologyin the manufacture of semiconductors,photomasks are used to transfer circuit patternsonto semiconductor wafers during the fabricationof integrated circuits. They are produced inaccordance with circuit designs provided bycustomers at strategically located manufacturingfacilities in North America, Europe and Asia.

Copyright ©2000 Ian H. Giddy www.giddy.org Investment Banking 53

Case Study: Photronics

Sales, 1994-99

Balance Sheet, end-1999USD millionsAssets Liabilities & EquityCash 7.6 Current liabilities 50.2Other current assets 59.9 Long term liabilities 132.7Long term assets 319.6 Shareholder's equity 204.2Total 387.1 Total 387.1

Market capitalization 720 P/E 26xEBIT/Int cost 5.77

Book MarketD/E 0.90 0.25D/(D+E) 0.47 0.20

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Copyright ©2000 Ian H. Giddy www.giddy.org Investment Banking 54

The Company’s Debt

Copyright ©2000 Ian H. Giddy www.giddy.org Investment Banking 55

Should Photronics Have More Debt?

l Benefits of DebtuTax Benefits

uAdds discipline to management

l Costs of DebtuBankruptcy Costs

uAgency Costs

uLoss of Future Flexibility

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Copyright ©2000 Ian H. Giddy www.giddy.org Investment Banking 56

How Much Debt? Relative Analysis

The “safest” place for any firm to be is close to the industry average

l Subjective adjustments can be made to these averages to arrive at the right debt ratio.uHigher tax rates -> Higher debt ratios (Tax benefits)uLower insider ownership -> Higher debt ratios

(Greater discipline)uMore stable income -> Higher debt ratios (Lower

bankruptcy costs)uMore intangible assets -> Lower debt ratios (More

agency problems)

Copyright ©2000 Ian H. Giddy www.giddy.org Investment Banking 57

The CFO Questions

l How fast can we grow? What criteria for spending money? Acquisitions? Divestitures?

l How should we finance our growth? What kind of equity? What’s our exit plan? Private or public?

l How much (cheap) debt should we have?

l What kind of debt should we have? Maturity? Fixed/floating? Currency? Asset-backed? Hybrids, such as convertibles?

l How should we manage our financial risks?

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Copyright ©2000 Ian H. Giddy www.giddy.org Investment Banking 58

Raising Equity: The Investment Banker’s Job

l Market conditionsl Corporate needsl Valuationl Informationl Distribution

TelekomTelekom

Copyright ©2000 Ian H. Giddy www.giddy.org Investment Banking 59

Deutsche Telekom: The Sequence

l See case Exhibit 2

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Copyright ©2000 Ian H. Giddy www.giddy.org Investment Banking 60

What’s a Company Worthto Investors?

l Required Returnsl Types of ModelsuBalance sheet models

uDividend discount & corporate cash flow models

uPrice/Earnings ratios

uOption models

l Estimating Growth Rates

TelekomTelekom

Copyright ©2000 Ian H. Giddy www.giddy.org Investment Banking 61

Equity Valuation: From the Balance Sheet

Value of Assetsn Bookn Liquidationn Replacement

Value of Liabilities

n Bookn Market

Value of Equity

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Copyright ©2000 Ian H. Giddy www.giddy.org Investment Banking 62

Deutsche Telekom: Book Value

l See case Exhibit 3

Copyright ©2000 Ian H. Giddy www.giddy.org Investment Banking 63

Relative Valuation

l Do valuation ratios make sense?• Price/Earnings (P/E) ratios

q and variants (EBIT multiples, EBITDA multiples, Cash Flow multiples)

• Price/Book (P/BV) ratiosq and variants (Tobin's Q)

• Price/Sales ratios

l It depends on how they are used -- and what’s behind them!

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Copyright ©2000 Ian H. Giddy www.giddy.org Investment Banking 64

Deutsche Telekom:Ratios and Comparables

l See case page 9

Copyright ©2000 Ian H. Giddy www.giddy.org Investment Banking 65

Discounted Cashflow Valuation: Basis for Approach

uwhere

u n = Life of the asset

u CFt = Cashflow in period t

u r = Discount rate reflecting the riskiness of the estimated cashflows

Value = CFt

(1+r)tt =1

t =n∑

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Copyright ©2000 Ian H. Giddy www.giddy.org Investment Banking 66

Deutsche Telekom: Earnings

l See case page 8

Copyright ©2000 Ian H. Giddy www.giddy.org Investment Banking 67

Valuing a Firm with DCF: An Illustration

Historical financial results

Adjust for nonrecurring aspects

Gauge future growth

Adjust fornoncashitems

Projected sales and operating profits

Projected free cash flows to the firm (FCFF)

Year 1 FCFF

Year 2 FCFF

Year 3 FCFF

Year 4 FCFF

Terminal year FCFF

Stable growth model or P/E comparable

Present value of free cash flows

+ cash, securities & excess assets

- Market value of debt

Value of shareholders equity

Discount to present using weighted average cost of capital (WACC)

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l Bond Marketsl Equity Marketsl Domesticl International

Copyright ©2000 Ian H. Giddy www.giddy.org Investment Banking 72

Ian H. Giddy

Stern School of Business

New York University

44 West 4th Street, New York, NY 10012, USA

Tel 212-998-0332; Fax 917-463-7629

[email protected]

http://giddy.org