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Introduction to Valuation of Foreign Firms/Projects. International Finance: II Dick Sweeney. Foreign Valuation. Different from valuation of domestic firm (or project ) for M&A purposes Standard valuation problem for domestic M&A

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introduction to valuation of foreign firms projects

Introductionto Valuation of Foreign Firms/Projects

International Finance: II

Dick Sweeney

foreign valuation
Foreign Valuation
  • Different from valuation of domestic firm (or project) for M&A purposes
  • Standard valuation problem for domestic M&A
  • One firm to take over another completely, or starts a wholly owned project/subsidiary
  • Only need to look at total value of target/project
  • Acquiring firm gets all the cash flows
foreign valuation cont
Foreign Valuation (cont.)
  • Very different for foreign company/project
  • Usually have equity partners
  • Typical to have host-country partner, often required
  • Usually have multiple sources of debt financing
  • Finding best equity and debt partners is art of project financing
  • Examples: International Finance Corp. of World Bank; U.S. Ex-Im Bank or OPIC
foreign valuation cont1
Foreign Valuation (cont.)
  • Need to value company/project as a whole
  • Use Free Cash Flow approach
  • Like finding out the “size of the pie”
  • Also need to value the cash flows going to each partner in project
  • Use discounted cash flow approaches comparable to FCF approach
  • What “slice” does each partner get?
  • Each partner has to be “happy” for success
ppp and real exchange rate
PPP and Real Exchange Rate
  • Discuss PPP, but focus on use for valuation
  • Means focus on real exchange rate
  • In foreign valuations, real exchange rate is a key
  • Real rate’s effects are often hidden
  • Often ignored, but still there, still a key
  • Bring it out in the open
  • Not hard if done right
  • Helps you be in charge of foreign valuation
robin cases
Robin Cases
  • Short cases, like programmed learning
  • Completely re-written to be clearer, more transparent, more complete
  • Set in Indonesia
  • Prepare you for Vick and Corning Indonesia cases
  • Look at pro formas in Rupiahs, in USD, in real USD
  • Go behind typical international pro formas
vick and corning cases
Vick and Corning cases
  • Classic cases about developing countries, especially Indonesia
  • Not written as valuation cases
  • In some ways, all the better
  • Makes them more demanding, you learn more
  • Do not worry—I am there to help you with the major issues, and with the tricky hurdles
  • Lots of handouts to help with solutions
case discussions presentations
Case discussions, presentations
  • The Robin cases have questions for discussion, and they really are for discussion, not for case presentation in class
  • The Vick and Corning cases lend themselves to case presentations
  • Really four cases
  • Two on total value
  • Two on value to single claimant