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CAPITA MALLS ASIA: A BUYOUT OFFER FROM CAPITALAND ASSIGNMENT QUESTIONS 1. Compute CMA's weighted average cost of capital (WACC). 2. Perform a discounted cash flow (DCF) valuation for CMA. Notes: 1. Data in the exhibits (excluding Exhibit 6 and 9) are in Singaporean Dollars (SG) 2. You can calculate depreciation expense using the fixed assets and straight line depreciation over the time period that the valuation is performed. 3. Corporate tax rate is 17% CAPITA MALLS ASIA: A BUYOUT OFFER FROM CAPITA LAND Ruth SK Tan, Zsuzsa R Huszr, Weina Zhang and Shao Yu Hong wrote this exercise solely to provide material for dass discussion The authors do not intend to Austrate the effective or ineffective handling ala managerial Station. The authors may have disguised certain names and other identifying information to protect confidentiality This publication may not be transmitted, photocopied, digitized or otherwise reproduced in any form or by any means without the permission of the copyright holder. Reproduction of this material is not covered under authorization by any reproduction rights organization. To order copies or request permission to reproduce materials, contact Ivey Publishing ey Business School, Western University, London, Ontario, Canada, NSG ONT (0) 519.661.3208(e) casesivey.ca www.iveycases.com Cogynght 2019, National University of Singapore and Ivey School of Business Foundation Version: 2019-06-17 It was April 15, 2014, and trading had resumed for the shares of CapitaLand Limited (CapitaLand), a large, Singapore-based real estate company, and for the shares of CapitaMalls Asia Limited (CMA), a commercial property development and management company. The trading halt had been called the day before so that Capital and could announce its voluntary conditional cash offer of SGS2.220 for each share of CMA through its wholly owned subsidiary Sound Investment Holdings Pte Ltd. The intention was to delist CMA and integrate it into the Capital and Group. * The offer was conditional on Capital and garnering more than 90 per cent of CMA." At the time of the offer, Capital and already owned 65.3 per cent of CMA. The cash offer of $3.06 billion for the remaining shares was 27 per cent above CMA's one-month volume-weighted average price. The per-share price in the offer was also 20.7 per cent higher than CMA's net asset value per share as at December 31, 2013, and represented a premium of 22.3 per cent over the closing price of $1.815 on April 11, 2014. The offer price would be reduced for any CMA dividends distributed on or after the announcement date, including a proposed final CMA dividend of $0.0175 per share for the financial year ending in 2013. If acceptance levels crossed the 96.5 per cent threshold, Capital and would be able to compel acquisition of all of CMA's shares. As an investor in CMA, you were congratulating yourself on the unexpected windfall. However, the news also made you wonder about the intrinsic value of CMA. When trading resumed on April 15, you noted that Capital and's share price had also risen. Thus, not only was there a premium for the target shareholders, there was also value created for the acquiring shareholders. In fact, you could calculate the estimated synergy ansing from the acquisition from the premium and the net present value of the acquisition. CAPITALAND Capital and had its headquarters in Singapore and was listed on the Singapore Exchange Limited. Its businesses in real estate and real estate fund management were focused in Singapore and China." As of December 31, 2013, the company had assets of $14.91 billion (45 per cent of the group's assets) in China, the company's largest market, and assets worth $12.52 billion (38 per cent of the group's assets) in Singapore, which was the company's second-largest market." Following a strategic review in 2013, CapitaLand had been reorganized into four business units: Capitaland Singapore, Capital and China, CMA, and the Ascott Limited (Ascott). CapitaLand Singapore and Capitaland China developed residential, office, and integrated or mixed-use properties. Despite challenging market conditions, CapitaLand Singapore had almost doubled the member of private residential imits it sold in 2012 by "right-sizing the units. Capital and China had refined its strategy to focus on mass market and first-time buyers and upgraders and had become the largest foreign real estate developer in China." CMA was in the business of shopping malls, and Ascott in serviced residences. CMA had achieved high shopper traffic and net property income, and in 2013, it announced a partnership to jointly develop the Jewel project at Changi Airport. Ascott, which operated more than 33,000 apartment units across 82 cities in more than 20 countries," had achieved modest revenue growth in 2013.16* CAPITAMALLS ASIA LIMITED (CMA) CMA, founded in 2004, went public in November 2009 at an initial offering price of $2.12 per share and raised $2.8 billion After this initial public offering Capital and's shareholding interest in CMA was reduced from 100 per cent to 65.5 per cent. When it was listed CMA was one of the largest pure-play shopping mall owners, developers, and managers in Asia." Its shares closed at $2.30 on the first day of trading, CMA used an integrated shopping mall business model, with interconnected buildings where shoppers could live, work, and play. Its primary business objective was to be a leading owner, developer, and manager of shopping malls in Asia As of December 2013, CMA had a pan-Asian portfolio of 105 shopping malls valued at $34.3 billion. It had $1 billion in cash and a debt-to-asset ratio of 25 per cent (see Exhibit 1). MOTIVATION TO DELIST CMA Capital and had several reasons for delisting CMA. First, because CMA's integrated developments tended to enjoy high foot traffic from a captive base of offices and residences, the developments were expected to enhance CapitaLand's competitive strengths. Second, delisting CMA would simplify CapitaLand's organizational structure. Third, the delisting would give CapitaLand more flexibility in allocating its capital and expanding its scale 2 Fourth, it would unlock shareholder value and achieve synergies. Capital and claimed that the acquisition of CMA would immediately raise earnings per share by approximately 21.5 per cent and improve retum on equity from 5.4 per cent to 6.7 per cent. However, it was not clear whether increasing eamings per share was a good reason for the acquisition. President of Capital and, Lim Ming Yan, said, "The market has changed. Earlier companies were pure-play residential; now companies are emerging that are doing mixed developments, which include homes, offices, and malls. This move will help us compete better." According to an analyst at Barclays Plc, "Capital and's offer to take CapitaMalls private is a win-win for both CapitaMalls and Capital and Regaining full control of CapitaMalls should allow CapitaLand more flexibility, including the ability to streamline its organizational structure.9% However, according to Samsung Asset Management Co. Ltd. (Samsung Assets), the transaction showed that Capital and could not put the money to better use at a time when the property markets in Singapore and China were starting to weaken. In a similar vein, an investment manager at Samsung Assets in Hong Kong commented Styles I The company is effectively undertaking financial engineering to enhance returns. The problem is these reams are still insatisfactory relative to the cost of equity and suggests a lack of investment opportunities in an adverse environment of declining property prices in Singapore and slowing growth opportunities in China?? FINANCIAL PERFORMANCE AND VALUATION To calculate the value of your investment in CMA. you could conduct valuations of CMA's shares using the discounted cash flow (DCF), discounted dividend model (DDM), relative valuation (RV), and precedent transaction methods DCF valuation is based on the principle that the value of a business is determined by its ability to generate cash flows. The relationship between the business's reveme and cost drivers can be gleaned from the company's historical financial statements (see Exhibits 1-4 or refer to the stadent Excel worksheets "CMA Financial Statements" and "Capital and Financial Statements" (Ivey Publishing product number 7B19N012D. These can be used to project a company's cash flows for the initial few years, after which a terminal growth rate can be applied in perpetuity (see Exhubit 3 or refer to the Excel worksheet "Information about Capital and). All projected cash flows will be discounted by the weighted average cost of capital DCF models provide insights into the drivers of share value, but small changes in inputs can result in large changes in intrinsic value The DDM method assumes that a stock is worth the sum of its discounted future dividend payments. The discount rate used is the cost of equity capital. For stocks with a solid history of dividend growth, it is reasonable to assume that the historical growth rate will continue for some years, after which a terminal growth rate will be applied (see Exhubits 5 and 6). The DDM is a simple and convenient way of valuing stocks, but it can be sensitive to the assumed growth rates. The RV method compares the value of a business to those of its competitors, using common multiples or benchmarks such as price-to-earnings (PE), price to book (PB), and price-to-sales (PS) ratios. The PE ratio indicates how much investors are willing to pay per dollar of ermings. It is a widely used peer multiple, but because the denominator is eamings, investors have to be careful when comparing peers from countries that are subject to different accounting regulations. In addition, PE cannot be applied if eamings are negative The P/B ratio compares a stock's market value to its book value. The ratio is calculated by dividing the price of the stock by the book equity per share. It gives some idea of whether investors are paying a reasonable price for the equity that will be left if the company were to go bankrupt immediately. For example, a P/B ratio of less than one indicates that investors can theoretically buy up all the shares of the company, liquidate the assets, pay off the company's liabilities, and still have money left The P/S ratio compares how much investors are willing to pay per dollar of sales. Because sales is a top-line figure and is therefore less affected by accounting policies, this is a useful multiple for businesses that have yet to generate positive earnings, and it is useful for comparing businesses that are subject to different accounting regimes Regardless of which multiple is used it is important to develop accurate benchmarks, and it is cnicial to compare only businesses from the same industry and with similar market capitalization. Thus, although information had been gathered on a number of CMA's potential peers (see Exhibits 7 and 8 or student Excel worksheets Peer Financial Ratio" and "Other Key Peer Financial Data"), further deliberation would be required to identify a suitable comparison group. In addition to relative valuation, precedent transactions could also provide some useful information. Precedent transaction analysis uses the prices paid for similar companies to estimate the worth of a target company. Under normal market conditions, transaction comparables provide higher multiple ranges than peer comparables because acquirers normally pay control premiums and strategic buyers often have the opportunity to realize Synergies. To assess the value of CMA, information on 12 precedent transactions had been retrieved for consideration (see Exhibit 9, or student Excel worksheet "Precedent Transactions"). PREMIUM, NET PRESENT VALUE, AND SYNERGY By the close of trading on April 15, 2014, Capital and's shares had increased 6.5 per cent to $3.11. CMA's shares had surged 21 per cent, from the closing price of $1.815 on April 11, 2014, to $2.19 (see Exhibit 10) the company's biggest gain since going public in 2009 31 Based on the market response, it appeared that the shareholders of CMA and Capital and clearly approved of the transaction. In fact, the net present value of the acquirer could be estimated directly from the response of Capitaland's share price on April 15th. This, together with the premium for the target, would provide an estimation of the synergy created. EXHIBIT 1: CAPITAMALL ASIA'S BALANCE SHEETS (IN SG$ THOUSANDS) Development Properties for Sale Trade and Other Receivables Cash and Cash Equivalents Total Current Assets Plant and Equipment Investment Properties Property under Development Subsidiaries Associates Jointly Controlled Entities Other Investments Other Assets Total Non-Current Assets TOTAL ASSETS 2009 0 436,013 544,300 980,319 14.680 1,378,587 127.006 0 2.900.303 675,398 200,028 933 5,396,671 6,376,990 2010 0 408.281 1,318,312 1,816,593 13,197 304.429 288.848 0 3,110.720 1,043,658 378.653 17.072 5,165,584 6,982, 177 2011 8.827 217,862 975,479 1,202,168 10.100 818.988 1,080,102 0 3.521.088 1,136,881 425.622 07.045 6,875,880 8,078,048 2012 0 633,047 875,351 1,208,398 17.010 1,505,789 548,141 0 3.071.971 2,335,320 441,300 143,384 8,722,936 9,931,334 2013 0 301.773 1,004,312 1,306,085 19,304 1.546,504 148.834 O 4.195.179 2.445,70 498,400 202.441 9,054,687 10,360,772 Trade and Other Payables Loans and Borrowings Current Tax Payable Total Current Liabilities Loans and Borrowings Deferred Tax Liabilities Other Non-Current Liabilities Total Non-Current Liabilities TOTAL LABILITIES 377.622 72.155 40.111 498,888 430,730 30.065 23,845 484,648 983,536 295.300 12.200 58,102 365,758 687.092 33,121 7.376 728,189 1,093,947 213,132 238,038 51.448 503,518 900,805 85,021 21.579 1,097,405 1,600,923 240.800 8.922 55.520 305,338 2.705.400 88,583 93,982 2,888,035 3,193,373 284,108 157,703 54.976 496,847 2.428,283 28.524 70.410 2,595,223 3,092,070 Share Capital Other Reserves Equity Attributable to Owners of the Company Non-Controlling Interests Total Equity TOTAL EQUITIES AND UABILITIES 4,605,000 735.041 5,340,041 53.413 5,393,454 6,376,990 4.605,000 1.223.519 5,828,519 50.711 5,888,230 6,982,177 4,607,514 1.610.477 6,226,991 250.134 6,477,125 8,078,048 4,612,500 1,877,757 6,490,347 247,814 6,737,961 9,931,334 4,620,971 2.542.797 7.16.768 104.934 7,268,702 10,360,772 Source Created by the case authors based on information obtained from CapitaMalls Asia Limited, Clarity, Sustainable Growth: Annual Report 2013 accessed January 27, 2017, http://infopub.sgx.comFleOpervCMA%20AR(Final 2013.ashx? App#Prospectus&FieD20423, Cap Malls Asa umeed Extending Reich, Seang New Opportunbed. Report to Shareholders 2012. accessed January 27, 2017. http.opitama sasa istedcompany.com/misc/2012 erva 2012 en pot, CapitaMalls Asa Limard, Growing Our Presence Al Report to Shareholders 2011, cessed January 27 2017, hepintopub sgx CMF Open CapitaMais2020AR4202011(EINAL ENGLISHLASHCA ceProsectusSED 22 skirtopub sex comFile Open Capital 2204 http://capitamalisasia.listedcompany.com/misc/2012_e Limited. Asias Leading Shopping Aal Developer 2017, people sq.com/FileOpen CMA ZA 2012_en.pdf EXHIBIT 2: CAPITAMALL ASIA'S INCOME STATEMENTS (IN SGS THOUSANDS) Revenue Cost of Goods Sold Gross Profit Other Operating Income Administrative Expenses Other Operating Expenses Profit from Operations Finance Costs Share of Profits from Associates & Joint Ventures Profit before Tax Tax Expense Net Income Attributable to: Owners of the Company Non-Controlling Interests Earnings per Share (cents) 2009 228,946 -100,248 128,700 85,019 -70,212 -111.001 31,606 - 111.430 480.807 2010 245,402 -91,803 153,599 82,447 - 107,410 -1.000 127,528 -25.603 475.894 2011 246,173 -104,204 141,969 252,057 -140,401 -600 252,926 -33.312 348,045 2012 361,178 -140,380 220,789 214,677 -151,388 -4.277 279,801 -89.715 406,501 2013 380,416 -140.360 240,056 139,008 -146,725 -3,602 229,427 -74,015 524,700 409,683 -16.027 393,656 577,809 - 29.87 548,938 568,559 -74,341 494,218 616,587 -57,730 558,848 680,181 -66,054 614,127 388,096 5.560 20.1 541.337 7.601 13.0 450.008 38,210 11.7 540.018 12.830 14.0 600,008 14,119 15.4 BREAKDOWN OF CAPITAMALL ASIA'S REVENUE BY BUSINESS AND GEOGRAPHICAL SEGMENTS (IN SGS THOUSANDS) 2009 2010 2011 2012 2013 (Business Segments) Management Business Investment Business Others Consolidation Elimination Total 108.380 135.101 2.110 -74,685 228 946 253.768 04.285 2,061 -104.712 245,402 318.372 58.224 1.740 -130.109 246, 173 258.006 109,878 102.183 -108.688 361 178 230.700 154,104 66,337 -70,905 380,416 (Geographical Segments) Singapore China Malaysia Japan India Total 84.332 82.879 2.144 70.134 457 228 546 108.679 78,680 40.520 4.699 3,824 245,402 104.047 104.412 28.878 4,433 4,405 246,173 123.030 150.000 37.578 35.630 4,931 361,178 120.007 165, 179 40.581 49,250 5.380 380 416 Source Created by the case authors based on information obtained from CapitaMalis Asia Limited. Clarity, Sustainable Growth: Annual Report 2013 accessed January 27, 2017, http://infopub.sgx.comFleOpen/CMA%20AR(Final 2013.ashx?App Prospectus&FiD-20423: CapitaMals Asia Limited. Extending Reach, Seizing New Opportunities Report to Shareholders 2012. accessed January 27, 2017. http://capitamallasi listedcompany.com/misc/2012_entar2012 en pdf: CapitaMals Asia Limited Growing Our Presence in Asia: Report to Shareholders 2011. accessed January 27 2017 htpintopub.sgx comFileOpen CapitaMalls%20Asia%20AR%202011(FINAL ENGLISH) ashx?App-Prospectus&FielD-92 CapitaMalls Ass Limited, Growing Our Presence Report to Shareholders 2010, accessed January 27, 2017 http://infopub.sgx.comFileOpen CapitaMalls 20Asia%20AR%202010.ashx?App Prospectus&FielD10008: CapitaMalls Asia Limited. Asia's Leading Shopping Mall DeveloperOwner and Manager: Report to Shareholders 2009, accessed January 27 2017. http://infopub sax.comFileOpen CMA20AR2000%20PDF%20for%20Registra ashx?App=Prospectus&FileD-7900 EXHIBIT 3: CAPITALAND'S INCOME STATEMENTS (IN SG$ THOUSANDS) Revenue Cost of Goods Sold Gross Profit Other Operating Income Administrative Expenses Other Operating Expenses Profit from Operations Finance Costs Share of Profits from Associates and N Profit before Tax Tax Expense Profit from Continuing Operations, Net Tax Net Income Attributable to: Owners of the Company Non-Controlling Interests Eamings per Share 2009 2,857,359 -1.831,165 1,026, 194 1.238,300 -412,640 572,121 1,279,823 -453.022 209,195 1,095,096 -86.482 2010 3,382,742 -2,100,384 1,276,358 892.687 -488.270 - 117 421 1,563,345 -448.183 820,852 1,936,014 -205.00Z 2011 3,019,569 -1,048,684 1,072,885 713,704 -530,187 -48,450 1,209,943 -472.785 878,648 1,613,804 -100.884 2012 3,301,363 -2,073,280 1,228,074 586.949 -580.251 -52,122 1,182,650 -498.963 834.781 1,518,478 -201.COZ 2013 3,977,487 -2,891,707 1,085,780 381,127 -517,627 - 198,837 750,643 -444.400 1,047,368 1,353,521 -169.008 1,008,634 1,008,634 1 670 107 1,670,107 1,422,920 1,422,920 1,316,571 1,316,571 1 184,613 1,184,613 1.052,950 -44,325 0.2620 1.273,130 398.988 0.2900 1,057,311 385.000 0.2480 930,347 386.224 0.2190 840, 795 334,818 0.2000 BREAKDOWN OF CAPITALAND'S REVENUE BY GEOGRAPHICAL SEGMENTS (IN SGS THOUSANDS) Singapore China Other Asian Countries Australia Europe and Others Total 2009 2010 2011 2012 2013 978,900.0 1.200,843,0 1,074,765.0 1.160,700.0 1.390,718.0 773,914,0 711,336.0 665,599.0 587,933.0 1.070.435.0 183.2010 201.700.0 158,354.0 139.898.0 222.002.0 755,789,0 918.150.0 890.213.0 1,182.289.0 1,065,689.0 282.698.0 285.480.0 262.898.0 232.038.0 221.539.00 2.957 459.0 3.382.742.0 3.019.569.0 3,301,363.03977487.0 Note: JV joint ventures Source: Created by the case authors using information from CapitaLand Limited, Clarity insight and Foresight Annual Report 2013. accessed January 27, 2017, httpsinvestor.capitaland.com/misc/ar2013.pdf CapitaLand Limited, Focus, Balance, Soale Positioned for Growth Annual Report 2012 accessed January 27, 2017 httpInvestor captaland.com/miscar2012.pdf, Captaland Limited, The Art of Building Annual Report 2011. accessed January 27, 2017. http://investor capitaland.com/misc/a/2011 pdf; Capitaland Limited, Fim Foundation: Leading Edge Innovation in the First 10 Years, Ready for the Next 10 Years Annual Report 2010, accessed January 27, 2017 http://investor captaland.com/misclar2010 pot, Capital and Limited, Ahead of the Curve, Growth during Global Crisis: Annual Report 2009, accessed January 27, 2017. http:investor capitaland.com/miscar2000.pdf EXHIBIT 4: CAPITALAND'S BALANCE SHEETS (IN SG$ THOUSANDS) Development Properties Trade and Other Receivables Other Current Assets Cash and Cash Equivalents Total Current Assets Property. Plant, and Equipment Intangible Assets Investment Properties Associates Joint Ventures Deferred Tax Assets Other Non-Current Assets Total Non-Current Assets TOTAL ASSETS 2009 3,500,270 1,301,010 190,437 8,729,718 13.818 341 1.772,301 518,020 5.058.507 7,012,174 1,672,056 81.250 233,350 16,347,673 30,166,014 2010 5.419,350 2,130,625 203,000 7.190.004 14952 048 1.040,407 450,005 4.732.895 8.240,142 1.861.232 308.206 87,080 16,748, 172 31,700,220 2011 0,905,124 1,700,374 195.000 6,284,473 15.133.971 1,075,505 458,722 7.074,017 9,290.737 1.304.203 95.871 795,965 20.185.470 35,319,441 2012 7.510,083 1.484.753 201,370 5.497693 14.693,909 1.263.015 402.003 7.900.402 9,092,297 2.818.985 91.595 795 713 23.093.700 37,787,609 2013 7,382,023 1.184.115 196.023 5.920,152 14663 213 1.070,230 470.735 4,935,104 11,750.580 2.525,352 73.477 657,124 21.491,671 36,154,884 Trade and Other Payables Short-Term Bank Borrowings Current Portion of Debt Securities Current Tax Payable Total Current Liabilities Long-Term Bank Borrowings Debt Securities Deferred Tax Liabilities Other Non-Current Liabilities Total Non-Current Liabilities TOTAL LIABILITIES 1.880,017 902.074 404.612 457.374 3,734 977 3,951,770 4.963.100 173,750 482 580 9,551 274 13,286,251 1.804,385 852.255 909,510 400.405 3.962,564 3.798,410 4.707.850 593.238 540.687 9,730,194 13,682,758 2,270.489 420.011 434.228 441.075 3,571 802 0.106,790 5.224.810 627,638 580.130 12 508 168 16,079,970 2.350,508 785.826 18.340 432489 3.574 259 0,017.114 6.780.402 658,089 712,071 14. 769,566 18,343,825 2.880.483 939.310 254,972 472.711 4,347 476 5.421,543 5.040.902 611,133 510,827 12.496,465 16,843,841 Share Capital Revenue Reserves Other Reserves Equity Attributable to Owners Non-Controlling Interests Total Equity TOTAL EQUMES & LIABILMES 6.220.227 6.830.047 330.000 13.408.273 3.471,490 16.879.763 30 166014 8,276,504 7,662.201 241,880 14,170.051 3.840 811 18 017 462 31.700 220 0.298,355 8.328.115 275,087 14.001.537 43370M 19, 239, 471 6,300,011 8.010.445 -130.048 15.080.408 4.383 370 19.443.784 37 787 609 8,302.207 0.429.07 335,720 16.007.000 3.243034 19.310.943 36 154 884 35 319.441 Source: Created by the case authors using information from Capital and Limited, Clarity Insight and Foresight Annual Report 2013. accessed January 27, 2017, hepsinvestor capitaland.com/misc/ar2013 pdf: Capital and Limited, Focus, Balance Scale Positioned for Growth Annual Report 2012 scoessed January 27. 2017 httpinvestor captaland.conmaclar2012 pat Capital and Limited. The Art of Building Annual Report 2011. accessed January 27, 2017. http:Jinvestor capitaland commisc/a 2011 pot, CapitaLand Limited. Fim Foundation, Leading Edge Innovation in the 10 Years, Ready for the Next 10 Years Annual Report 2010, accessed January 27 2017 ht:investor capitaland.com/miscar2010 pat, Capital and Limted, Ahead of the Curve, Growth during Global Crisis Annual Report 2009. accessed January 27, 2017. http://investor captaland.com/mid/2009 pdf EXHIBIT 5: OTHER INFORMATION ABOUT CAPITALAND AND CAPITAMALL ASIA Cost of Debt Cost of Equity Beta Number of Shares Terminal Growth Rate (assumed) Capitaland 2.3244 11.95745003 1.144 4,255,980,000 Capita Mall Asia 2.5842 8.44992252 0.870 3.900,675.000 3% Dividend History Payout Ratio (9) CapitaMalls Asia Year 2000 2007 2008 2000 2010 2011 2012 2013 Payout Ratio" (%) Capitaland 32. 1673 15.2538 23.5455 42.3568 17.9704 32.1098 31.9881 42 2338 9.9975 18.4164 25.5478 23.1404 22.8097 Note: Payout Ratio Dividend.Net Income Source: Created by the case authors using data from "CapitaMails Asia (SG1205050543)." and "Capital and Limited (SG1,27887962). "Compusta Capitallo, accessed January 27, 2018 EXHIBIT 6: HISTORICAL AND FORECASTED GDP GROWTH RATES (IN USS THOUSANDS) 2011 2012 2013 2014 2015 Forecasted 2016 2017 2018 72.011.6 11.4 74.4928 20 78.330.8 2.5 78.100.0 24 73,501.4 -5.9 74.000.0 1.9 78.250.4 70,0258 4.8 13,618.0 78 12,620.7 -73 13 1724 43 13,421.4 1.0 11,802.1 - 13.0 11,825.5 20 11,583.7 11.331.2 -42 22 21.003.4 5.0 Global GOP Growth YoY75 Europe GOP Growth YoY Asia GOP Growth YoY5 Australia GOP Growth YoY85 China GOP Growth YoY05 Singapore GOP Growth YoY05 23,3673 5.0 23,475.3 5.1 24.1072 40 25.317.0 20.604.3 24,198.6 0.1 28,008.1 5.3 1.503.7 20.6 1.550.0 3.7 1.8004 -3.8 1.448.4 -3.5 1.210.1 -15.8 1.252.2 27 1.2953 1.307.0 1.0 7.438.6 23.8 8.5422 0.793.7 147 10.655.0 8.8 11.256.4 5.6 11.5080 22 11.828.1 2.8 12.420.8 5.0 267.1 13.0 208.6 11.0 290.4 2928 2782 284.0 24 200.0 5.2 322.4 70 Source: Created by the case authors using "Real GDP Growth. BMI Research, accessed January 27, 2017 ant Paragraph Protection EXHIBIT 7: FINANCIAL RATIOS AND NATURE OF OPERATIONS OF POTENTIAL PEERS Bukit Sembawang Estates City Developments Ltd Frasers Centrepoint Limited Global Logistic Properties Hongkong Land Holdings Ltd Polluc Properties Ltd Sinarmas Land Ltd Tuan Sing Holdings Ltd UIC-United Indust Corp Ltd UOL Group Ltd Wheelock Properties (SGP) Wing Tai Holdings Ltd Yanlord Land Group Ltd Yuexiu Property Co Ltd Current Ratio 18.61 3.57 2.41 3.43 1.99 4.81 2.43 3.21 1.52 1.30 11.88 5.63 2.22 1.83 Quick Ratio 2.12 1.18 0.20 2.04 0.87 0.41 0.10 1.38 0.21 0.74 3.10 2.32 0.30 Solvency Ratio 0.55 0.12 0.03 0.18 0.22 0.06 0.09 0.04 0.24 0.25 0.00 0.16 0.00 0.04 Debt Equity 0.00 51.82 32.94 31.86 16.47 151.03 24.54 120.87 15.77 32.00 21.04 47.53 82.13 94.85 Equity Multiplier 0.00 30.10 1728 21.70 13.43 57.89 15.97 51.48 13.09 22.25 10.68 28.90 28.17 30.57 Effective Tax Rate 19.81 7.34 11.80 15.02 11.58 87.45 11.36 15.48 8.88 7.40 20.42 14.90 44.03 40.83 0.16 Gross Margin 41.53 51.80 39.54 Net Margin 32.33 21.40 35.10 107.04 64.06 0.01 24.51 Payable Turnover 28.67 8.85 4.37 Bukit Sembawang Estates City Developments Ltd Frasers Centrepoint Limited Global Logistic Properties Hongkong Land Holdings Ltd Pollux Properties Ltd Sinarmas Land Ltd Tuan Sing Holdings Ltd UIC-United Indust Corp Ltd UOL Group Ltd Wheelock Properties (SGP) Wing Tal Holdings Ltd Yanlord Land Group Lid Yuexiu Property Co Ltd Total Asset Tumover 0.28 0.18 0.20 0.05 0.00 0.00 0.29 0.17 0.07 0.10 0.03 0.27 0.18 0.18 53.70 24.71 65.93 16.98 45.20 48.08 76.10 41.48 35.40 28.80 Inventory Receivable Turnover Turnover 0.19 22 23 0.36 27.93 0.27 16.64 25.70 0.33 38.00 0.00 3.378.00 0.80 100.13 0.50 6.74 0.37 10.05 0.56 3.67 0.03 65.10 0.60 10.48 0.25 250.18 0.25 825.21 17.20 51.84 78.21 34.20 39.86 13.07 20.27 2.90 0.72 19.08 7.44 5.80 2.09 0.07 34.31 3.50 330.36 Styles EXHIBIT 7: (CONTINUED) PIS Bukt Sembawang Estates City Developments Ltd Frasers Centrepoint Limited Global Logistic Properties Hongkong Land Holdings Ltd Pollux Properties Ltd Sinarmas Land Ltd Tuan Sing Holdings Ltd UIC-United Indust Corp Lid UOL Group Ltd Wheelock Properties (SGP) Wing Tai Holdings Ltd Yanlord Land Group Ltd Yuexiu Property Co Ltd ROA 8.52 4.14 0.04 5.10 3.67 0.08 7.81 3.20 4.00 7.86 1.00 11.82 2.55 3.89 ROE 10.10 0.37 13.03 8.40 4.40 0.20 10.81 7.14 6.54 12.18 1.31 20.94 8.60 12.43 PIE 10.03 12.07 8.25 15.10 11.07 3.65 5.05 8.87 12.97 8.07 50.60 3.02 7.77 1.60 P/B 1.50 1.18 0.42 1.20 0.52 0.98 1.03 0.47 0.82 0.71 0.68 0.57 0.84 0.08 5.18 2.72 1.43 15.30 7.47 4.33 1.24 1.18 6.72 4.82 17.32 1.21 1.01 0.13 Note: All data as at the respective companies' FY 2013 year-end dates for companies with reporting currencies other than SGS, figures are converted to SGS using the applicable year end closing rate from XE.com Source: Created by the case authors using data from Bukit Sembawang Estates Home for Every Generation: Annual Report 2013, socessed January 27, 2017, www.bukitsembawang soinvestor relations/annual-report City Developments Ltd, 50 Golden Years: Annual Report 2013, accessed January 27, 2017 www.od.com.sg/annuaireport2013/corporate_network.html Frasers Centrepoint Limited. Creating Value Thrs Gough Space: Annual Report 2013. accessed January 27, 2017 http:infopub.sgx.comApps?A=COW_Prospectus_content&B-AllAnnual ReportsyDate&F-19473: Global Logistic Properties, Right Time, Right he Right People: Annual Report 2013, accessed January 27, 2017 http:roprop.comphoenix zhtml?c=240724&pirol reports annual; Hongkong Land Holdings Ltd, Annual Report 2013, accessed January 27, 2017, www.hkland.com/data/media_releases/results_announcements/2013/ar2013.pdf Pollux Properties Lid. Annual Report 2013. accessed January 27, 2017. http://pollux.com.sg/singaporelaripollux_ar 2013.pdf Sinarmas Land Ltd. Building for a Better Future: Sinarmas Land Annual Report 2013. accessed January 27, 2017 http://infopub sex.comFileOpen/Sinarmas%20Land%20Limited%20Annual%20Report%202013_low%20res.ashx?App=Pro spechus&FileID=20025, Tuan Sing Holdings Ltd, 2013 Annual Report accessed January 27, 2017 www.ansing.com investor Relations ReportDownload.aspx?ID=1&Year 2013. UIC-United Industrial Corp Lid. Annual Report 2013. accessed January 27, 2017 www.uic.com.sg systemiscar2013.pdf: UOL Group Lid, Creating Value Shaping Future: Annual Report 2013, accessed January 27, 2017, www.uol.com.sg/investors and media annual reports Wheelock Properties. Audited Results for the Year Ended 31 December 2013, accessed January 27, 2017 www wheelockproperties.com.sg/pdf/WPSL ANN_Results 311213.pdt, Wing Tal Holdings Ltd. Celebrating Our Winning Partnerships Annual Report 2013 accessed January 27. 2017 www.wingtaisia.com.sg/uploadfiles/1_%20Annual%20Report 202013(1).pdf, Yanlord Land Group Ltd. Expanding Our Presence Annual Report 2013, accessed January 27, 2017. http://yanlord listed company convmiscar2013 pdt Yuexiu Property Company Annual Report 2013, accessed January 27 2017. http://letrasia.com istoklyuexluproperty annual 2013/2013 pdf Lid. EXHIBIT 8: KEY FINANCIAL DATA OF POTENTIAL PEERS Cost of Debt Cost of Equity Financial Year End Month Company Bukt Sembawang Estates Cty Developments Ltd Frasers Centrepoint Limited Global Logistic Properties Hongkong Land Holdings Ltd Pollux Propertes Ltd Sinamas Land Ltd Tuan Sing Holdings Ltd UIC United Indust Corp Lid UOL Group Lid Wheelook Properties (SGP) Wing Tai Holdings Ltd Yanlord Land Group Lt Yuxu Property Cold March December September March December March December December December December December June December December Share Price (SGS) 5.420 9.600 1.700 2650 5.900 0.079 0.480 0.300 2.970 6.190 1.695 1.970 1.225 0.058 Shares Outstanding (millions) 258.911 900 301 2.899.998 4,743 688 2,352.800 627.115 4,255 862 1,182 800 1,419 089 804611 1,195,560 772 500 1,94 1.586 9,322.031 Sales (SG$ millions) 281.997 3,905. 453 3439,592 960.183 2473.395 48 271 878 388 404018 1,036,584 1410 558 769.673 544 390 5,351.540 4.352 023 Earnings (SGS millions) 91 970 653 224 597 219 904 823 4,151.022 1.658 114.908 33.585 286 045 287040 58.349 7.079 562 453 321.153 Book Debt (SG$ millions) 0.000 5.737.787 9.795.537 6,002 647 4,858.221 53.830 1358.917 1020.793 1.241.628 2,409.443 0.000 1.376.506 4.728 304 8401.949 0.000 2.178 2.239 2 207 2 261 2014 2.451 2.680 1.198 2 267 0.000 1.749 1.474 2312 Book Equity (SGS milions) 1289 832 11 408.684 11 843.484 16 559.382 38 844.924 50.784 3.855.296 930 456 7,035,062 8.635.364 2,989.286 3,332 528 6257.589 7,170.139 6.530 8.427 6257 9.488 10.629 8.091 8.130 7.101 5.206 8.601 7.043 7.308 6.728 10.477 Notes: Al data as the respective companies' FY2013 year-end dates, al igures in SGS bor companies with reporting currencies other than the Singapore dolar, amounts are converted to SG$ using the applicable year-end exchange rate from XE com Source: Created by the case authors using data from Bukit Sembawang Estes Home for Every Generation, Annual Report 2013, acossed January 27, 2017 www.bumbawang spinvestorelations annual report: City Developments lid, 50 Golden Years Annual Report 2013, accessed January 27, 2017 www.odcom Aglanu report 2013 corporate_network.html Frasers Centrepoint Limited, Creating Value Through Space Annual Report 2013, accessed January 27, 2017 Mintopub agx.conApps ?A-COW.Prospectus ContentAlAnnual Reports OSF 19473: Global Logistic Properties Right Time, Reght place. Right People: Annual Report 2013, acceed January 27, 2017, p.prop contphoenix-2407248pirol-reports annual Hongkong Land Holdings Ltd, Annual Report 2013, acon Med January 27, 2017, www kland.com/data media releases results_announcements 2013 far2013.pd Pollux Properties , Annu Report 2013, accessed January 27, 2017 helppolux.com hingapore pollux 2013 pd: Sinarmas Land Lid. Building for a Better Future Sinarmas Land Annual Report 2013, acoessed January 27, 2017 htlino pubx.com File Openi names 20and%20mledk20Annu.20Report 202013_low%20res ashApp Prospectus&FielD20928 Tuan Sing Holdings Ltd, 2013 Annual Report, acessed January 27, 2017,www.tuanang com investor Relation Report Download aspx?RID 1 & Year 2013 UIC-United Industrial Corp. Annual Report 2013, accessed January 27, 2017. www.uic.com ystemiscar2013.pdf: UOL Group Ltd. Creating Value Shaping Future Annual Report 2013. accessed January 27, 2017 www.uol.com investors mediatamnu reports Wheelock Properties Audited Results for the Year Ended 31 December 2013, acessed January 27, 2017 www.wheeloc propertie od WPSLANN. Results 311213 pel; Wing Tal Holdings Ltd, Celebrating Our Winning Partnerships: Anual Report 2013. accessed January 27, 2017, www wingaisa com o upload 120Annus X20Report%202011).pol. Yanlord Land Group Limited, Expanding our presence, Amuw Report 2013, cessed January 27, 2017 Manford.edcompany.commiscar2013 pat Yuexlu Property Company L. A Report 2013, cod January 27, 2017 het asia.comistohyuexluproperty an 2013/2013.pdf EXHBIT 9: PRECEDENT TRANSACTIONS Deal Description Target Name Announce Date Target Country Acquirer Name Announced Total Value (US$ millions) Announced Premium United States PL Retal LLC 1241.1 28% United States CNPR Group 1.103. 17.1% United States Kimco Realty Corp 3,867.5 13% United States CNPR Group 32037 7.5% PL Retauc acquired Price Legacy Corp for US$ 1.241.08 million. The transaction was Price Legacy August 24, 2004 announced on August 24, 2004, and Corp completed on December 22, 2004 CNPR Group acquired Kramont Realty Trust December 20, 2004 for US$1,103.89 milion. The transaction was Kramont Realty announced on December 20, 2004, and Trust completed on April 19, 2005 Kimco Realty Corp. acquired Pan Pacific July 10.2006 Retail Properties inc. for US$3.867.52 milion. Pan Pacific Retal The transaction was announced on July 10. Properties in 2005, and completed on October 31, 2006 CNPR Group acquired Heritage Property Investment Trust Inc. for US$3.203 71 milion Heritage Property July 10, 2006 The transaction was announced on July 10, Investment Trust 2006, and completed on October 6, 2006 Inc DDR Corp. acquired Inland Retail Real Estate October 23, 2006 True Inc. for US$5,871.48 million. The Inland Retail Real transaction was announced on October 23, Estate Trust in 2005, and completed on February 27, 2007 CNPR Group acquired Brocmor LLC for US$5.234.05 milion. The transaction was February 27, 2007 announced on February 27, 2007, and Brixmor LLC completed on April 23, 2007. As of the completion date, this was CNPR Group's largest acquisition on record Banque Populares France acquired Foncia April 3, 2007 Groupe SAS for 16.75 millon. The Foncia Group transaction was announced on April 3, 2007 SAS and completed on May 10, 2007 United States DOR Corp 5,871.5 214% United States CNPR Group 5.2341 0.2% France Bangues Populaires France 690.3 0.8% EXHBIT : PRECEDENT TRANSACTIONS (CONTINUED) Announce Date Deal Description Target Name Target Country Acquirer Name Announced Total Value (US$ millions) Announced Premium June 29, 2007 Landic Property ANS Denmark Landic Property 792.5 110% Landic Propertyhfaquired landic Property A/S for DKK4,356,53 milion. The transaction was announced on June 29, 2007. and completed on September 20, 2007 Conwert Immobilien Invest GmbH acquired ECO Business-Immobilien AG for 629.10 milion The transaction was announced on June 15, 2010, and completed on November 4, 2010 June 15, 2010 ECO Business Immobilien AG Germany Conwert Immobilien Invest GmbH 775.7 38.8% October 4, 2010 Parondge Lifestyle Communities Inc. Canada British Columbia Investment Management Corp 7692 33.4% March 10, 2011 EDT Retail Trust Australia Ebit Imaging Lid. Plaza Centers NV Eastgate Property LLC 1.191.2 British Columbia Investment Management Corp acquired Parkbridge Lifestyle Communities Inc. for CA$787.09 M. The transaction was announced on October 4 2010, and completed on January 12, 2011 A consortium led by Ebit Imaging acquired EDT Retail Trust for AU$ 1,189.17 milion. The transaction was announced on March 10, 2011. and completed on September 6, 2011 HSR Real Estate Investment Trust acquired Primaria Retail Real Estate Investment Trust for CAS4,049 52 milion. The transaction was announced on January 16, 2013, and completed on April , 2013 Through the acquisition, H&R became Canada's largest REIT by enterprise value 226% January 10, 2013 Primaris Retal Real Estate Investment Trust Canada H&R Real Estate Investment Trust 4.105.8 5.096 Note REIT real estate investment tu Source Created by the came thons using data from Industry Codes for Shopping Mall REITS, Real Estate Management Bloomberg LP od October 26, 2018 Styles EXHIBIT 10: VOLUME AND PRICE DATA (PRICE IN SG$) Date April 1, 2014 April 2, 2014 April 3. 2014 April 4, 2014 April 7. 2014 April 8, 2014 April 9, 2014 April 10, 2014 April 11, 2014 April 14, 2014 April 15, 2014 Straits Times Index Volume Points Traded 107.530 100 3.108.52 342.589.000 3.192.78 329,078,400 3.220.06 182.690.000 3.212.72 201.864.700 3.193.50 268,019,900 3,204.09 320,309, 100 3.200.92 318,300.500 3.203.58 204.142.300 3.198.22 151.492.500 3.214.83 415,223,400 3.246.32 CapitaMalls Asia Volume Price Per Traded Share 10.032.000 1.790 1:16,613.000 1.760 8,902.000 1.756 5.652.000 1.755 8.235.000 1.735 8,573,000 1.750 10.064.000 1.780 34.500.000 1.805 5.153,000 1.815 1.805 183,127,000 2.190 CapitaLand Volume Price Per Traded Share 18.422.000 2.91 15.257.000 2.94 9.337.000 2.96 5.503.000 2.98 5.340,000 2.96 10.133.000 2.98 6.750.000 2.98 8,250,000 2.95 10,538.000 2.92 2.92 48,854.000 3.11 Source: Created by the authors using data from "Straits Times Index ("STI), accessed January 27, 2017, https://sg.finance.yahoo.com/quote/%5ESTI: "Capital and Limited (CATL.SI), accessed January 27 2017, https://finance.yahoo.com/quote/CATL.SI; "CapitaMalls Asia (JS8.SI)." Yahoo! Finance, accessed January 27, 2017 CAPITA MALLS ASIA: A BUYOUT OFFER FROM CAPITALAND ASSIGNMENT QUESTIONS 1. Compute CMA's weighted average cost of capital (WACC). 2. Perform a discounted cash flow (DCF) valuation for CMA. Notes: 1. Data in the exhibits (excluding Exhibit 6 and 9) are in Singaporean Dollars (SG) 2. You can calculate depreciation expense using the fixed assets and straight line depreciation over the time period that the valuation is performed. 3. Corporate tax rate is 17% CAPITA MALLS ASIA: A BUYOUT OFFER FROM CAPITA LAND Ruth SK Tan, Zsuzsa R Huszr, Weina Zhang and Shao Yu Hong wrote this exercise solely to provide material for dass discussion The authors do not intend to Austrate the effective or ineffective handling ala managerial Station. The authors may have disguised certain names and other identifying information to protect confidentiality This publication may not be transmitted, photocopied, digitized or otherwise reproduced in any form or by any means without the permission of the copyright holder. Reproduction of this material is not covered under authorization by any reproduction rights organization. To order copies or request permission to reproduce materials, contact Ivey Publishing ey Business School, Western University, London, Ontario, Canada, NSG ONT (0) 519.661.3208(e) casesivey.ca www.iveycases.com Cogynght 2019, National University of Singapore and Ivey School of Business Foundation Version: 2019-06-17 It was April 15, 2014, and trading had resumed for the shares of CapitaLand Limited (CapitaLand), a large, Singapore-based real estate company, and for the shares of CapitaMalls Asia Limited (CMA), a commercial property development and management company. The trading halt had been called the day before so that Capital and could announce its voluntary conditional cash offer of SGS2.220 for each share of CMA through its wholly owned subsidiary Sound Investment Holdings Pte Ltd. The intention was to delist CMA and integrate it into the Capital and Group. * The offer was conditional on Capital and garnering more than 90 per cent of CMA." At the time of the offer, Capital and already owned 65.3 per cent of CMA. The cash offer of $3.06 billion for the remaining shares was 27 per cent above CMA's one-month volume-weighted average price. The per-share price in the offer was also 20.7 per cent higher than CMA's net asset value per share as at December 31, 2013, and represented a premium of 22.3 per cent over the closing price of $1.815 on April 11, 2014. The offer price would be reduced for any CMA dividends distributed on or after the announcement date, including a proposed final CMA dividend of $0.0175 per share for the financial year ending in 2013. If acceptance levels crossed the 96.5 per cent threshold, Capital and would be able to compel acquisition of all of CMA's shares. As an investor in CMA, you were congratulating yourself on the unexpected windfall. However, the news also made you wonder about the intrinsic value of CMA. When trading resumed on April 15, you noted that Capital and's share price had also risen. Thus, not only was there a premium for the target shareholders, there was also value created for the acquiring shareholders. In fact, you could calculate the estimated synergy ansing from the acquisition from the premium and the net present value of the acquisition. CAPITALAND Capital and had its headquarters in Singapore and was listed on the Singapore Exchange Limited. Its businesses in real estate and real estate fund management were focused in Singapore and China." As of December 31, 2013, the company had assets of $14.91 billion (45 per cent of the group's assets) in China, the company's largest market, and assets worth $12.52 billion (38 per cent of the group's assets) in Singapore, which was the company's second-largest market." Following a strategic review in 2013, CapitaLand had been reorganized into four business units: Capitaland Singapore, Capital and China, CMA, and the Ascott Limited (Ascott). CapitaLand Singapore and Capitaland China developed residential, office, and integrated or mixed-use properties. Despite challenging market conditions, CapitaLand Singapore had almost doubled the member of private residential imits it sold in 2012 by "right-sizing the units. Capital and China had refined its strategy to focus on mass market and first-time buyers and upgraders and had become the largest foreign real estate developer in China." CMA was in the business of shopping malls, and Ascott in serviced residences. CMA had achieved high shopper traffic and net property income, and in 2013, it announced a partnership to jointly develop the Jewel project at Changi Airport. Ascott, which operated more than 33,000 apartment units across 82 cities in more than 20 countries," had achieved modest revenue growth in 2013.16* CAPITAMALLS ASIA LIMITED (CMA) CMA, founded in 2004, went public in November 2009 at an initial offering price of $2.12 per share and raised $2.8 billion After this initial public offering Capital and's shareholding interest in CMA was reduced from 100 per cent to 65.5 per cent. When it was listed CMA was one of the largest pure-play shopping mall owners, developers, and managers in Asia." Its shares closed at $2.30 on the first day of trading, CMA used an integrated shopping mall business model, with interconnected buildings where shoppers could live, work, and play. Its primary business objective was to be a leading owner, developer, and manager of shopping malls in Asia As of December 2013, CMA had a pan-Asian portfolio of 105 shopping malls valued at $34.3 billion. It had $1 billion in cash and a debt-to-asset ratio of 25 per cent (see Exhibit 1). MOTIVATION TO DELIST CMA Capital and had several reasons for delisting CMA. First, because CMA's integrated developments tended to enjoy high foot traffic from a captive base of offices and residences, the developments were expected to enhance CapitaLand's competitive strengths. Second, delisting CMA would simplify CapitaLand's organizational structure. Third, the delisting would give CapitaLand more flexibility in allocating its capital and expanding its scale 2 Fourth, it would unlock shareholder value and achieve synergies. Capital and claimed that the acquisition of CMA would immediately raise earnings per share by approximately 21.5 per cent and improve retum on equity from 5.4 per cent to 6.7 per cent. However, it was not clear whether increasing eamings per share was a good reason for the acquisition. President of Capital and, Lim Ming Yan, said, "The market has changed. Earlier companies were pure-play residential; now companies are emerging that are doing mixed developments, which include homes, offices, and malls. This move will help us compete better." According to an analyst at Barclays Plc, "Capital and's offer to take CapitaMalls private is a win-win for both CapitaMalls and Capital and Regaining full control of CapitaMalls should allow CapitaLand more flexibility, including the ability to streamline its organizational structure.9% However, according to Samsung Asset Management Co. Ltd. (Samsung Assets), the transaction showed that Capital and could not put the money to better use at a time when the property markets in Singapore and China were starting to weaken. In a similar vein, an investment manager at Samsung Assets in Hong Kong commented Styles I The company is effectively undertaking financial engineering to enhance returns. The problem is these reams are still insatisfactory relative to the cost of equity and suggests a lack of investment opportunities in an adverse environment of declining property prices in Singapore and slowing growth opportunities in China?? FINANCIAL PERFORMANCE AND VALUATION To calculate the value of your investment in CMA. you could conduct valuations of CMA's shares using the discounted cash flow (DCF), discounted dividend model (DDM), relative valuation (RV), and precedent transaction methods DCF valuation is based on the principle that the value of a business is determined by its ability to generate cash flows. The relationship between the business's reveme and cost drivers can be gleaned from the company's historical financial statements (see Exhibits 1-4 or refer to the stadent Excel worksheets "CMA Financial Statements" and "Capital and Financial Statements" (Ivey Publishing product number 7B19N012D. These can be used to project a company's cash flows for the initial few years, after which a terminal growth rate can be applied in perpetuity (see Exhubit 3 or refer to the Excel worksheet "Information about Capital and). All projected cash flows will be discounted by the weighted average cost of capital DCF models provide insights into the drivers of share value, but small changes in inputs can result in large changes in intrinsic value The DDM method assumes that a stock is worth the sum of its discounted future dividend payments. The discount rate used is the cost of equity capital. For stocks with a solid history of dividend growth, it is reasonable to assume that the historical growth rate will continue for some years, after which a terminal growth rate will be applied (see Exhubits 5 and 6). The DDM is a simple and convenient way of valuing stocks, but it can be sensitive to the assumed growth rates. The RV method compares the value of a business to those of its competitors, using common multiples or benchmarks such as price-to-earnings (PE), price to book (PB), and price-to-sales (PS) ratios. The PE ratio indicates how much investors are willing to pay per dollar of ermings. It is a widely used peer multiple, but because the denominator is eamings, investors have to be careful when comparing peers from countries that are subject to different accounting regulations. In addition, PE cannot be applied if eamings are negative The P/B ratio compares a stock's market value to its book value. The ratio is calculated by dividing the price of the stock by the book equity per share. It gives some idea of whether investors are paying a reasonable price for the equity that will be left if the company were to go bankrupt immediately. For example, a P/B ratio of less than one indicates that investors can theoretically buy up all the shares of the company, liquidate the assets, pay off the company's liabilities, and still have money left The P/S ratio compares how much investors are willing to pay per dollar of sales. Because sales is a top-line figure and is therefore less affected by accounting policies, this is a useful multiple for businesses that have yet to generate positive earnings, and it is useful for comparing businesses that are subject to different accounting regimes Regardless of which multiple is used it is important to develop accurate benchmarks, and it is cnicial to compare only businesses from the same industry and with similar market capitalization. Thus, although information had been gathered on a number of CMA's potential peers (see Exhibits 7 and 8 or student Excel worksheets Peer Financial Ratio" and "Other Key Peer Financial Data"), further deliberation would be required to identify a suitable comparison group. In addition to relative valuation, precedent transactions could also provide some useful information. Precedent transaction analysis uses the prices paid for similar companies to estimate the worth of a target company. Under normal market conditions, transaction comparables provide higher multiple ranges than peer comparables because acquirers normally pay control premiums and strategic buyers often have the opportunity to realize Synergies. To assess the value of CMA, information on 12 precedent transactions had been retrieved for consideration (see Exhibit 9, or student Excel worksheet "Precedent Transactions"). PREMIUM, NET PRESENT VALUE, AND SYNERGY By the close of trading on April 15, 2014, Capital and's shares had increased 6.5 per cent to $3.11. CMA's shares had surged 21 per cent, from the closing price of $1.815 on April 11, 2014, to $2.19 (see Exhibit 10) the company's biggest gain since going public in 2009 31 Based on the market response, it appeared that the shareholders of CMA and Capital and clearly approved of the transaction. In fact, the net present value of the acquirer could be estimated directly from the response of Capitaland's share price on April 15th. This, together with the premium for the target, would provide an estimation of the synergy created. EXHIBIT 1: CAPITAMALL ASIA'S BALANCE SHEETS (IN SG$ THOUSANDS) Development Properties for Sale Trade and Other Receivables Cash and Cash Equivalents Total Current Assets Plant and Equipment Investment Properties Property under Development Subsidiaries Associates Jointly Controlled Entities Other Investments Other Assets Total Non-Current Assets TOTAL ASSETS 2009 0 436,013 544,300 980,319 14.680 1,378,587 127.006 0 2.900.303 675,398 200,028 933 5,396,671 6,376,990 2010 0 408.281 1,318,312 1,816,593 13,197 304.429 288.848 0 3,110.720 1,043,658 378.653 17.072 5,165,584 6,982, 177 2011 8.827 217,862 975,479 1,202,168 10.100 818.988 1,080,102 0 3.521.088 1,136,881 425.622 07.045 6,875,880 8,078,048 2012 0 633,047 875,351 1,208,398 17.010 1,505,789 548,141 0 3.071.971 2,335,320 441,300 143,384 8,722,936 9,931,334 2013 0 301.773 1,004,312 1,306,085 19,304 1.546,504 148.834 O 4.195.179 2.445,70 498,400 202.441 9,054,687 10,360,772 Trade and Other Payables Loans and Borrowings Current Tax Payable Total Current Liabilities Loans and Borrowings Deferred Tax Liabilities Other Non-Current Liabilities Total Non-Current Liabilities TOTAL LABILITIES 377.622 72.155 40.111 498,888 430,730 30.065 23,845 484,648 983,536 295.300 12.200 58,102 365,758 687.092 33,121 7.376 728,189 1,093,947 213,132 238,038 51.448 503,518 900,805 85,021 21.579 1,097,405 1,600,923 240.800 8.922 55.520 305,338 2.705.400 88,583 93,982 2,888,035 3,193,373 284,108 157,703 54.976 496,847 2.428,283 28.524 70.410 2,595,223 3,092,070 Share Capital Other Reserves Equity Attributable to Owners of the Company Non-Controlling Interests Total Equity TOTAL EQUITIES AND UABILITIES 4,605,000 735.041 5,340,041 53.413 5,393,454 6,376,990 4.605,000 1.223.519 5,828,519 50.711 5,888,230 6,982,177 4,607,514 1.610.477 6,226,991 250.134 6,477,125 8,078,048 4,612,500 1,877,757 6,490,347 247,814 6,737,961 9,931,334 4,620,971 2.542.797 7.16.768 104.934 7,268,702 10,360,772 Source Created by the case authors based on information obtained from CapitaMalls Asia Limited, Clarity, Sustainable Growth: Annual Report 2013 accessed January 27, 2017, http://infopub.sgx.comFleOpervCMA%20AR(Final 2013.ashx? App#Prospectus&FieD20423, Cap Malls Asa umeed Extending Reich, Seang New Opportunbed. Report to Shareholders 2012. accessed January 27, 2017. http.opitama sasa istedcompany.com/misc/2012 erva 2012 en pot, CapitaMalls Asa Limard, Growing Our Presence Al Report to Shareholders 2011, cessed January 27 2017, hepintopub sgx CMF Open CapitaMais2020AR4202011(EINAL ENGLISHLASHCA ceProsectusSED 22 skirtopub sex comFile Open Capital 2204 http://capitamalisasia.listedcompany.com/misc/2012_e Limited. Asias Leading Shopping Aal Developer 2017, people sq.com/FileOpen CMA ZA 2012_en.pdf EXHIBIT 2: CAPITAMALL ASIA'S INCOME STATEMENTS (IN SGS THOUSANDS) Revenue Cost of Goods Sold Gross Profit Other Operating Income Administrative Expenses Other Operating Expenses Profit from Operations Finance Costs Share of Profits from Associates & Joint Ventures Profit before Tax Tax Expense Net Income Attributable to: Owners of the Company Non-Controlling Interests Earnings per Share (cents) 2009 228,946 -100,248 128,700 85,019 -70,212 -111.001 31,606 - 111.430 480.807 2010 245,402 -91,803 153,599 82,447 - 107,410 -1.000 127,528 -25.603 475.894 2011 246,173 -104,204 141,969 252,057 -140,401 -600 252,926 -33.312 348,045 2012 361,178 -140,380 220,789 214,677 -151,388 -4.277 279,801 -89.715 406,501 2013 380,416 -140.360 240,056 139,008 -146,725 -3,602 229,427 -74,015 524,700 409,683 -16.027 393,656 577,809 - 29.87 548,938 568,559 -74,341 494,218 616,587 -57,730 558,848 680,181 -66,054 614,127 388,096 5.560 20.1 541.337 7.601 13.0 450.008 38,210 11.7 540.018 12.830 14.0 600,008 14,119 15.4 BREAKDOWN OF CAPITAMALL ASIA'S REVENUE BY BUSINESS AND GEOGRAPHICAL SEGMENTS (IN SGS THOUSANDS) 2009 2010 2011 2012 2013 (Business Segments) Management Business Investment Business Others Consolidation Elimination Total 108.380 135.101 2.110 -74,685 228 946 253.768 04.285 2,061 -104.712 245,402 318.372 58.224 1.740 -130.109 246, 173 258.006 109,878 102.183 -108.688 361 178 230.700 154,104 66,337 -70,905 380,416 (Geographical Segments) Singapore China Malaysia Japan India Total 84.332 82.879 2.144 70.134 457 228 546 108.679 78,680 40.520 4.699 3,824 245,402 104.047 104.412 28.878 4,433 4,405 246,173 123.030 150.000 37.578 35.630 4,931 361,178 120.007 165, 179 40.581 49,250 5.380 380 416 Source Created by the case authors based on information obtained from CapitaMalis Asia Limited. Clarity, Sustainable Growth: Annual Report 2013 accessed January 27, 2017, http://infopub.sgx.comFleOpen/CMA%20AR(Final 2013.ashx?App Prospectus&FiD-20423: CapitaMals Asia Limited. Extending Reach, Seizing New Opportunities Report to Shareholders 2012. accessed January 27, 2017. http://capitamallasi listedcompany.com/misc/2012_entar2012 en pdf: CapitaMals Asia Limited Growing Our Presence in Asia: Report to Shareholders 2011. accessed January 27 2017 htpintopub.sgx comFileOpen CapitaMalls%20Asia%20AR%202011(FINAL ENGLISH) ashx?App-Prospectus&FielD-92 CapitaMalls Ass Limited, Growing Our Presence Report to Shareholders 2010, accessed January 27, 2017 http://infopub.sgx.comFileOpen CapitaMalls 20Asia%20AR%202010.ashx?App Prospectus&FielD10008: CapitaMalls Asia Limited. Asia's Leading Shopping Mall DeveloperOwner and Manager: Report to Shareholders 2009, accessed January 27 2017. http://infopub sax.comFileOpen CMA20AR2000%20PDF%20for%20Registra ashx?App=Prospectus&FileD-7900 EXHIBIT 3: CAPITALAND'S INCOME STATEMENTS (IN SG$ THOUSANDS) Revenue Cost of Goods Sold Gross Profit Other Operating Income Administrative Expenses Other Operating Expenses Profit from Operations Finance Costs Share of Profits from Associates and N Profit before Tax Tax Expense Profit from Continuing Operations, Net Tax Net Income Attributable to: Owners of the Company Non-Controlling Interests Eamings per Share 2009 2,857,359 -1.831,165 1,026, 194 1.238,300 -412,640 572,121 1,279,823 -453.022 209,195 1,095,096 -86.482 2010 3,382,742 -2,100,384 1,276,358 892.687 -488.270 - 117 421 1,563,345 -448.183 820,852 1,936,014 -205.00Z 2011 3,019,569 -1,048,684 1,072,885 713,704 -530,187 -48,450 1,209,943 -472.785 878,648 1,613,804 -100.884 2012 3,301,363 -2,073,280 1,228,074 586.949 -580.251 -52,122 1,182,650 -498.963 834.781 1,518,478 -201.COZ 2013 3,977,487 -2,891,707 1,085,780 381,127 -517,627 - 198,837 750,643 -444.400 1,047,368 1,353,521 -169.008 1,008,634 1,008,634 1 670 107 1,670,107 1,422,920 1,422,920 1,316,571 1,316,571 1 184,613 1,184,613 1.052,950 -44,325 0.2620 1.273,130 398.988 0.2900 1,057,311 385.000 0.2480 930,347 386.224 0.2190 840, 795 334,818 0.2000 BREAKDOWN OF CAPITALAND'S REVENUE BY GEOGRAPHICAL SEGMENTS (IN SGS THOUSANDS) Singapore China Other Asian Countries Australia Europe and Others Total 2009 2010 2011 2012 2013 978,900.0 1.200,843,0 1,074,765.0 1.160,700.0 1.390,718.0 773,914,0 711,336.0 665,599.0 587,933.0 1.070.435.0 183.2010 201.700.0 158,354.0 139.898.0 222.002.0 755,789,0 918.150.0 890.213.0 1,182.289.0 1,065,689.0 282.698.0 285.480.0 262.898.0 232.038.0 221.539.00 2.957 459.0 3.382.742.0 3.019.569.0 3,301,363.03977487.0 Note: JV joint ventures Source: Created by the case authors using information from CapitaLand Limited, Clarity insight and Foresight Annual Report 2013. accessed January 27, 2017, httpsinvestor.capitaland.com/misc/ar2013.pdf CapitaLand Limited, Focus, Balance, Soale Positioned for Growth Annual Report 2012 accessed January 27, 2017 httpInvestor captaland.com/miscar2012.pdf, Captaland Limited, The Art of Building Annual Report 2011. accessed January 27, 2017. http://investor capitaland.com/misc/a/2011 pdf; Capitaland Limited, Fim Foundation: Leading Edge Innovation in the First 10 Years, Ready for the Next 10 Years Annual Report 2010, accessed January 27, 2017 http://investor captaland.com/misclar2010 pot, Capital and Limited, Ahead of the Curve, Growth during Global Crisis: Annual Report 2009, accessed January 27, 2017. http:investor capitaland.com/miscar2000.pdf EXHIBIT 4: CAPITALAND'S BALANCE SHEETS (IN SG$ THOUSANDS) Development Properties Trade and Other Receivables Other Current Assets Cash and Cash Equivalents Total Current Assets Property. Plant, and Equipment Intangible Assets Investment Properties Associates Joint Ventures Deferred Tax Assets Other Non-Current Assets Total Non-Current Assets TOTAL ASSETS 2009 3,500,270 1,301,010 190,437 8,729,718 13.818 341 1.772,301 518,020 5.058.507 7,012,174 1,672,056 81.250 233,350 16,347,673 30,166,014 2010 5.419,350 2,130,625 203,000 7.190.004 14952 048 1.040,407 450,005 4.732.895 8.240,142 1.861.232 308.206 87,080 16,748, 172 31,700,220 2011 0,905,124 1,700,374 195.000 6,284,473 15.133.971 1,075,505 458,722 7.074,017 9,290.737 1.304.203 95.871 795,965 20.185.470 35,319,441 2012 7.510,083 1.484.753 201,370 5.497693 14.693,909 1.263.015 402.003 7.900.402 9,092,297 2.818.985 91.595 795 713 23.093.700 37,787,609 2013 7,382,023 1.184.115 196.023 5.920,152 14663 213 1.070,230 470.735 4,935,104 11,750.580 2.525,352 73.477 657,124 21.491,671 36,154,884 Trade and Other Payables Short-Term Bank Borrowings Current Portion of Debt Securities Current Tax Payable Total Current Liabilities Long-Term Bank Borrowings Debt Securities Deferred Tax Liabilities Other Non-Current Liabilities Total Non-Current Liabilities TOTAL LIABILITIES 1.880,017 902.074 404.612 457.374 3,734 977 3,951,770 4.963.100 173,750 482 580 9,551 274 13,286,251 1.804,385 852.255 909,510 400.405 3.962,564 3.798,410 4.707.850 593.238 540.687 9,730,194 13,682,758 2,270.489 420.011 434.228 441.075 3,571 802 0.106,790 5.224.810 627,638 580.130 12 508 168 16,079,970 2.350,508 785.826 18.340 432489 3.574 259 0,017.114 6.780.402 658,089 712,071 14. 769,566 18,343,825 2.880.483 939.310 254,972 472.711 4,347 476 5.421,543 5.040.902 611,133 510,827 12.496,465 16,843,841 Share Capital Revenue Reserves Other Reserves Equity Attributable to Owners Non-Controlling Interests Total Equity TOTAL EQUMES & LIABILMES 6.220.227 6.830.047 330.000 13.408.273 3.471,490 16.879.763 30 166014 8,276,504 7,662.201 241,880 14,170.051 3.840 811 18 017 462 31.700 220 0.298,355 8.328.115 275,087 14.001.537 43370M 19, 239, 471 6,300,011 8.010.445 -130.048 15.080.408 4.383 370 19.443.784 37 787 609 8,302.207 0.429.07 335,720 16.007.000 3.243034 19.310.943 36 154 884 35 319.441 Source: Created by the case authors using information from Capital and Limited, Clarity Insight and Foresight Annual Report 2013. accessed January 27, 2017, hepsinvestor capitaland.com/misc/ar2013 pdf: Capital and Limited, Focus, Balance Scale Positioned for Growth Annual Report 2012 scoessed January 27. 2017 httpinvestor captaland.conmaclar2012 pat Capital and Limited. The Art of Building Annual Report 2011. accessed January 27, 2017. http:Jinvestor capitaland commisc/a 2011 pot, CapitaLand Limited. Fim Foundation, Leading Edge Innovation in the 10 Years, Ready for the Next 10 Years Annual Report 2010, accessed January 27 2017 ht:investor capitaland.com/miscar2010 pat, Capital and