Congoleum as a Good LBO Candidate

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1. Provide an assessment of what makes Congoleum a good LBO target.
2. Evaluate the LBO proposal and determine the value of the firm if it undertakes the LBO
and compare this to the existing value of the firm. Your valuation analysis (based on the
assumptions above) should be the bulk of your report and serve to answer this
question. Provide sensitivity analyses.
3. Quantify the incremental effects of the LBO (as compared to no LBO) on Congoleum as a
whole, and attribute portions of the sizable purchase premium to: the cost savings in
corporate expenses, the step-up of asset values for depreciation, and the interest tax
shields. In addition, if any of the value added from the LBO is unexplained by these three
factors, explain where you think this additional value may be coming from.
4. Quantify the gains/losses to the various parties involved in this deal, and render an
opinion as to the appropriateness of the $38 offer price received by old shareholders.
When computing the gains/losses to various parties, make sure to account for the
impact of the “equity kicker”and “strip financing.”

CONTENT:

Answered | Verified A-average Rating

Congoleum Case Study
Your Name
Subject and Section
Professor’s Name
September 28, 2021

Congoleum is a good LBO candidate because of the following reasons:
It has stable earnings and revenues throughout the duration of the period of observation.
The debt and equity structure, as discussed by David Koester, is designed to reduce any conflict between the institutional investors.
Management Stock and Option Ownership is currently low, with the LBO strategy providing for an option for the management team to purchase more equity in the future.

Low levels of both debt-to-equity and debt ratio, which makes it ideal for a Leveraged Buyout Offer (LBO). Taken from Exhibit 3 Consolidated Balance Sheets.

In order to conduct a valuation analysis, the author dissected and treated the post-1984 period from 1980-1984. In turn, the authors were able to determine the “Free Cash Flows” from the period 1980-1984. This resulted to $172.4 million in total, which suggests that the company would have sufficient cash flow to pay off its debt that is used to finance the whole Buyout Process (Wall Street Oasis, 2020).

Another important valuation tool that could indicate the success of the LBO is the Actual Present Value. This represents “the net present value (NPV) of a project or company if financed solely by equity plus the present value (PV) of any financing benefits” (Fernando, 2021). In conducting the valuation for the APV, the authors took into consideration the fact that there were some ‘long-term debts’ that existed before 1979. Particularly, the result is arrived at by adding both the Unlevered value (V(u)) and the Present Value with Tax Shields (PV(TS)) as shown in the following graphs below for 1980-1984 and Post 1984, respectively.

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We do not have to use A, B, or o to represent any trait. We can use Aa, Bb, Cc, etc. because uppercase represents dominant and lower case represents recessive. Some prefer to use a letter as an allele which represents the idea for example, T for tall, t for small, etc… All these ideas form together to show the principle law of segregation from Gregor Mendel, that all traits an offspring has comes directly from their parents. Also we show the principle law of independence that; traits can exist as separate from other traits and be passed down to offspring. That being said, offspring get the genetic information from their parents and the parents pass part of the DNA to offspring separate from the whole DNA. A parent passed on part of the DNA through creating sex cells which have half the DNA required for a life. The sex cell is a gamete and comes as either a sperm or an ovum. The process of creating a sex cell is meiosis. When a sex cell is created in meiosis, the parent’s whole cell more or less divides in two cleaving a sex cell with half of the alleles from the parent. Therefore, if only one trait were to be examined (img.Gamete Selection 1) the result in the haploid daughter cells, would be in each of the two sex cells there would be half of the parent DNA; in this case review a parent with Aa (heterozygous) in img.Gamete Selection 1. The parent has a two part sequence which codes for a trait. The trait will express according to the patterns and to the effectiveness of the gene to express itself over others and the frequency with which that gene is expressed and the relationship of the affect and ecology of the individual. A trait does not simply show up, usually. There are many things which contribute to the expression. A person is put together, genetically like a complex machine. In this example we see nuts and bolts which need both parts to be useful (img.Gamete Selection 1). That is, a parent has two parts in connection that are useful but they can only pass one to the offspring meaning half. The other half will come from the other parent. When a sex cell is made there are many complex steps which have been covered already in Cells and DNA section you may also recall the added complexity of crossing-over and mixing of the DNA resulting in many unique sex cells from a single person. Therefore, there are many possibilities for the offspring from a parent because the system assures diversity. In the following drawings the process and result is simplified, in order to be direct and correct about the process of half the genes, passed onto offspring, by way of meiosis, and intercourse. The outcome is potentially limitless and diversity is assured by the process of life and procreation. img.Gamete Selection 1 Given: The parent cell has two parts. One is an A representing a dominant trait. There other is “a” which is a recessive one. The parent cell Aa is (heterozygous) meaning different. img.Gamete Selection 2 Given: The parent cell has two parts. One is a B representing a dominant trait. There other is “b” which is a recessive one. The parent cell Bb is (heterozygous) meaning different. img.Gamete Selection 3 Given: Parent 1starts with a cell which has two more parts. The cell from p1 parent cell Aa is (heterozygous) meaning different. P1(parent 1) has an A representing a dominant trait. There other is “a” which is a recessive one. P1 starts with a cell which has two more parts. The cell from p2 parent cell Bb is (heterozygous) meaning different.The parent cell Bb is (heterozygous) meaning different. P1 has a B representing a dominant trait. There other is “b” which is a recessive one. One is a B representing a dominant trait. There other is “b” which is a recessive one. Noted in the below gamete P1 is far more complex than for 1 trait. Gamete selection is from one parent. In that, a parent only has the One set of DNA. That DNA is divided into two parts or chromatids. Each chromatid has information but can carry different codes for the same thing such as for blood, or height etc. However, traits are simply controlled by one genetic pairing and there are many more genes. The information for genes is coded in 20,000-25,000 genes which work with others genes creating nearly limitless possibilities. Tracking these traits is complex See below if we change from 2 sets of two part traits (refer to img.Gamete Selection 3) to 3 sets of two part traits (refer to img.Gamete Selection 4). Then imagine what 25,000 genes may look like. img.Gamete Selection 4 Answer the following questions. Use the above document only to answer the questions. You can type in the answers if you have made a copy and renamed this document as your own. 1. Is a bubble diagram the same as factoring but using a picture (refer to img.Gamete Selection 1) ? two parts. Yes or no and why? (1 pt) 2. What is in the 2 part code/genotype for sex cell 1 and sex cell 2 (refer to img.Gamete Selection 2)? (1 pt) 3. What is in the 1 part code for sex cell 3 and the 1 part code for sex cell 4 refer to img.Gamete Selection 2)? (1 pt) 4. If P1 has traits of Aa and Bb then what are the outcomes for the codes for the sex cells, list them there are four ( refer to img.Gamete Selection 3). (1 pt) 5. Why are pleiotropy and polygenic potentially issues for Mendalian models? (1 pt) 6. Referring to the drawings in img.Gamete Selection 4; how is the branch matrix (tree) simpler to identify the parts and outcomes compared to drop-down (bubbles) or the modified FOIL method? (1 pt) 7. What ways are there to show math processes other than linear expressions or linear equations seen in this section on gametes? There are 5 choices list 3. (3 pt) 8. Would it be helpful to know/learn other ways to do math rather than only equations? (1 pt)
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