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    Winfield PPT 27 FEB 13

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    prem_kumar83g
    1) Winfield Refuse Management is considering financing options to acquire Mott-Pliese Integrated Solutions for $125 million. 2) The alternatives considered are: debt with fixed principal repayments, debt with full principal paid at year 15, and issuing new shares. 3) Debt with no principal repayments until year 15 has the lowest total cost of financing and highest expected earnings per share, making it the recommended financing option.

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    Winfield PPT 27 FEB 13

    Uploaded by

    prem_kumar83g
    5K views13 pages
    1) Winfield Refuse Management is considering financing options to acquire Mott-Pliese Integrated Solutions for $125 million. 2) The alternatives considered are: debt with fixed principal repayments, debt with full principal paid at year 15, and issuing new shares. 3) Debt with no principal repayments until year 15 has the lowest total cost of financing and highest expected earnings per share, making it the recommended financing option.

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    1) Winfield Refuse Management is considering financing options to acquire Mott-Pliese Integrated Solutions for $125 million. 2) The alternatives considered are: debt with fixed principal repayments, debt with full principal paid at year 15, and issuing new shares. 3) Debt with no principal repayments until year 15 has the lowest total cost of financing and highest expected earnings per share, making it the recommended financing option.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    5K views13 pages

    Winfield PPT 27 FEB 13

    Uploaded by

    prem_kumar83g
    1) Winfield Refuse Management is considering financing options to acquire Mott-Pliese Integrated Solutions for $125 million. 2) The alternatives considered are: debt with fixed principal repayments, debt with full principal paid at year 15, and issuing new shares. 3) Debt with no principal repayments until year 15 has the lowest total cost of financing and highest expected earnings per share, making it the recommended financing option.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPTX, PDF, TXT or read online from Scribd
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    You are on page 1of 13

    Ashish Gupta Amit Singh Amit kr Sinha Maneesh D Singh Prem Kumar Gaurav Kr.

    Singh

    Winfield Refuse Management Inc. Raising Debt vs. Equity

    Executive Summary
    Objective What is the best financing option for the $125M acquisition of Mott-Pliese Integrated Solutions (MPIS)?

    Alternatives

    1. 2. 3.

    Debt with Fixed Principal Repayments Debt Equity

    Recommendation

    Winfield should finance the $125M through issue of bonds with no principal repayments

    Winfield Refuse Management

    Concerns from Last Board Discussion


    Concern
    Andrea Winfield Additional debt will increase risk and will lead to wild swing in stock price

    Joseph Winfield

    By issuing 7.5M shares, Winfield will only have to pay $7.5M in dividends Market price is too low (based on Price-to-book comparable). Issuing shares at low price and loss of management control is a disservice to current stockholders.

    Ted Kale

    Joseph Tendi

    Issuing Common Stock will dilute the EPS to $1.91. Using Debt could bump the EPS upto $ 2.51
    Other major companies have long-term debt in capital structure while Winfield is unusual
    Winfield Refuse Management 3

    James Gitanga

    Introduction
    Winfield MPIS
    Winfield + MPIS

    Net Income $27M +

    Net Income $15M =

    Net Income $42M

    Region
    Midwest

    Region Mid-Atlantic & Midwest


    Winfield Refuse Management

    Region Midwest & MidAtlantic


    4

    Winfields Current Financial Position


    Winfields Revenue and Net Income
    Revenue
    $500 $400

    Net Income
    $50 $40 $30 $20 $10 $0

    $300 $200 $100 $0 2006 2007 2008 2009 2010 2011 2012E

    Industry: Debt-to-Equity
    Equity Debt

    50% 50%

    Winfield Refuse Management

    Net Income ($M)

    Revenue ($M)

    Financing Alternatives
    Capital Needs: $125M
    1. Debt with Fixed Principal Repayments 15 years 6.5% interest rate $6.25M annual principal payment
    Debt with Fixed Principal Repayment Schedule
    45 40 35 30 25 20 15 10 6.25 6.25 2.44

    2. Debt 15 years 6.5% interest rate Full principal paid at Year 15


    Debt Schedule
    140
    37.50

    Interest

    Principal

    Interest

    Principal

    125.00

    120 Cash Outflows ($M) 100 80 60 40

    Cash Outflows ($M)

    5 8.13 0

    20
    0

    8.13

    Year

    Year

    Winfield Refuse Management

    Financing Alternatives Continued:


    Capital Needs: $125M
    3. Equity 7.5M new shares @ $17.75 Dividend Policy is $1.00/Share

    Dividend Payout Schedule


    180 160 Cash Outflows ($M) 140 120 100 80 60 40 20 0 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 7.50 Dividend Dividend Terminal Value

    Year

    Winfield Refuse Management

    Decision Criteria

    Impact on Firm: Total Cost of Financing

    Impact on Shareholders: Earnings Per Share

    Winfield Refuse Management

    Cost of Financing

    205.00 200.00 195.00 190.00 185.00 180.00 175.00 170.00 165.00 160.00 Cost of Financing Among all the financing options considered, Debt (with no principal repayments) has the lowest cost of financing
    Winfield Refuse Management 9

    Debt With Pricinpal repayment Debt with Full principal repayment

    Earnings Per Share


    Pre-acquisition EPS: $1.83
    Debt Pros No impact on shares Equity No impact on earnings

    Cons
    Expected EPS
    $3.50 $3.00 Earnings Per Share $2.50 $2.00 $1.50 $1.00 $0.50 $0.00 $46 $51

    Reduced earnings by interest


    $ 2.51

    Increased number of shares


    $1.91

    Post-acquisition Earnings Per Share

    EPS (Debt)

    EPS(Equity)

    Expected EBIT of 66M


    $56 $61 EBIT ($M) $66 $71 $76

    EPS(Bond with principal repayment)

    Debt financing options provide the highest expected EPS under likely EBIT scenarios.
    Winfield Refuse Management 10

    Adjusted Earnings Per Share


    Adjusted EPS = (NI-principal repayment)/ number of shares Higher earnings per share with the bond option, even treating principal repayments as expenses Adjusted Post-acquisition EPS
    $3.00 Adjusted Earnings Per Share $2.50 $2.00 $1.50 EPS( Debt, including principal repayment) $1.00 $0.50

    Expected EBIT of 66M

    EPS(Equity)

    $0.00

    EBIT ($M)

    Even with Principal Repayments included on an Adjusted EPS basis, EPS with Debt Financing would be greater than EPS with Equity Financing
    Winfield Refuse Management 11

    Winfield Refuse Management

    12

    Evaluation of Options & Summary


    Debt with Principal Repayment

    Decision Criteria

    Debt

    Equity

    Cost of Financing
    Expected EPS

    represents the better alternative

    represents the lesser alternative

    Other considerations By issuing debt, Winfield would avoid control dilution Flexibilities sufficient cash flow to meet commitments under all options Winfield should finance the $125M through issue of bonds with no principal repayments
    Winfield Refuse Management 13

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