Yonsei Business Review Vol. 47, No. 1 (Fall 2010), 151-179 David vs. Goliath: M&A of HaiTai Confectionery and Foods Co. by Crown Confectionery Co. Hyun-Han Shin** 2004 10 Korea Confectionary Holdings NV 5,500 6,500 2 M&A LBO ABSTRACT October 2004, Crown Confectionery Co. has signed an agreement with Korea confectionary Holdings NV to acquire HaiTai Confectionery & Foods Co. At that time, the estimated total acquisition cost was in the range between 550 billion won and 650 CFRC 2 1
152 billion won, even though there is a room for adjustment depending on the results of duediligence. The size of acquisition is over two times greater than the size of Crown s assets and revenues and the funding for the acquisition of the Haitai Confectionery Food Co. was the biggest stumbling block in the acquisition. By examining this case, we are finding strategic justification and checking the adequacy of the purchase price. Furthermore, we show a funding method a domestic company can use by describing the specific financing case. Keywords M & A, Crown Confectionery, Haitai Confectionery & Foods, LBO, Corporate Valuation 2004 1 4 UBS 2 UBS 5,000 6,000 M&A
M&A 153 M&A M&A 2004 33 2,000 1997 2004 90 1997 2004 5.6 GDP 6.9 well-being 1 mass market 2005
154 1 B2C end-user B2B 2005 2.85 CJ 16.5 15.2 10.3 4
M&A 155 2 4 Michael Porter five forces model Rivalry among existing competitors 4 market share 70 Threat of New Entrants 4 Threat of Substitute Products or Services 20 30 2 3
156 Buyer Power and Supplier Power supplier power buyer power 4 3 Five forces analysis Michael Porter five forces model market share
M&A 157 1947 1956 1967 1976 IMF 1998 5 2003 8 2004 2003 2,826 164 2004 1,419 104 1 M&A M&A industry review Porter 5 forces model buyer M&A M&A M&A cannibalization M&A 2003 2 M&A
158 1 2001 2002 2003 13,428,635 13,918,874 45,763,022 8,460,546 42,895,423 38,860,695 40,825,723 9,302,694 14,901,585 12,080,777 74,087,298 67,681,154 98,669,522 992,048 1,119,090 1,046,809 13,417,342 16,285,485 18,545,329 87,504,640 83,966,639 117,214,852 18,008,649 14,777,837 18,782,325 156,446,937 144,610,484 137,251,195 156,274,623 140,047,114 132,311,661 172,314 4,563,370 4,939,534 1,005,223 790,151 610,190 175,460,809 160,178,471 156,643,710 262,965,449 244,145,110 273,858,561 26,878,675 27,454,038 14,384,373 32,195,000 84,351,166 17,122,832 3,675,737 13,555,602 13,491,732 14,462,460 30,678,434 17,167,469 14,462,460 15,792,285 19,651,278 20,747,420 73,349,394 96,467,785 133,945,419 18,397,533 17,102,506 19,412,741 90,626,020 35,654,899 16,370,772 109,023,553 52,757,405 35,783,513 182,372,947 149,225,190 169,728,931 7,085,075 7,085,075 7,085,075 54,774,377 54,774,377 54,774,377 21,182,078 35,004,871 44,195,078-2,449,027-1,944,403-1,924,900 80,592,503 94,919,920 104,129,630 262,965,449 244,145,110 273,858,561 1,260,449 1,260,449 1,260,449
M&A 159 2001 2002 2003 257,969,339 272,367,974 282,655,357 157,536,072 163,657,323 169,672,565 100,433,267 108,710,652 112,982,792 79,310,798 88,748,849 96,513,073 21,122,469 19,961,803 16,469,719 6,695,033 19,046,275 7,330,896 21,830,982 14,221,875 9,290,899 16,795,081 9,782,136 7,760,242 1,398,723 133,438 10,652 3,637,178 4,306,301 1,520,005 5,986,520 24,786,203 14,509,717 5,986,520 24,786,203 14,509,717-3,591,809 7,105,672 4,304,961 9,578,329 17,680,531 10,204,756 7,102 13,123 7,573 7,102 13,123 7,573 2001 2002 2003 34,268,179 33,082,612 4,939,430 9,578,329 17,680,531 10,204,756 31,061,875 28,048,903 23,134,055 3,341,137 15,852,025 3,678,069-3,030,888 3,205,203-24,721,311 4,618,653 1,362,099-1,146,423 10,473,632 23,574,750 7,568,676 5,854,979 22,212,651 8,715,100-44,756,229-33,954,472 28,051,142 716,455 32,195,000 130,034,220 45,472,684 66,149,472 101,983,078-5,869,398 490,239 31,844,149 19,298,033 13,428,635 13,918,874 13,428,635 13,918,874 45,763,022 30,370,664 16,988,642 19,536,157 29,028,159 16,988,642 14,462,460
160 1945 10 3 4 1947 6 25 60 3,500 70 1973 1978 1967 80 81 82 90 96 1996 3 3,900 2 7,100 24 1997 8 21 200 IMF 1997 11 1 3 1 www.ht.co.kr 2 3 3 31 1 96 2003 12 12 www.newstown.co.kr
M&A 161 98 3 M&A 10 1 9,000 6 6,000 1999 8,400 2000 4 ABN 2001 7 11 UBS paper company Korea Confectionery Holdings NV UBS 2001 9 28 4,150 UBS 3 3 2004 6,455 660 3 2 UBS 20 25 4 5 2001 9 25 6 CVC JP UBS UBS 100 7 97 11 1 2001 2004 10 11
162 2 2002.6.30 2003.6.30 60,193,446 56,229,870 12,203 9,823 64,292,519 82,424,134 34,490,719 5,248,761 158,988,887 143,912,588 1,314,395 1,619,324 37,903,381 32,981,850 196,892,268 176,894,437 35,837,627 18,666,787 309,950,043 297,453,212 309,366,102 297,238,552 583,941 214,660 22,509,006 17,421,522 368,296,675 333,541,521 565,188,943 510,435,959 64,981,061 87,717,595 20,721,197 47,178,513 20,721,197 47,178,513 50,206,173 56,427,881 135,908,431 191,323,989 270,941,515 165,123,003 73,219,304 61,222,568 8,066,658 6,512,271 352,227,477 232,857,842 488,135,908 424,181,831 14,050,000 14,050,000 55,932,800 55,932,800 6,884,350 16,718,989 185,885-447,661 77,053,035 86,254,127 565,188,943 510,435,959 10,000 10,000 8 2002 6
M&A 163 2002 2003 422,735,260 612,797,155 257,921,679 361,461,864 164,813,581 251,335,291 132,947,884 195,956,415 31,865,698 55,378,876 10,839,805 5,037,782 32,730,980 39,064,810 22,710,890 35,233,526 19,732 134,546 10,000,358 3,696,738 9,974,522 21,351,849 9,974,522 21,351,849 3,090,172 5,538,979 6,884,350 15,812,870 260,380 1,021,287 260,380 1,021,287 2002 2003 73,849,053 65,886,044 6,884,350 15,812,870 52,708,260 56,666,953 8,308,425 1,442,195 22,564,868-5,151,583-82,272,099 22,453,747 1,513,948 48,105,400 83,786,047 25,651,652 356,732,492-92,303,368 369,898,054 224,803,814 13,165,562 317,107,183 348,309,446-3,963,577 60,193,446 348,309,446 56,229,870 2,736,000 55,170,000 47,178,000
164 2004 6 LBO Leveraged BuyOuts LBO LBO 50 LBO 1980 M&A LBO paper company 3 KB KTB 2100 paper company SPC
M&A 165 3 SPC 750 35.2 700 32.9 KB 200 9.4 KTB 100 4.7 379 17.8 2129 100 345,028 334,460 10,568 89,842 474,661 384,819 255,186 ESCROW 15,000 6 6,167 234,019 5 2005/7/1~12/31 SPC 3,400 1,250 DBS 800 SPC 2,100 1,350 3,450 UBS 100 UBS 6 2,050 1,250 800 5,500 UBS 3,450
166 SPC SPC 5500 3400 2100 5500 5500 4 800 3400 1250 3450 2100 5500 5500 750 200 CB M&A 32.9 3 700 7 12 9
M&A 167 3,000 IPO 5 11 FCFE; Free Cash Flow to Equity DCF FCFE 6.1 1 2003 45.76 5 2 59.8 31.9
168 NWC CAPEX CAPEX; Capital Expenditure 2 CAPEX 2002 2003 net working capital 2002 2003 5 NWC 2004 40 2009 0 Ke Rf 5.04 risk premium 6.25 beta Hamada equation unlevered beta unlevered beta 0.97 Hamada equation 28.42 tax rate 1.1672 levered beta 1.77 Beta 10 2003 1 11 2003 historical risk premium www.damodaran.com 12 BL = BU * (1+(1-tax rate) * Debt to Equity ratio)
M&A 169 CAPM 16.11 Ke FCFE 2,298 3,450 5,500 1,250 800 4 2002 2003 2004F 2005F 2006F 2007F 2008F 2009F TV 422735 616183 646992 679342 713309 748974 786423 825744 45.76% 5% 5% 5% 5% 5% 5% 257921 361383 386901 403529 420139 437401 470521 494047 164814 254800 260091 275813 293170 311573 315902 331697 132948 199342 206390 208558 210426 211211 250871 263415 31866 55458 53700 67255 82744 100363 65031 68282 10840 5037 4500 6792 6792 6792 6792 6792 32731 39065 24135 31977 31977 31977 31977 31977 9975 21430 34065 42070 57559 75178 39846 43097 0 0 0 0 0 0 0 0 9975 21430 34065 42070 57559 75178 39846 43097 3090 5562 13494 12074 16519 21576 11436 12369 6885 15868 20571 29996 41039 53602 28410 30728 60983-16988 -16988-12988 -8988-4988 -988 1012 6885 15868 20571 29996 41039 53602 28410 30728 7893 9144 8519 8519 8519 8519 8519 8519 CAPEX 7893 9144 8519 8519 8519 8519 8519 8519 changes in NW capital -77971 0 4000 4000 4000 4000 2000 FCFE 6,885 93,839 20,571 25,996 37,039 49,602 24,410 28,728 290,394 discount factor 1 0.8612 0.7417 0.6388 0.5502 0.4738 0.4081 0.4081 17,717 19,282 23,662 27,290 11,567 11,724 118,510 Equity value 229,752
170 2 5 2002 2003 2004F 2005F 2006F 2007F 2008F 2009F TV 422735 616183 646992 679342 713309 748974 786423 825744 45.76% 5% 5% 5% 5% 5% 5% 257921 361383 386901 403529 420139 437401 459271 482235 164814 254800 260091 275813 293170 311573 327152 343510 132948 199342 206390 208558 210426 211211 221771 232860 31866 55458 53700 67255 82744 100363 105381 110650 10840 5037 4500 6792 6792 6792 6792 6792 32731 39065 24135 31977 31977 31977 31977 31977 9975 21430 34065 42070 57559 75178 80196 85465 0 0 0 0 0 0 0 0 9975 21430 34065 42070 57559 75178 80196 85465 3090 5562 13494 12074 16519 21576 23016 24528 6885 15868 20571 29996 41039 53602 57180 60936 60983-16988 -16988-11988 -6988-1988 1012 1012 6885 15868 20571 29996 41039 53602 57180 60936 7893 9144 8519 8519 8519 8519 8519 8519 CAPEX 7893 9144 8519 7667 7667 7667 7667 7667 changes in NW capital -77971 0 5000 5000 5000 3000 0 FCFE 6,885 93,839 20,571 25,848 36,891 49,453 55,031 61,788 575,873 discount factor 1 0.8612 0.7417 0.6388 0.5502 0.4738 0.4081 0.4081 17,717 19,172 23,567 27,209 26,077 25,216 235,014 Equity value 373,972
M&A 171 373,972 56.4% 56.9% 57.4% 57.9% 58.4% 58.9% 59.4% 26.7% 471,154 457,271 443,388 429,505 415,622 401,739 387,855 27.2% 457,271 443,388 429,505 415,622 401,739 387,855 373,972 27.7% 443,388 429,505 415,622 401,739 387,855 373,972 360,089 28.2% 429,505 415,622 401,739 387,855 373,972 360,089 346,206 28.7% 415,622 401,739 387,855 373,972 360,089 346,206 332,323 29.2% 401,739 387,855 373,972 360,089 346,206 332,323 318,440 29.7% 387,855 373,972 360,089 346,206 332,323 318,440 304,556 30.2% 373,972 360,089 346,206 332,323 318,440 304,556 290,673 30.7% 360,089 346,206 332,323 318,440 304,556 290,673 276,790 31.2% 346,206 332,323 318,440 304,556 290,673 276,790 262,907 31.7% 332,323 318,440 304,556 290,673 276,790 262,907 249,024 32.2% 318,440 304,556 290,673 276,790 262,907 249,024 235,141 32.7% 304,556 290,673 276,790 262,907 249,024 235,141 221,257 33.2% 290,673 276,790 262,907 249,024 235,141 221,257 207,374 33.7% 276,790 262,907 249,024 235,141 221,257 207,374 193,491 34.2% 262,907 249,024 235,141 221,257 207,374 193,491 179,608 58.4 28.2 2007 NWC CAPEX 13 2
172 CAPEX 2005 5 90 2010 net working capital 3,740 2,298 1,500 68.18 3,450 290 290 3,450 8 benefit 1,500 150 6.2 PER PSR EV/EBITDA price market share PMR
M&A 173 3 3 1,421,400 5,878,356 1,326,000 6 675,167 85,583 46,550 959,682 503,089 61,725 Net debt -50,089 263,288 140,067 88,637 335,938 115,478 PBR 10.8 1.5 0.5 4.3 40.1% 25.4% 14.8% PMR 2,393,222 1,980,667 417,063 1,596,984 1,111,921 522,079 279,340 PSR 0.9 1.0 0.2 0.7 85,462 20,504 13,331 PER 11.2 24.5 4.6 13.5 EBITDA 141,658 56,232 29,442 EV 909,593 766,377 201,792 EV/EBITDA 6.4 13.6 6.9 9.0 fiscal 2004 117,220 19.70% 561,457 18,555 EBITDA 99,764 Valuation PBR PMR PSR PER EV/EBITDA 502,451 314,606 383,228 249,847 782,906 4,105 20 4,926 3,450 1,500
174 infrastructure 7.1 SPC 2004 11 15 2005 1 12 SPC 100 2005 2 25 2005 3 31 1 5,000 B 0.81 A:B = 1:0.81 = 3,469,135 2,810,000 2,810,000 2,810,000 7.2 UBS Korea Confectionery Holdings NV 2001 9 28 CVC JP UBS 3 PEF SPC Korea Confectionery Holdings NV 4,150 4,369 1,416 2,953 2005 1 12 3,450 Korea Confectionery Holdings NV 3 3 497 100
M&A 175 18 2002 69 2003 159 2004 329 7.3 2005 1 2006 LBO 2 2005 32.7 2004 34.3 1.6 2004 12 15.3 2005 12 16.8 1.5 2004 19.0 2005 15.9 3.1 170 100 PMI; Post-Merger Integration M&A 14 UBS 1,150 Mergers Acquisition Marketing, 2005.01.12 http://www.mamway.com/news/content.asp?board=mam&num=2309&page=21
176 M&A M&A 2005 1 2006 20 M&A M&A M&A M&A M&A M&A M&A PMI M&A PMI M&A M&A PMI 53 M&A 30 M&A 17 M&A 3 2006 4 TV 15 Pantech PMI M&A
M&A 177 2004 12 5 2008 1 14 200 8,520 5,410 3,110 4.5 2006 50 100 50 2007 380 280 100 2.7 15 2007 2 1 1 16 2008.01.14 17 foodbank 2007 2008 Foodbank, 2008.01.04 (http://blog.daum.net/honey102/13836191)
178 2005 M&A CEO 2005. 2. M&A 2007,2. 2001-9-25 2007,2. M&A 1999 www.newstown.co.kr 2004-10-11 3 2007-02-05 8 2005 CEO WOW TV, 2006.4 1 1998-3-19. www.ht.co.kr 2 2002.07.01~2003.06.30 4 2004.07.01~2005.06.30 Habits Of The Busiest Acquirers, Mckinsey, 2006.6 Pantech PMI M&A www.damodaran.com M&A M&A
M&A 179 2004 10 UBS Korea confectionary Holdings NV 5,500 6,500 3 2004 11 2 2005 1 12 LBO: Leveraged BuyOuts) LBO LBO 50 LBO 1980 M&A LBO paper company LBO M&A M&A M&A LBO