Your group works in the Corporate Finance division of Super Retail Group (ASX code: SUL). The head of your division believes that under the current circumstances, Super Retail Group can benefit from acquiring Kathmandu Holdings Ltd (ASX code: KMD). He is planning on suggesting this deal to the CEO and the Board of Directors of Super Retail Group. He has therefore asked your group to prepare a briefing book or “pitch book” making a case for the acquisition of Kathmandu Holdings Ltd by Super Retail Group.

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Background
Your group works in the Corporate Finance division of Super Retail Group (ASX code: SUL). The head of your
division believes that under the current circumstances, Super Retail Group can benefit from acquiring
Kathmandu Holdings Ltd (ASX code: KMD). He is planning on suggesting this deal to the CEO and the Board
of Directors of Super Retail Group. He has therefore asked your group to prepare a briefing book or “pitch
book” making a case for the acquisition of Kathmandu Holdings Ltd by Super Retail Group.
Requirements
Your group’s task is to prepare a “pitch book” on the proposed takeover containing the following contents:
 The “pitch book” should be in the form of a series of PowerPoint slides.
 It should be divided into a “presentation” section and an “appendices” section.
 The slides in the presentation section will not include detailed analyses. They will include summary
statements in bullet point format in which you develop your argument with graphic illustrations (tables may
also be used as necessary).
 Detailed analyses should be presented in the appendices.
 It will be up to your group to appropriately distribute the relevant contents between the “presentation”
section and the “appendices” section for the maximum impact of your presentation. The exceptions to this
are the few cases below where explicit guideline is provided that the content should be in either the
“presentation” or the “appendices” section.
 Your “pitch book” may contain up to 30 slides (pages). 12-15 of these should be for the “presentation”
section, with the balance belonging to the “appendices” section.
You will submit the pitch book to Turnitin via Moodle in PDF format:
 All pages (PowerPoint slides) should be printed in PDF format in “landscape” orientation.
 Each page (PowerPoint slide) must contain appropriate heading and must be numbered.
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A. Deal Rationale [30 marks]
A series of slides will justify the deal concept and explain the logic of the deal. These slides will address the
following points:
 Overview of the bidder and the target
 Bidder and target’s segment analysis (appendices)
 Bidder and target company’s industry analysis using the factors (five forces and others) discussed in the
lectures
 Bidder and target company’s company analysis: this will involve both qualitative and quantitative analysis
 Bidder company’s strategy analysis and its merger strategy analysis
 Comparison of the target company with peers (appendices)
 Target’s management and management quality
 Deal Rationale
o This slide will include qualitative discussion of the sources of synergies and value creation as well
as why the deal makes sense in a long-term or “strategic” sense
o You need to bring together the analyses in the preceding points and other deal motivations to fully
justify the choice of the target and the sources of synergy and value creation
B. Valuation [30 marks]
A series of slides will value the target company by itself (stand-alone valuation), and separately value the
potential synergies from the acquisition:
 DCF Assumptions: you should state the assumptions in one slide in the “presentation” section and explain
these assumptions in another slide in the “appendices”
o The assumptions will include your forecasts about revenue growth, profit margin etc.
 Stand-alone DCF analysis of the target (in appendices): follow the standard DCF method
 DCF sensitivity analysis and DCF scenario analysis
 Comparable valuation using comparable listed companies
 Overall standalone valuation and sensitivities/scenarios based on the three above valuation methods: these
should be summarised in terms of valuation ranges in the “presentation” section with supporting tables in
the “appendices” section
o Use a valuation football field in the “presentation” section
 Sources of synergies — show calculations on the sources of synergy and value creation
o You should have a separate slide that addresses this issue and identifies each of the sources and
explains the assumptions regarding the potential value creation from these sources in some detail
 Synergy valuation and sensitivities/scenarios
o You need to identify specific sources of synergies and forecast the expected synergy cash flows:
 What are the magnitudes of the synergies?
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 How long will the synergies last?
 You should value the synergies using the DCF method and perform scenario analyses
C. Deal Structure and Other Analyses [30 marks]
The first four points in the following list should inform you recommendations on the subsequent points.
 Target share price history: Target company’s annotated share price over the last 52 weeks
 Target’s ownership structure: Target’s ownership structure summary – this might have potential effect on
bidding strategy
 Acquisition risks: identify potential risks such as:
o Asset/accounting quality, integration issues and
o Potential regulatory concerns: ACCC, industry specific regulation etc.
 Control premium: Recommended bid price and upper and lower bound
o You need to consider the factors that affect control premium as discussed in the lecture (e.g.,
target’s recent price history) in determining the recommended control premium
o The recommendation for the control premium should be justified by the valuation of the target and
the potential synergies
 Payment method: Cash, stock or mixed
o for stock and mixed, how many shares do you propose to issue and what is the cash equivalent of
those shares? Synergy should be included in calculating the cost of the stock offer
o for cash, what is the stock equivalent of the offer and how many shares do you propose to issue?
Synergy should be included in calculating the cost of the stock offer
 Bidding strategy: friendly or hostile? You need to provide reasons for the chosen strategy
 Method of acquisition: Takeover bid or Scheme of arrangement? Only consider the choice between offmarket takeover bid and Scheme of Arrangement bid.
o Ignore on-market bid, since they are relatively rare
 Funding: How will the deal be financed in the short and long term? What will be the effect of the
acquisition financing on the bidder’s capital structure and gearing ratio?
 Term sheet: this should be the first page of your “pitch book” and it should summarise the deal (see the
“Pitch Book” example by Robert Bruner)
D. Quality of Presentation [10 marks]
 The slides should be easy to follow (especially, the “appendices” section, which will contain a lot of
information)
 Add notes to the appendices slides as appropriate so I can follow your work.
 The language should be grammatically correct, clear, concise and to-the-point
 Slides should not be overly cluttered, all pages should be numbered and same font should be used
throughout, though the font size might vary
 You need to illustrate you points with graphs and tables when possible (especially in the “presentation”
section)
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Additional Guidelines
 You should identify each slide as belonging to one of the three sections (A, B or C) from above and include
a slide with this information in a table at the end of you “pitch book”. This will help me in marking the
assignment.
 Your group should spend some time screening possible target companies and select a few companies as
possible targets and then select the best choice among them as the target company for this assignment.
Spending some time in choosing a “good” target will make your work on the various analyses much easier.
 There should be a clear link between the company/industry analyses and the deal rationale.
 You will be marked on the soundness of your arguments and logic.
 Since your group will not actually present the report, you need to be specific in your writing: provide
sufficient detail to understand the point you are trying to make. Statements should be supported by
evidence.
Administrative Issues
 Your group must submit the assignment to Turnitin in PDF format via Moodle in week 10 on Friday,
04/06/2021, by 6:00 pm.
 All students must complete the assignment in a group of 4 or 5 students.
 Students will allocate the assignment workload among themselves.
o If you are concerned about the contribution of any group member, you should contact me
immediately and long before the due date for the assignment so appropriate action may be
taken.
o If you do not contact me well ahead of the assignment due date about the contribution of a
group member, no action may feasibly be taken by me to remedy the situation.
o Each group member should make sure that the others are progressing in their assigned
tasks in a timely manner.
o Each member should share drafts with other members regularly — use a dropbox or
google drive shared folder to share drafts.
 It is your responsibility to ensure that the assessment deadline is met.