Origina Case Essay

396 WordsMay 6, 20132 Pages
The Orangina deal is attractive as it provides opportunity for Blackstone and Lion to create value from a mismanaged company by cost reduction through better integration of corporate functions and streamlining operations. Coca Cola’s EBITDA margin of 26.3% compared to Orangina’s 11.5% in 2005 indicates that there are plenty of opportunities to improve its performance. While Orangina hasn’t done any aggressive marketing for its products to justify the increased cost is also an avenue to boost its sales at an increased selling price. After analyzing the P&L of Orangina and comparing with its competitors figures, it can be seen that the company wasn’t managed properly, thereby losing money over a five year of period. Considering the fact and Blackstone & Lion’s experience combined with their access to capital, P&L forecast of Orangina looks underestimated. Keeping the same EBITDA forecast, I have done a scenario analysis to calculate the investment multiple, IRR of the investment. It can be clearly seen that due to the increase equity value at 30.8%, the IRR would reduce and hence 600MM is a worthy of an investment. Further, this also has an effect on investment multiple which would fall from 3.90x to 3.63x at a multiple exit of 12. Thus keeping the exit multiple lower would reduce the risk for them. The amount of debt company is willing to leverage can be comfortably paid at its maturity at an underestimated value of management’s proposed forecast. The biggest issue for Blackstone and Lion would be exit from the company due to its poor cash flow. In order to sustain their interest in the company, the EBITDA should be increased by 243.7MM every year. If they believe this increment is achievable then the amount of debt isn’t an issue as the remaining proceeds of debt will also be used to for their exit. For a 1.85 billion deal to be paid in 2005, both the investors

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