Semester 1, 2017
BFF3351 Investment Banking
Case Study (due midday, Monday 1st May)
Case study to be completed in a group of two. By previous arrangement, the case study can be completed on your own but extra marks allowance will not be given.
Team members may come from different tutorials.
Submit a hard copy in the allocated Assignment Box on Level 3, H Building by midday 1st May. A cover sheet must be submitted for each group member. Your tutor and class must be included. Failure to include tutor and class, or providing the incorrect information, may result in a penalty of up to 10%.
Also submit a soft copy version via turn-it-in on Moodle. The front cover sheets do not need to be included.
You should submit a business report of 2,500 words (excluding appendices and tables) with 15% discretion.


It is August 2016 and you are employed as a graduate consultant in the Business Development section of Wesfarmers Limited (Wesfarmers) and are a member of a team appointed to analyse a possible acquisition of Patties Foods Limited (Patties).
Following recent problems encountered by Patties in their Frozen Berries business, you are aware that the founders, and major shareholders of Patties, the Rijs family, wish to relinquish control of the company.
The Wesfarmers group, which includes Coles, views Patties as a potential acquisition.
Pacific Equity Partners (PEP) has entered into a Scheme Implementation Deed [Scheme of Arrangement] with Patties for the acquisition of 100% of the share capital of Patties for a total value of $1.757 per share. Patties Board has recommended that shareholders vote in favour of the Scheme subject to no superior offer emerging.
A potential meeting of shareholders has been tentatively scheduled for late May 2017. Hence, the urgency of completion of the report is stressed. A detailed report, including strategic, financial and legal issues, must be circulated to members of the Board by 1st May, 2017.
Note: PEP acquired Patties Foods for $232m in July 2016. This case is based on real data, largely as at the time of the takeover.

Your task:

Strategy: it is proposed that Patties would be incorporated as part of the Coles Group of businesses. Consider whether there are strategic grounds for the acquisition.

Assess the fair value for Patties. The primary valuation should be based on a discounted cash flow valuation.

Key valuation assumptions can be found in attachments 1 and 2
The synergies should be valued separately using the information provided in attachment 3. Note that only a percentage of the synergies should be passed onto Patties shareholders. A suggested template for synergies is included as attachment 5.
To support your DCF valuation, a comparable valuation should also be employed using assumptions in Attachment 1.


The following further studies should be undertaken in support of your recommendation:


Income accretive/dilutive calculations (see assumptions on Attachment 4); and
Separate sensitivity analyses for possible changes in the key value drivers, namely sales revenue growth and cost of goods sold. The robustness of the proposed acquisition in terms of the results of the sensitivity analyses should be analysed, and an assessment made.
It is suggested that as a minimum, increase and decrease the assumed Sales Revenue and Cost of Goods Sold downwards and upwards respectively  by 10% (see attachment 6).

An Excel template is attached which you may use as the basis for your analysis for questions 2 and 3.

A recommended price and the legal form of the offer.

These questions should be answered in a business report for the board of Wesfarmers. The word limit is 2,500, excluding tables and appendices. You should submit a printout of your Excel spreadsheet with your hard copy submission and attach a copy of the spreadsheet to your soft copy submission.

Supporting schedules

The following schedules are attached for your reference:

Attachment 1 – WACC calculations and corporate data.
Attachment 2 – Fair value calculation, and accounting results, templates pre synergies.
Attachment 3 – Synergy estimates.
Attachment 4 – Fair value calculation, and accounting results, templates post synergies.
Attachment 5 – Accretive /Dilutive analysis data.
Attachment 6 – Sensitivity Analysis

An Excel template is also included.


The databases to which you should refer are:

Annual Reports (Connect 4 data base):

Annual Reports.
M & A documents.

Factiva: search for Wesfarmers and Patties articles.
DatAnalysis Premier

Peer group financial analysis.
Financial background information.

As considered appropriate, respective 2015 Annual Reports and 2016 half yearly profit announcements.


Assessment basis

The marking will be based on an aggregation of marks:

10 marks

Company valuation of Patties
15 marks

Comparable valuation
5 marks

Value of synergies
15 marks

Dilutive/accretive impact
10 marks

Sensitivity analysis
10 marks

Recommended price of offer
15 marks

Recommended legal form of offer
10 marks

10 marks

100 marks

The aggregate marks will be subsequently reduced to a maximum of 20 marks for inclusion in grading results.

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