Valuing a Cross-Border LBO: Bidding on the Yell Group

Harvard Business School Case 204-033

Course Software 205-701

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Exhibit 4 British Telecom Selected Historical Financial Information, 1996–2000 (pounds in millions, except per-share data)

Years Ended 31 March

1997 1998 1999 2000 2001
Income Statement
Total turnover 17379 17411 18223 21903 29666
Total operating profit (loss) 3429 3461 3474 3198 -336
Profit on sale of fixed assets 8 63 1107 126 619
Net interest payable -174 -310 -286 -382 -1314
Profit (loss) before taxation 3203 3214 4295 2942 -1031
Profit (loss) after taxation 2101 1727 3002 2045 -1683
Minority interests -24 -25 -19 10 -127
Profit (loss) for the financial year 2077 1702 2983 2055 -1810
Basic earnings (loss) per share 32.8p 26.6p 46.3p 31.7p (27.7)p

Cash Flow Statement

Cash flow from operating activities 6185 6071 6035 5849 5887
Dividends from associates and JVs 7 5 2 5 10
Investment Return & Finance Servicing -220 -160 -328 -163 -727
Taxation paid -1,045 -1,886 -630 -1,311 -669
Capital expenditure and investment -2820 -3108 1 -3752 -8442
Acquisitions and disposals -252 -1501 -1967 -6405 -13754
Equity dividends paid -1217 -3473 -1186 -1364 -1432
Management of liquid resources -504 2,247 -2,447 1,236 -480
Financing -224 1794 -458 5959 19735
Incr. (decr.) in cash for the year -90 -11 67 54 128
Decr. (incr.) in net debt for the year 849 -3860 3146 -6582 -18942

Balance Sheet
Intangible fixed assets N/A N/A 742 5777 18380
Tangible fixed assets 16802 17252 17854 18163 21625
Fixed asset investments 1273 1708 1832 5878 5204
Net current assets (liabilities) -2667 -2637 -495 -7115 -11143
LT loans and other borrowings -2693 -3889 -3386 -5354 -18775
Provisions for liabilities & charges -1391 -1426 -1391 -1056 -723
Minority interests -208 -223 -216 -498 -499
Total equity shareholders’ funds 11116 10785 14940 15795 14069
Total assets 25062 23285 27962 37588 54799

Source: British Telecom.

ns, except per-share data)
Exhibit 6 BT Yellow Pages—Historical Financial Information and Management Projections for the Business, 1999–2005 (pound

Actual Actual Projected Projected Projected

Year 31-Mar-00 31-Mar-01 31-Mar-02 31-Mar-03 31-Mar-04
Advertisement Volume (‘000) 813 853 927 991 1,058
Weighted Average Advertisement Price (£ 641 645 644 648 649
Discounts and free ads (£’000) 42,402 47,276 78,180 86,585 84,324
Direct costs (£’000) 180,479 187,395 195,972 201,742 206,649
Overhead costs (£’000)a 102,530 88,870 74,930 77,137 79,013
Change in WC (£’000) 10,570 12,772 2,178 6,000 8,497
Capex (£’000) 7,380 9,760 10,220 9,730 9,230
Depreciation (£’000) 5,530 5,370 6,130 8,850 8,400
Other U.K. businesses:
Capital cash flows after taxes (£’000) -4,566 -14,438 -12,641 -8,238 1,362

Source: Apax Partners; casewriter estimates; figures have been disguised.

a
Does not include depreciation.
b
Starting in 2006, cash flows from Other U.K. Businesses should grow dramatically into the tens of millions of pounds. Management, however, found it diffic
the cash stream post-2005 given the high uncertainty surrounding those future projections.
s for the Business, 1999–2005 (pounds in thousands)

Projected Projected Projected

31-Mar-05 31-Mar-06 31-Mar-07
1,126 1,194 1,254
649 649 649
86,615 85,366 86,049
211,278 214,996 216,716
80,783 82,204 82,862
6,300 4,375 2,023
8,380 8,000 8,000
7,630 8,000 8,000

1,956 10,000 b 20,000 b

unds. Management, however, found it difficult to evaluate

Exhibit 7 Yellow Book USA—Historical Financial Information and Management Projections for the Business, 1999–2005 (dolla

Actual Actual Projected Projected Projected

Year 31-Mar-00 31-Mar-01 31-Mar-02 31-Mar-03 31-Mar-04
New launches (number) n/a n/a 7 8 7

Total Revenues ($’000) 217,500 330,000 421,600 483,200 544,050

Capex ($’000) 3,698 7,000 10,600 8,700 8,170
Depreciation N/A 7,000 6,240 7,910 7,430

Source: Apax Partners; casewriter estimates; figures have been disguised.

or the Business, 1999–2005 (dollar figures in thousands)

Projected Projected Projected

31-Mar-05 31-Mar-06 31-Mar-07
8 0 0

598,600 688,390 757,229

8,990 8,000 8,000
8,810 8,000 8,000
Exhibit 10 Data for Comparable Listed Companies (five-year average unless otherwise indicated)

Company Main Business Activities Local index

SBC Communications Long distance service, local service, S&P 500

wireless, and directory publishing

Verizon Long distance service, local service, S&P 500

wireless, and directory publishing

BellSouth Long distance service, local service, S&P 500

wireless, and directory publishing

Qwest DSL services, broadband and wireless S&P 500

communications, directory publishing

Sprint Long distance service, local service, S&P 500

product distribution, and directory

McLeodUSA Internet access, system integration S&P 500

services, and yellow pages publishing

WorldPagesa Independent directory publisher S&P 500

recently diversifying in Internet portal

SEAT Pagine Gialle White and yellow pages telephone MIB 30 (Italy)
directories. More recently Internet
access services

Wanadoob Internet Service Provider. Also offers CAC 40 (France)

client portals, e‑merchant services, and
directories

Telefonica Publicidad e InformacioncDirectory publishing IBEX 35 (Spain)

Enirob Catalog and telephone directory OMX (Sweden)

Source: Bloomberg International.

aThree-year data available.

bOne-year data available.
cTwo-year data available.
Beta vs. Local Beta vs. S&P 500 Beta vs. MSCI
Index Index World Index Debt / EV

0.54 0.54 0.63 15.4%

0.53 0.53 0.61 22.6%

0.41 0.41 0.42 17.5%

1.23 1.23 1.39 25.0%

0.66 0.66 0.68 16.4%

1.75 1.75 N/A 20.7%

0.89 0.89 1.08 24.4%

0.97 0.56 0.87 2.8%

1.46 1.19 1.47 1.1%

2.33 1.13 1.9 1.9%

0.43 0.67 0.79 8.2%

Exhibit 11 Country-specific Information about Interest Rates, Currency, and Taxes

On April 12, 2001 United States

Yield on 5-year T-bill 4.77%

Yield on 10-year T-bill 5.17%
Yield on 30-year T-bill 5.61%

$/£ spot rate 1.439 bid—1.44 ask

$/£ 1-year forward mid rate 1.4315
$/£ 2-year forward mid rate 1.4290
$/£ 3-year forward mid rate 1.4270
$/£ 4-year forward mid rate 1.4245
$/£ 5-year forward mid rate 1.4570

Tax rate 35%

Source: Adapted from Bloomberg International; Offering Memorandum, “Yell Finance B.V.,” August 6, 2001.
ency, and Taxes

United Kingdom

5.06%
4.94%
4.52%

30%

ce B.V.,” August 6, 2001.