Leveraged Buyouts: A Practical Guide to Investment Banking and Private Equity, + Website

CHAPTER 4

Assumptions

The assumptions are the core drivers of the model. The major segments of the Assumptions tab include the Purchase Price, Uses of Funds, and Sources of Funds.

In order to use Heinz as a model for a complete leveraged buyout (LBO) analysis, we will build an Assumptions tab containing many possible drivers, even though they may not be needed in this particular case. Let’s review the press release for the potential Heinz buyout:

Heinz Leveraged Buyout Press Release

PITTSBURGH & OMAHA, Neb. & NEW YORK–(BUSINESS WIRE)–H.J. Heinz Company (NYSE: HNZ) (“Heinz”) today announced that it has entered into a definitive merger agreement to be acquired by an investment consortium comprised of Berkshire Hathaway and 3G Capital.

   Under the terms of the agreement, which has been unanimously approved by Heinz’s Board of Directors, Heinz shareholders will receive $72.50 in cash for each share of common stock they own, in a transaction valued at $28 billion, including the assumption of Heinz’s outstanding debt. The per share price represents a 20% premium to Heinz’s closing share price of $60.48 on February 13, 2013, a 19% premium to Heinz’s all-time high share price, a 23% premium to the 90-day average Heinz share price and a 30% premium to the one-year average share price.

(Heinz Press Release, February 14, 2013)

The press release reads that “Heinz shareholders will receive $72.50 in cash for each share.”

Before constructing the model, it is important to research various data ...