Nestle Case

Case Analysis

Nestle and Alcon – The Value of a Listing

Nestle and Alcon – The Value of a Listing Case Analysis

Introduction

The case talks about Nestle which is world’s largest food company trying to assess whether a part of Alcon which is one of its major non-food holding should be carved out for public listing or not. There were many reason mentioned in the case for this carving out like the heads wanted the market to reflect the full value of Alcon and only food and beverage analyst follow Nestle Group and so on. The case tries to evaluate whether it was needed at first, if yes then what impact would such an event have on Nestlé’s overall valuation. Then if they did go for a listing, which stock should they list. Nestle is a Swiss firm listed in Zurich and Alcon is operationally based in US. There are four choices given to this and pros and cons to come with the listing choice.

Problem Identification

Nestle is planning to carve out its non-food business i.e. Alcon a subsidiary of Nestle to list in the share market. Since, Alcon is subsidiary of Nestle and therefore no separate valuation for that business. The top management feels that Alcon is undervalued due to not listing and is being valued as a whole although company is performing better than the Nestle as a whole. The group financial indicator is being used for the Alcor. The Nestle other investment i.e. equity share of 26% in Loreal. They can’t add value through the equity holding in the Loreal as depends on the performance in the Loreal. Top management is estimating whether separating the food and non-food business would add the value to the Group i.e. Nestle. The non-food business contributes 5% of revenue and 12% of EBIT to the Nestle. This implies that non-food business is able to generate more margin than food business and hence increasing total income of Nestle.        

Appropriate Valuation of Alcon

We will use EBITDA valuation multiple method to calculate the Enterprise Value of Alcon using the EV/EBITDA of comparable firm as given in Exhibit – 12. Both simple average or weight average can be used to get the average EV/EBITDA of comparable firm. The Enterprise Value for Alcon can be find by multiplying the average EV/EBITDA of comparable firm to the EBITDA of Alcon.

Note : Bausch & Lomb are not considered for the calculation due to lower (15%) Pharma Business.

EBITDA of Alcon = Operating Income + Amortization + Depreciation

                       = 596.80 + 86.50 + 17.70

                       = 701

Enterprise Value of Alcon = Weighted Average EBITDA of comparable firm * Alcon EBITDA

                              = 25.18 * 701

                              = $17,651 Million