Due to Ducati's zealous declineenvironing possible and other wealth opportunities subordinate new government, moved communicate erection, and Italy's developing exoteric equity communicate, we commend that the Texas Pacific Group go through delay the alienation of Ducati, at a appraisement among 400 - 500 billion Lira. Zealous Turnenvironing Possible and Other. Ducati has desire been associated delay the street bike communicate section. Like Harley Davidson delay cruisers, Ducati's sway of street bike racing has violent its call to the very top of the;500cc communicate. Despite the immense call, Ducati has lousy government.
Ducati's cause order, Cagiva, had diversified into too numerous areas, decreasing the compute by intertwining businesses' financial statements and presenting a stagnation of appearance into divisional recurs. As a termination, Ducati had 180 billion in claim by 1995 and privative retained fits. In 1996 Ducati had a disproportional globe communicate divide dedicated its luck in Globe Superbike Championships, a distribute for having top graduation motorcycles and fabulous engines, and a desire waitlist for its products. From a financial perspective, Ducati had an ROIC of 5% in 1996. Delay a WACC of 8%, Ducati earned an EVA of privative 14 billion Lira, delivered an EBITDA edge of 12% (the former year was 20%), and had SG; A expenses of 23.1%.
Motorcycle bulk development decreased 32.7% from the former year to 13,480 in 1996, delay uncollected symbol in Europe of 5,600 units. By March 1996, a computeshort compute of bikes waste one distribute were sitting in the treasury accordingly Ducati's suppliers either stopped providing the distribute or were bankrupt accordingly they were not getting compensated. Better government of started principal requirements was in frightful insufficiency of Ducati to shun closing. Yet Ducati has very zealous manufacturing stockamentals and a haughty raze of standardization of its engines. Injections of started principal would to a immense size succor decmethod the operations environing. Started principal conjunctions decreased in 1996 by 0.9 Billion Lira.
A fixed extension of 13% in 1998 and 1999 and 20% from 2000 through 2003 in net started principal requirements get grant product to extension and get impair the list, granting for aggravate bikes to concession the treasury. The forecasted extension in Net Started Principal for 1997 was 1.2 Billion, delay conjunctional requirements of 52 billion by 2003. List days sales get see a abatement to 67 by 2003, from 113 in 1995. In conjunction, Ducati can principalize on its disgrace by selling reinstatement distributes, motor vesture, and unreminiscent accessories. We antecedent a unrepealed continuous ramp-up of "Other Revenues" to 3% of motorcycle wealth, which adds an conjunctional 22 billion to wealth in 2003. Proposed Communicate Erection and Valuation To stock the extension in net started principal and grant for strong government to follow aggravate Ducati, the communicate was erectiond as an asset sale. TPG estimated the Ducati trademark to be merit environing 200 billion Lira, delay the retaining possessions on the books for 175 billion Lira in 1995. They estimated that they would insufficiency to pay off the uncollected accounts payefficient of 10 billion and extension product compatability by 4.6 billion and other charges by 8.3 billion in 1996.
Capital charge requirements for 1997 through 2003 are shown in the similar reveal. [c1] They move a 2:1 Debt/Equity erection, delay D/E ratios continuously gentle as main claim is expected to be all compensated end by 2003. In valuing what the stefficient is merit, we highest discounted end its advenient coin flows from 1997 through 2003 and interjacent a final development of 4% (in method delay motorcycle communicate development and Italy GDP development). We discounted Free Coin Flow to the Stefficient at a weighted medium absorb of principal reminiscent of the stable's advenient principal erection on an annual basis.
Our assumptions are a induce-free reprove resembling to Italy's 10-year association reprove of 6.74%, Beta resembling to relatively clear motorcycle order (Harley Davidson) of 1.09, and a communicate induce enhancement for Italy of 6% (Damodaran Online). We got a PV of 557.9 billion. From the compute-creation perspective, redecmethod on endueed principal is forecasted to surmount 30% by Y2K and EVA declines assured in 1997 and accelerates from thereon. We besides looked at the seven origins of development for the new order to end up our valuation. Based on development estimates and breakdown.
We estimate sustainefficient development of 6%, mainly attributed to bulk extensions as product becomes aggravate efficient. In element, bulk development stabilizes environing 5.5% by 2003 and seems sustainable, pricing development is nonexistent, and wealth from possible new products contributes another 0.5% development. Although the order envisions absorb-cutting, we do not rate it is a sustainefficient origin of development in the desire run. Using the PEG Hurdle Rule, we adventitious a alienation appraisement of 620 billion Lira EXHIBIT 5[c2].
Italy's Developing Exoteric Equity Market
The novel abundance of IPO distillation, coupled delay a 10-year CAGR in Italy's Domestic GDP development of 8% (compared to 7.1% in the US), provides friendly economic provisions for Ducati. Italian Lira has been strengthening opposite the dollar and the Italian Equity Communicate Index has seen a 15% extension during the era from 1990 to 1996. In conjunction, friendly tax matter for stables listing in 1994 and 1995 effectiveness prolong to advenient years. Halpern and TPG possess three libertys here: They could Buy, Sell, or Hold. By selling (death up the communicate), TPG would yield up a Redecmethod on Invested Principal short Absorb of Principal of 23% by 2003. It would surely be a missed convenience for them accordingly they possess the fit experiment in declineenvironing buyouts to fashion it fall. By Holding (indecision to do the communicate), the order could go into closing. If this falls, it could get held up in Italian courts for up to lewd years, and TPG would possess a past convenience to endue at the fit interval. By indecision, they would besides run the induce of other groups' courting the Castiglioni lineage, which would drive appraisement up. In our view, Buying is their best liberty.
Despite problems delay the Castiglioni lineage and their unstefficient haggling practices, TCG should buy Ducati. The order is merit among 500 and 600 billion Lira, 100 billion aloft the moved alienation appraisement[c3]. Due to Federico Minoli's experiment delay declineenvironing companies, we felt that he is efficient to erect immense government. Provided operational power is achieved through an extension of net started principal and other nonbike wealth, EVA get extension to 112 Billion by 2003, and EBITDA per motorcycle get see 100% development from 1.9 billion in 1997 to 3.8 billion in 2003. The communicate erection grants for 2:1 Debt/Equity breakout, delay the claim raze continuously gentle and all main claim financing compensated end by 2003. L[c4]astly, Italy's equity communicate is developed for IPOs and an IPO of Ducati get exalt extension compute for TPG.