Case Yell Group Essay

Words: 4403
Pages: 18

Executive summary 2
PART 1: Valuation of the Yell Group 3
LBO Potential 3
Financial structure 3
Ownership structure 4
Potential cultural differences 4
Valuation 4
PART 2 : Readings 10
Bond prices and takeovers 10
Abnormal Bond Returns 10
Impact on bond returns of different legal standards in case of cross-border acquisitions 11
Sources of financing takeovers 11
References 14

Executive summary
The Yell group is consists of
BT Yellow Book Yellow Pages USA

and several smaller UK based companies.
In terms of being a god LBO candidate:

* The Yell Group has a well-established position in a growing market generating stable revenue streams that are reasonably recession proof.
* The market
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Ownership structure
The ownership of Yell Group limited is devided amongst APAX (46,3%) Hicks/Muse(46,3%) and the management (7,3 flow into Yell Group Limited and from there down to the operating companies as illustrated below.

Figure 1: Yell Group Ownership Structure

Potential cultural differences
The BT Yellow Pages was market leader and according to the OFT held a monopoly of some sort. Typically people in these type of companies are not the most aggressive in mentality. On top of that margins are lowered by verdict of the OFT which will put pressure on prices and thus on salaries/ number of people management style(cost cutting) In the US however Yellow Book USA had to fight its way into the market most probably already dealing with lower margins. If all loans are equally distributed over the operating companies with revenue as index BT Yellow Pages would have an easier time absorbing interest costs.
Valuation
In this paragraph the valuation of the Yell Group is performed based on the APV technique. As there are a couple of uncertainties in this valuation, several assumptions are made that are discussed in the following paragraphs.
The technique most suited for this valuation is APV as WACC assumes a constant debt-to-equity ratio. In order to achieve this, Yell Group should consider issuing and or purchasing its own stock and retiring its debts. Furthermore the debt repayment schedule does not