Creating shareholder value through M&A activities: An assessment of B&O’s strategic outlook

Mark Steen Petersen & Esben Monrad Mosegaard

Student thesis: Master thesis


The DCF valuation suggests that B&O’s enterprise value is 2,567 mDKK of 30 March 2015. The enterprise values of B&O Operations, B&O Play, and Icepower are estimated to 2,666 mDKK, 535 mDKK, and 600 mDKK respectively. The DCF values are supported by the results of a multiples valuation. A financial analysis of B&O suggests that the company has had poor financial performance. This is caused by decreasing revenue and increasing depreciation and amortisation costs. B&O is facing tough market conditions, with capital intense competitors and consumers becoming more sensitive to prices. The company does not have the size to compete in the industry, which has experienced an increase in technological development. Furthermore, the company’s revenue is highly dependent on the global economy. It has been established that the global economy will improve in the coming years. However, B&O has not initiated any cost reduction initiatives. Thus, the ROIC is not expected to increase from the low level it is currently at. Despite tough conditions, B&O still has a strong brand name and a dedicated workforce. Furthermore, its products are considered to be attractive in terms of innovative design and quality. Thus, it is relevant to assess how the company can exploit these strengths to create shareholder value. On 31 March, 2015 B&O announced the sale of its Automotive division to Harman Industries, and initiated a potential sale of its Icepower division. The sale of Automotive resulted in an increase in shareholder value, as the stock price increased 33% following the Announcement. The value of the deal is estimated to be worth 1,755 mDKK in a base-case which is considered as a good deal for B&O. This is supported by academic studies suggesting acquisitions create more shareholder value for the acquired company than for the acquiring company. A SOTP valuation of 1 June 2015 indicates that B&O is worth more as the sum of all parts, than as a group. Thus, the company is traded at a conglomerate discount. Even though the theoretical basis of conglomerate discount is inconsistent, recent studies suggest that the phenomenon exists. A thorough assessment of possible M&A transactions for B&O indicates that the company should divest a business unit. This is supported by the theoretical basis that B&O may not be the best owner of all of its assets. An investigation of possible divestitures suggests B&O should divest the Icepower division. The acquirer of Icepower should ideally be a strategic acquirer rather than a financial acquirer. Thus, a strategic acquirer would be willing to pay a larger premium than a financial acquirer. This is caused by potential synergies a strategic acquirer could obtain, in contrast to a financial acquirer.

EducationsMSc in Finance and Accounting, (Graduate Programme) Final Thesis
Publication date2015
Number of pages170