The paper 'Intrinsic Valuation of David Jones Limited" is a good example of a finance and accounting case study. The takeover bid from the South African retailer Woolworths Holding Limited amounts to the value of $2.1 billion dollars. The bid tabled by the South African retailer at $4.00 per share is 25 percent above the last closing price of $3.19. In addition, it represents a multiple of 20.8 times of last year’ s earnings per share. Probably, this is one of the reasons why the David jones board of directors recommended the deal.
Importantly, the Australian retailer shareholders who owned shares before April 10th will be entitled to the interim dividends amounting to 10 cents per share. To avoid confusion among the shareholders, the South African retailer issued a statement stating that Woolworths Holdings Limited is not related to Australia’ s supermarket retailer Woolworths limited. Woolworths Holdings Limited owns 90 percent of Country Road Limited as well (Koller, Goedhart & Wessels 2010). The bid by Woolworths Holdings Limited to purchase David jones shares is a compelling proposal which represents a significant premium to not only the intrinsic value but also broker valuations as well as to the recent share prices.
The proposal is also an endorsement of David Jones future strategic direction plan and the management team as well. Myer holdings limited had earlier made a bid to purchase David jones but it was rejected by the board. The bid made by Myer was less than the one made by Woolworths Holdings Limited although it was made late 2013. However, the board felt that the bid did not represent the real value of David Jones Company and therefore knocked it down (Damodaran 2012). The discounted cash flow of David jones indicates that the projected intrinsic value is $2.94.
The share price of the company is $3.68. Therefore, the company's price to intrinsic value ratio is 1.3; the intrinsic value is according to the projected discounted cash flow. As such, the shareholders of David jones limited will have a premium of $0.32 ($4 - $3.68) per share. This is a good premium for the shareholders. It is even more than the interim dividends of 10 cents per share.
For the last three years of the David jones operations, the profitability and performance of the company have been deteriorating significantly. This has made the share performance in the securities market to shrink. As such, $4.00 for the company shares represents good value. The management has not been able to turn things up and improve profitability. The company has suffered from stiff competition from international firms which have set operations in Australia (Zaki & Mitchell 2011). However, this should not be the reason for the management not to turn things up.
The company has been in operations for more than three decades in the Australian market and therefore understands it well and better than the international competitors. The management should have formulated and implemented strategic plans for the company and this would have enabled it to beat the competition. Therefore, the management of the company is responsible for the dismal performance of David jones limited. Significantly, this will offer Woolworths Holdings Limited an opportunity to improve the company performance. Given the strong market performance of Woolworths Holdings Limited in the South African market, David Jones is a good opportunity for investment as Woolworths Holdings Limited has the capacity to turn it to a market leader in the Australian market (Tian 2011).
Damodaran, A., 2012, Investment valuation: Tools and techniques for determining the value of any asset: John Wiley & Sons.
Koller, T., Goedhart, M., & Wessels, D., 2010, Valuation: measuring and managing the value of companies (Vol. 499): John Wiley and Sons.
Maditinos, D., Chatzoudes, D., Tsairidis, C., & Theriou, G., 2011, the impact of intellectual capital on firms' market value and financial performance: Journal of intellectual capital, 12(1), 132-151.
Pies, I., Beckmann, M., & Hielscher, S., 2010, Value creation, management competencies, and global corporate citizenship: An ordonomic approach to business ethics in the age of globalization; Journal of Business Ethics, 94(2), 265-278.
Tian, X., 2011, the role of venture capital syndication in value creation for entrepreneurial firms: Review of Finance, rfr019.
Zaki, J., & Mitchell, J. P., 2011, Equitable decision making is associated with neural markers of intrinsic value: Proceedings of the National Academy of Sciences, 108(49), 19761-19766.