Case Study Flexics Prof. Ian Giddy, New York University Flexics, Inc., is a lead

Question

Case Study Flexics Prof. Ian Giddy, New York University Flexics, Inc., is a leading producer of plasma technology display devices in the USA. One of the company's latest innovations is a patented process that permits the rapid production of customized semiconductor wafers using plasma-based etching technology instead of quartz plates. Flexics, based in Seattle, started business in 1987 and now has production facilities in Vancouver and a research affiliate in Princeton, New Jersey. In mid 2003 Alex Pereira, the founder and CEO of Flexics, was considering options for realization of the value of his shareholding in Flexics. Pereira was seeking a method that would offer greater liquidity and diversification of his and his family's investment in the company. One option was to talk to investment bankers about an initial public offering (IPO). This would allow him to sell some or all of his shares in the market. But he was unhappy about the IPO market, which was weaker than in 2001 when bankers had talked about an IPO price in the $40-45 range. In the past year, public offerings of similar technology companies had brought price/earnings ratios of about 15. A recent private placement of Flexics shares with a venture capital investor had been done at an effective price of $24 per share. Another possibility was to sell his shares to Photronics, which was rumored to be interested in buying a stake in Flexics. Among the other options he was considering was a leveraged buy-out by management. Pereira liked the idea of giving key officers a greater stake and control, but he wanted to get a good price for his shares. He was willing to receive payment partly in cash, and partly in the form of a $30 million, 15% prepayable subordinated note. Management had discussed the LBO possibility with Seattle Partners, a venture capital firm that was familiar with Flexics. The firm's advisors had calculated that of the minimum amount of $216 million needed for the LBO, $20 million would have to come from managment, as much as $120 million could be raised through a senior debt issuance led by Bank of America, and the remainder from a private equity group led by Seattle Partners. B of A indicated the rate would be 12% and that lenders would need a Net Operating Income/Interest Expense ratio of at lease 2x. At this time 35% of the 9 million shares outstanding were held by the founder and his family, and the remainder was held by venture capital and private equity groups. Net operating income was $30 million. Other key indicators are listed below. Balance sheet Cash Other current assets Long term assets, net Total assets Noninterest bearing short term debt Short term debt (10%) Senior long-term debt Subordinated debt Equity Total Liabilities & Equity ($ millions) 50 100 120 270 60 10 0 0 200 270 Interest Coverage Net Operating Income Interest Expense - Short term debt - Senior long term debt - Subordinated debt Total NOI/Interest expense Effective tax rate Depreciation 30 1 0 0 1 30 30% $20 million Photronics, the global leader in photomask production, was considering making an offer for Flexics. The latter's shares were trading at a P/E of 10.6 on earnings of $2.26 per share, far below Photronics' estmated P/E of 18. Based on past performance the company was expected to generate free cash flows of $2.57 per share next year, an increase of 3.6% from the current level of $2.48. If Photronics acquired Flexics, they estimated that the long-run EPS growth rate could be raised to 5.5%, but Photronics would incur upfront capital investments and other costs of $18 million. The Treasury bond yield was 4.5%, the company

Explanation / Answer

Posters rating is not 100%. Hence Pl dont answer this post as this person has been irresponsible in rating answers. So he don't deserve any solutions here. First make him rate all pending posts truthfully & also pledge that he will rate all answers within 2 days to be eligible for help from Educators & others. Till such time, just ignore all posts where rating is not 100%. This will make Cramster a better forum to contribute. Amen...

Related Questions

Navigate

• Browse (All)
• Browse C
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.