New York Times
Review
The Journal of Finance
Lloyd's List, 4th November 2000
Product Description
"A ′how–to′ guide for corporate executives who want to get at the unrealized shareholder values trapped in public companies."
—New York Times
THE #1 guide TO CORPORATE VALUATION IS NOW BETTER THAN EVER!
"The book′s clarity and comprehensive coverage make it one ofthe best practitioners′ guides to valuation."
—Financial Times
"Should serve very well the professional manager who wants to do some serious thinking about what really does contribute value to his or her firm and why."
—The Journal of Finance
"Valuation is like a Swiss army knife . . . you will be prepared for just about any contingency."
—Martin H. Dubilier, Chairman of the Board, Clayton & Dubilier, Inc.
"This book on valuation represents fresh new thinking. The writing is clear and direct, combining the best academic principles with actual experience to arrive at value–increasing solutions."
—J. Fred Weston, cordner Professor of Money and Financial Markets, Graduate School of Management, UCLA
System Requirements:
Pentium II PC or greater
Windows 98 or later
128MB RAM
20MB Hard Disk Space
Excel 97 / 2000 (Alone or part of Office 97 / 2000) w/Report Manager & Analysis ToolPak installed and enabled.
(Note: Formulas & Computations are not guaranteed in later versions of Excel)
Video Display: 800 x 600 recommended
From the Inside Flap
In addition to all new case studies, Valuation now includes in–depth coverage on valuing dot.coms, cyclical companies, and companies in emerging markets, along with detailed instructions on how to drive value creation and apply real options to corporate valuation. Here is expert guidance that management and investment professionals and students alike have come to trust, including:
- Valuation′s acclaimed chapter devoted to insights into the strategic advantages of value–based management
- Strategies for multibusiness valuation, and valuation for corporate restructuring, mergers, and acquisitions
- International comparisons of the cost of capital, differences in accounting procedures, and how valuation works in different countries
- Detailed, actual case studies showing how valuation techniques and principles are applied
This timeless, respected book on valuation allows you to face the crossroads where corporate strategy and finance meet with more confidence and winning strategies than ever before.
McKinsey & Company, inc. is an international top management consulting firm. Founded in 1926, McKinsey & Company, Inc. advises leading companies around the world on issues of strategy, organization, and operations, and in specialized areas such as finance, information technology and the Internet, research and development, sales, marketing, manufacturing, and distribution.
Please visit us at www.WileyValuation.com
WileyValuation.com is a premier Web site devoted to all things valuation. At this unique online community for financial professionals, you will enjoy the following features:
- New information on valuation topics links to key valuation sites
- Valuation message boards and chats
- Downloadable valuation spreadsheets
From the Back Cover
"This book on valuation represents fresh new thinking. The writing is clear and direct, combining the best academic principles with actual experience to arrive at value–increasing solutions."
–J. Fred Weston, Cordner Professor of Money and Financial Markets, Graduate School of Management, UCLA
THE #1 GUIDE TO CORPORATE VALUATION IS NOW BETTER THAN EVER!
"A ′how–to′ guide for corporate executives who want to get at the unrealized shareholder values trapped in public companies."
–New York Times
Hailed by financial professionals, professors, and students worldwide as the single best guide of its kind, Valuation provides crucial insights into how to measure, manage, and maximize a company′s value. This long–awaited Third Edition has been comprehensively updated and expanded to reflect business conditions in today′s volatile global economy and to provide highly effective ways for managers at every level to create value for their companies.
In addition to all new case studies, Valuation now includes in–depth coverage on valuing dot.coms, cyclical companies, and companies in emerging markets, along with detailed instructions on how to drive value creation and apply real options to corporate valuation. Here is expert guidance that management and investment professionals and students alike have come to trust, including:
∗ Valuation′s acclaimed chapter devoted to insights into the strategic advantages of value–based management
∗ Strategies for multibusiness valuation, and valuation for corporate restructuring, mergers, and acquisitions
∗ International comparisons of the cost of capital, differences in accounting procedures, and how valuation works in different countries
∗ Detailed, actual case studies showing how valuation techniques and principles are applied
This timeless, respected book on valuation allows you to face the crossroads where corporate strategy and finance meet with more confidence and winning strategies than ever before.
Please visit us at www.WileyValuation.com
WileyValuation.com is a premier Web site devoted to all things valuation. At this unique online community for financial professionals, you will enjoy the following features:
∗ New information on valuation topics and links to key valuation sites
∗ Valuation message boards and chats
∗ Downloadable valuation spreadsheets
About the Author
McKinsey, & company, Inc., is an international top management consulting firm. Founded in 1926, McKinsey advises leading companies around the world on issues of strategy, organizations, and operations, and in specialized areas such as finance, information technology and the Internet, research and development, sales, marketing, manufacturing, and distribution.
Tom Copeland, a former partner of McKinsey & co., was co-leader of the firm's corporate finance practice. Before joining McKinsey, he was a professor of finance at UCLA's Anderson Graduate School of Management. He was also an adjunct professor at New York University and is currently senior lecturer at the Massachusetts Institute of Technology. Tom is co-author of two leading textbooks, Financial Theory and Corporate Policy and Management Finance. He is currently leader of a corporate finance practice. He received his PhD from the University of Pennsylvania and his MBA from Wharton.
Tim Koller is a partner at McKinsey & Co., and has been a co-leader of the firm's corporate finance practices in both the United States and Europe. He was formerly a vice-president at Stern Stewart & Co., a financial consulting firm. He received his MBA from the University of Chicago.
Jack Murrin co-founded and co-led McKinsey's corporate finance practice, serving as a partner in the firm's New York and London offices. He has subsequently held senior strategic and financial positions at leading companies, most recently as senior managing director and head of corporate development at Bankers Trust Corp. Jack, a certified public accountant holds an MBA from Stanford Business School.
Excerpted from Valuation by Tom Copeland, Tim Koller, Jack Murrin, McKinsey & Co.. Copyright © 2000. Reprinted by permission. All rights reserved
Why Value Value?
This book is about how to value companies and use information about valuation to make wiser business decisions. Underlying it is our basic belief that managers who focus on building shareholder value will create healthier companies than those who do not. We also think that healthier companies will, in turn, lead to stronger economies, higher living standards, and more career and business opportunities for individuals.
There has always been, and continues to be, vigorous debate on the importance of shareholder value relative to other measures such as employment, social responsibility, and the environment. The debate is often cast in terms of shareholder versus stakeholder. At least in ideology and legal frameworks, the United States and the United Kingdom have given the most weight to the idea that shareholders are the owners of the corporation, the board of directors is their representative and elected by them, and the objective function of the corporation is to maximize shareholder value.
In continental Europe, an explicitly broader view of the objectives of business organizations has long been more influential. In many cases, it has been incorporated into the governance structures of the corporation form of organization. Under Dutch law, for example, the board of a Structural N. V.--effectively a large corporation--is mandated to ensure the continuity of the business, not to represent shareholders in the pursuit of value maximization. Similar philosophies lay at the foundation of corporate governance in Germany and Scandinavia.
Our principal aim in this book is not to analyze, resolve, or even stoke the debate between shareholder and stakeholder models. However, we believe managers should focus on value creation for two reasons. First, in most developed countries, shareholder influence already dominates the agenda of top management. Second, shareholder-oriented economies appear to perform better than other economic systems and other stakeholders do not suffer at the hands of shareholders.
ASCENDANCY OF SHAREHOLDER VALUE
Early in 2000, Vodafone AirTouch acquired the German conglomerate Mannesmann, the first major hostile takeover of a German company by a non-German company. 1 This event signaled the broadening acceptance of the shareholder value model in Europe. It might now be argued that managers in most of the developed world must focus on building shareholder value. Four major factors have played a role in the ascendancy of shareholder value:
1.The emergence of an active market for corporate control in the 1980s, following the apparent inability of many management teams to respond effectively to major changes in their industries. 2.The growing importance of equity-based features in the pay packages of most senior executives in the United States and many in Europe as well. 3.The increased penetration of equity holdings as a percentage of household assets, following the strong performance of the U. S. and European equity markets since 1982. 4.The growing recognition that many social security systems, especially in continental Europe and Japan, are heading for insolvency.
The Market for Corporate Control
In 1982, the U. S. economy started to recover from a prolonged period of high inflation and low economic growth. Many industrial sectors required major restructuring. For example, the invention of the radial tire had more than doubled the effective life of tires, leading to huge overcapacity. Rather than eliminating excess capacity and taking cash out of the business, most major tire manufacturers continued investing heavily, setting themselves up for a rude awakening later in the decade.
At the same time, pension funds and insurance companies began to provide increasingly large pools of funds to new kinds of investors, principally leveraged buyout (LBO) groups such as Kohlberg, Kravis, and Roberts (KKR) and Clayton, Dubilier, and Rice. In 1981, of 2,328 mergers and acquisitions in the United States, 99 were in the form of leveraged buyouts. 2 By 1988, this number had climbed to 381, of a total of 4,049. Probably more important than the hard numbers was the perception of what was happening in the marketplace. The size of the leveraged buyouts had become huge, with the RJR-Nabisco transaction topping the charts at $31.4 billion. This was only four years after the first leveraged buyout exceeding $1 billion, KKR's purchase of the conglomerate Wometco in 1984. While many leveraged buyouts were friendly, the vehicle lent itself to hostile acquisitions as well. Indeed, the most visible hostile transactions in the late 1980s were LBOs, of which RJR-Nabisco was a leading example.
The structure of a leveraged buyout, combined with the emergence of high-yield bonds as a major funding instrument, put much of corporate America within range of hostile takeovers. Not surprisingly, companies that were not dealing effectively with major changes in their industry became targets. In the tire industry, BF Goodrich and UniRoyal were restructured on a friendly basis, but Goodyear and GenCorp (the owners of General Tire) came under attack.
This emergence of the market for corporate control provoked a backlash from established enterprises and their executives. By 1984, the Business Roundtable, an organization that represents the largest corporations in the United States, had already issued a working paper that supported the stakeholder view of corporate governance, largely echoing the prevalent point of view in Europe. By the end of the decade, an increasingly large and vocal opposition to the market for corporate control--as embodied by highly leveraged and hostile transactions--led to its curtailment, but only temporarily.
By the end of the 1990s, the buyout market was again hot, except this time most of the deals were friendly. Managers had learned the lessons of shareholder value and weren't waiting for hostile bidders. At the same time, the LBO had moved to Europe. Many European buyout groups were formed and American firms began to look for deals in Europe as well.
How do LBOs create value? The argument runs along these lines: Many mature, established industries that have been subject to hostile takeovers generate high levels of free cash flow...
