Del Monte Pacific

[white collar]

value per share can be derived from enterprise value directly, not equity value, with confidence that debt will be repaid. Using the 7x EV/EBITDA assumption, each share is worth 35 cents. At 9x EV/EBITDA, it is about 45 cents.

I do not understand how the above valuations are derived.

Based on pre-deal EBITDA of US$225m, 7x EV/EBITDA would give EV of US$1.58bn. However, there is net debt of US$1.86bn, yielding an equity value of negative US$284m, or minus S$0.20 per share.

Using 9x EV/EBITDA, the EV would be US$2.025bn. Subtracting net debt of US$1.86bn we get equity value of US$165m, or S$0.116 per share.

Remember that when you buy the shares you also get the debt. The only time the equity value of the shares is the same as the enterprise value is when net debt is zero i.e. no debt and no cash. Until the debt is actually repaid, you HAVE to take it into account.

I am quite enjoying this discussion so i am going to continue giving this a go 

Thank you d.o.g. 

I agree that your approach is correct and very sound. But we are just looking at it from two different approaches. I am valuing it in similar form to the P/E approach where I am looking it from an entire firm value standpoint rather than from just the pure equity holders'. This essentially is one of the key weaknesses of P/E ratio but yet it is a common metric used for valuation. The big assumption taken here of course is that the company will continue as a going concern and is able to repay its debt overtime, granted this is the main concern for all buddies here.