The Fojasek Companies and Heritage Partners

Case Talking points

Submitted by: Highest Bidders: Marc Brands, Hajime Tamachi, Nobuyasu Sugimoto,
Kunihiro Takahashi, and Yasuhisa Tsurumi

Value

As the management forecast is reasonable enough, we used it as the expected outcomes.

We calculated the NPV, (58 mil. Refer to the Exhibit-1) with using WACC derived from
industrial averages plus unlisted risk premium (5%).

Objective

There are several objectives in management decision. First, they prefer lower debt ratio to
keep their growth opportunities available. Second, they are willing to keep control of the
company. Other objectives are pressure for restructuring and inheritance tax issue.

Options

Buy-out:
Although a buyout group will value around $65 mil, which is higher than others, it
results in high debt ratio. Then, it will erase their growth opportunities with M&A. As
the growth possibilities are essential to their business, current shareholder’s value will
decrease in the long run. Therefore, they had better not to take Buy-out option.

Re-Cap:
Although this process prevents dilution of current shareholders perfectly, the problem
is that they are going to have a very high debt ratio. As they are to borrow to buy back
80% shares from non-active shareholders, their debt ratio will increase to 86%. In this
level, it is difficult to get financed from commercial bank.

Private IPO
Even though the proposal from investment bankers is unfavorable (51.7 mil.), this is
the only choice to realize the growth opportunities. This option also fit other
objectives: In case of management forecast, they can keep the control. On the other
hand in case of business trouble they can save the inheritance tax. Therefore, we
conclude this is the best choice.
Ex-1