Question

You have been asked to value Ajax Corporation, a firm with significant cross holdings in other companies and a large cash balance. You have valued the operating assets of the firm, using the operating income from consolidated financial statements, at $1,000M. Consider the following, and estimate the value per share.

• Ajax has marketable securities of $150M, invested in commercial paper.

• Ajax has a dozen minority, passive cross holdings in software firms. The book value of the equity in these investments is $80M, but the typical price to book ratio at these firms is 2.5.

• Ajax owns 64% of Comet Leasing, an equipment-leasing firm, which it has fully consolidated into its own financials. The minority interest is shown at $120M on the balance sheet, but equipment leasing companies typically trade at two times book value.

• Ajax has debt with a market value of $400M.

• There are 4 million management options outstanding with an estimated dilution-adjusted value of $15 per option.

• There are 20 million shares of common equity outstanding.

Answer 1

Please see the table below. Please follow the calculations sequentially. Please be guided by the sign [+] / [-] at the beginning of each row. All financials are in $ M except number of shares that is stated in million and value of share which is stated in $ / share. The cells highlighted in yellow contain your answers.

Parameter	Linkage	$ M
Value of the operating assets		1000
[+] Value of the marketable securities		150
[+] value of the cross holding	2.5 x 80	200
[-] Value of minority holding	2 x 120	240
[-] Value of the debt		400
[-] Value of the option	4 mn x $ 15	60
Value of the common equity	A	650
Number of common shares (mn)	B	20
Value per share ($ / share)	A / B	32.50