Question

The management of Mitchell Labs decided to go private in 2002 by buying all 2.40 million of its outstanding shares at $17.60 per share. By 2006, management had restructured the company by selling off the petroleum research division for $13.40 million, the fiber technology division for $8.30 million, and the synthetic products division for $24 million. Because these divisions had been only marginally profitable, Mitchell Labs is a stronger company after the restructuring. Mitchell is now able to concentrate exclusively on contract research and will generate earnings per share of $1.40 this year. Investment bankers have contacted the firm and indicated that if it reentered the public market, the 2.40 million shares it purchased to go private could now be reissued to the public at a P/E ratio of 10 times earnings per share.

a. What was the initial cost to Mitchell Labs to go private?

b. What is the total value to the company from (1) the proceeds of the divisions that were sold, as well as (2) the current value of the 2.40 million shares (based on current earnings and an anticipated P/E of 10)?

c. What is the percentage return to the management of Mitchell Labs from the restructuring? Use answers from parts a and b to determine this value.

Answer 1

- Answers Page: 0 the given information exploins about us to determine the following below. a) initial cost to mitchell labs to go private initial cost = 2,40 million x 14,60 =14'42.24 million b) total value to the company particulars Amounti Dproceeds & divisions sold by.company (13.4078:30424) 45.70 million | 1) Cruncat value of shores. (0.40 million xl. 40X10) 33.60 million 1 Total value to the company = 7 million +33,60 million 9.30 million Total value to the company = 1479.30 Cillion c) percentage return to the management profit o mitchell Labs from the suestructuring = 79. 30 million 42.24 milion percentage , = $ 37.06 million percentage selwin = (37.06 million 42.24 million) xioo = 0.8774 K100 ::= 87:74:12 Therefore percentage return = (87, 744