What Snapped At Quaker

Planning to adopt a value-based performance metric? regard it leave behind help you make smarter acquisition decisions? Okay, stack on this: If EVA is so smart, how come it didnt prevent EVA poster tiddler The exclusivelyy Oats Co. from making its disastrous $1.7 billion purchase of Snapple Beverages Co. in belatedly 1994--which it was forced to sell two years later(prenominal) for a mere $300 million? Answer: trembler didnt do EVA to calculate its $14-per-shargon offering price for Snapple. According to fraternity spokesman memorialise Dollins, Quaker uses a discounted cash flow posture to assess acquisitions and divestitures, and merely uses EVA as an incentive compensation tool. EVA does non state into account, in mergers and acquisitions, things such as market conditions, Dollins says. non surprisingly, throne Stewart & Co. says EVA is a wonderful tool for valuing acquisitions. Whether it had been an EVA analysis or a discounted cash flow or price-to-earni ngs analysis, its really the superannuated adage-- refuse in, garbage out, says low-spirited Stewart senior partner and co-founder G. Bennett Stewart III. It all depends on the assumptions.

To check out just how good well-nigh of the new metrics are at valuing acquisitions, we asked both Stern Stewart and HOLT Value Associates LP to calculate a fair value for Snapple at the time of its acquisition by Quaker, exploitation only selective information that was publicly available at that time. Stern Stewart declined, citing its former consulting family relationship with Quaker, but HOLT agreed to concent grade on the assig nment using its CFROI (cash flow return on i! nvestment) methodology. First, some background. In valuing a company whose CFROI is higher than average, HOLT assumes those returns result gradually fade toward the market norm because of competitive pressures. The rate of fade is determined in part by the irritability of the companys historic CFROI levels. Thats important because HOLTs paygrade methodology is based on projecting how the company will be performing (in name of its CFROI level and the...If you want to proceed a full essay, request it on our website: OrderCustomPaper.com

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