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FIN B386 New Castle Finance for Business Financial Decision Making Worksheet

FIN B386 New Castle Finance for Business Financial Decision Making Worksheet

Question Description

Read the following article ‘HK$1 billion for Tam’s noodles? Japan’s Toridoll has the appetite’.

HK$1 billion for Tam’s noodles? Japan’s Toridoll has the appetite Toridoll Holdings Corp, Japan’s biggest operator of noodle shops and eateries, said it will buy control of the Hong Kong company that operates Tam’s Yunnan Rice Noodles outlets in the city in a takeover valued at 15 billion yen (HK$1 billion). The takeover of Jointed-Heart Catering Holdings would give Toridoll an important foothold to expand into mainland China, part of the Kobe-based company’s aim to open 6,000 stores around the world by 2025, company spokesman Shunsuke Fukabori said. ‘The acquisition will help us accelerate expansion in the Hong Kong and Chinese mainland markets’, riding on the popularity of the TamJai brand of noodles, as the Yunnan noodles are called, Fukabori said in an interview with the South China Morning Post, without divulging the value of the takeover. Japan’s Nikkei estimated the price at 15 billion yen. The acquisition, which will be signed on Tuesday, was scheduled for completion in February 2018, after which Tam’s would operate ‘as usual’, Fukabori said. Toridoll, which has been listed since 2006, now operates 890 restaurants in Japan selling ramen, udon, yakitori and pasta, as well as 340 restaurants overseas. The company, with a market capitalisation of 125 billion yen (US$1.1 billion) as of Monday, has been on a buying spree to spur its global expansion to be among the world’s top 10 restaurant brands within 10 years.

Assignment File 15

It opened its first teriyaki restaurant in the Kenyan capital of Nairobi in March 2015 and followed up early last year with an acquisition of Utara 5 Food and Beverage, which operates the Boat Noodle eateries in Malaysia. Tam’s, established in the ’90s, is well known for its Yunnan-style rice noodles and expanded its business in recent years to 49 outlets in Hong Kong, including the core districts of Causeway Bay and Wan Chai. The company has had close ties with Japan, having taken part in World Vision’s relief work to raise funds to aid Japan’s 2011 earthquake and tsunami victims. The founder’s son, Eric Tam Chun-pong, was there in person at Tam’s Mong Kok outlet to serve customers. An acquisition of Tam’s was a reasonable step for Toridoll ‘as the spicy taste of Tam’s Yunnan noodles is very easily acceptable’ in mainland China and Southeast Asia, said Victor Au, chief operating officer at Delta Asia Securities. Still, it might be paying a premium price for its growth, Au said. ‘The valuation of HK$1 billion is expensive compared with its competitors,’ he said. Ajisen (China) Holdings, which operates as many as 650 noodle restaurants in Hong Kong and mainland China, has a market value of HK$3.6 billion, about four times that of Tam’s but with 13 times the branch network.

Source: Chen C, & Zhen S (2017) ‘HK$1 billion for Tam’s noodles? Japan’s Toridoll has the appetite’, South China Morning Post, 15 May.

Answer the following question.

Question 1 (60 marks) Critically appraise the above news article and submit a written report. The report should focus on the listed firm(s) with publicly available financial information, and relate to the topic on mergers and restructuring. Write no more than 500 words (please provide a word count). The report should cover knowledge of theories, analysis of concepts, company background, issues and recommendation, research evidence and the organization’s efforts.

Question 2 (40 marks) Suppose you are the assistant treasurer of a tractor manufacturing company in United States. Today is 10 July 2020 and your firm is going to receive a payment of AUD1,638,000 from your Australian customer in exactly three months’ time for the tractors your firm sold to him. The treasurer of your company, Zoe Lee, who is also your boss, is concerned that the Australian dollar exchange rate might fall between now and October and would like to lock in the value of this future income today. This morning you have asked OUHK Bank to provide following currency data to you:

10 July 2020 Currency Forwards Currency Spot 1-month 3-month 6-month EUR/USD 1.3043 1.3045 1.3048 1.3055 AUD/USD 0.9066 0.9046 0.9008 0.8954 GBP/USD 1.5109 1.5106 1.5100 1.5092

a Demonstrate how you would use a currency forwards contract to hedge the risk exposure. Calculate the value, in term of USD, which your firm would effectively lock in based on the above currency quotations. (7 marks) b Suppose that three months later the spot rate becomes AUD/USD0.9108. Work out the profit or loss on your forward contract position. (4 marks) c Compare the original exchange rate of AUD/USD0.9066 with the three-month-later spot rate of AUD/USD0.9108 and analyse any gain or loss of funds in terms of US dollars. (4 marks) d With the results in parts (a) to (c), explain how the forward contract has eliminated the firm’s exposure to the fluctuation in the Australian dollar exchange rate. (10 marks) e Explore any alternatives other than currency forwards. Discuss your recommendations. (15 marks)

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