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In the first quarter of 2006, Softbank Corp, a Japanese Internet company, disclosed that it entered into an agreement with Vodafone Group Plc for the purchase of its Japanese unit, Vodafone K.K. for ¥1.75 trillion. To materialize this, Softbank needs to raise around ¥1.2 trillion through leveraged-buyout ("LBO") financing. This would be the largest sum ever raised for a buyout by a single Japanese company.
Harvard Business Review (HKU793-PDF-ENG)
January 05, 2009
Case questions answered:
- Estimate the all-in cost of debt financing alternatives in terms of yen.
- 1What are the reasons for a company such as Softbank to acquire another company?
- What were Son’s motivations for Softbank’s acquisition of Vodafone KK?
- What could be the pros and cons of this deal for Softbank?
- Prepare Vodafone KK’s pro forma future cash flow statement for 2006–2008.
- Estimate the future exchange rates between the US dollar, British pound, and yen.
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Case answers for Softbank's New Strategy: The Largest LBO in Japan
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1. Estimate the all-in cost of debt financing alternatives in terms of yen.
To compute the all-in cost of debt financing alternatives in terms of yen, we first forecast the exchange rates for the next five years using the Purchasing Power Parity Formula found in Appendix II. The forecasted exchange rates are given below:
Next, we compute the cash flows for the next five years using the details provided in Appendix II and then get the IRR using the IRR formula in Excel. The computation is provided below…
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