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Sonia

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Submitted By soniazahid
Words 1288
Pages 6
Sonia Zahid
Case 43
October 28, 2015
American Greetings
Should American Greetings Repurchase its Shares?

1. Is 3.5x multiple appropriate for American Greetings? If not, what multiple of EBITDA to think is justified?
Based on the information provided, I believe that the EBITDA Multiple of 3.5x is not justified.
EBITDA Mutiple (or EV/EBITDA) is a better measure than P/E ratio because it is not affected by the changes in capital structure between debt and equity. And for this reason it also makes fair comparison to companies with different capital structures. It is also a pre-tax metric making it easier to compare across different companies preferably in the same industry. This metric is preferred over P/E ratio since it is not affected by mix of capital structure. It is also a better measure of the company’s takeover value. EBITDA Multiple is calculated:
Enterprise Value/EBITDA =MV of Equity +MV of Debt – Cash/EBITDA
=($920.38mill - $172mill)/$200.58mill
EBITDA Multiple =3.73x (close to 3.5x)

The reason why I do not feel is justified is based off of the projections, the implied enterprise value is $1.563mill. So the revised calculation would be: ($1.563mill - $172mill)/$200.58mill
=6.93x The company has the ability to generate more returns on the investment than the current EBITDA multiple indicates.

EBITDA Multiple for some of the industry competitors are calculated as follows based on given data: Comparable Firms (End of 2011, Millions Except Share Price)
Shares
Share Price Outstanding
American Greetings
Blyth
Central Garden & Pet
Consolidated Graphics
CSS Industries
Deluxe
Fossil
Lancaster Colony
McCormick & Company
McGraw-Hill
Meredith
RR Donnelley & Sons
Scholastic
Scotts Miracle-Gro
Tupperware Brands

12.51
56.80
8.16
48.28
19.92
22.76
79.36
69.34
50.42
44.97
32.65
14.43
29.97
46.69
55.97

38.32
8.22
48.04
10.24
9.73
50.93
61.79
27.26
133.05
278.00
44.79

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