!""#$%#&'(#)*+$",
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3$45"*$+(6
The analyses and conclusions of Pershing Square Capital Management, L.P. ("Pershing Square") contained in this presentation are based on publicly available information. Pershing Square recognizes that there may be confidential information in the possession of the companies discussed in the presentation that could lead these companies to disagree with Pershing Square’s conclusions. This presentation and the information contained herein is not a recommendation or solicitation to buy or sell any securities.
The analyses provided may include certain statements, estimates and projections prepared with respect to, among other things, the historical and anticipated operating performance of the companies, access to capital markets and the values of assets and liabilities. Such statements, estimates, and projections reflect various assumptions by Pershing Square concerning anticipated results that are inherently subject to significant economic, competitive, and other uncertainties and contingencies and have been included solely for
illustrative purposes. No representations, express or implied, are made as to the accuracy or completeness of such statements, estimates or projections or with respect to any other materials herein. Actual results may vary materially from the estimates and projected results contained herein.
Funds managed by Pershing Square and its affiliates have invested in common stock of Family Dollar Stores Inc. (“FDO”). Pershing Square manages funds that are in the business of trading – buying and selling –
securities and financial instruments. It is possible that there will be developments in the future that cause Pershing Square to change its position regarding FDO. Pershing Square may buy, sell, cover or otherwise change the form of its investment in FDO for any reason. Pershing Square hereby disclaims any duty to provide any updates or changes to the analyses contained here including, without limitation, the manner or type of any Pershing Square investment.
)*+$",#37""*6#
2 Ticker: FDO Stock Price: $54 Market Cap: ~$6.6B EV: ~$6.7B FY2012 P/E¹: 14x (August FY) ________________________________________________Note: ¹Pershing Square EPS esimtate of $3.88
4
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!"#$%&'()%%"*
!"#$%&'(#("
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.-/0/12
3/4
5 +,-...'/0)*1/ 5 +,2'/1%%$34'/5'60' 71*'83$0 5 9:;<.=/5'60'">4;' *130-'/?)*0@01*#' %1"/1/ 5 +A.B')6'/"%1/'$3' *8*"%')*'/#"%%' 0)C3'%)D"0$)3/ 5 +<<B')6'/"%1/' "*1'0)'E9F.2' $3D)#1' ?)8/1?)%G/ 5 +A:B'"*1')>1*' "41'F< 5 +A<B')6'/"%1/' "*1'D)3/8#"H%1/ 5 +IJB'?)#1' 7*)G8D0/ 5 +IIB'"77"*1% 5 +IIB'/1"/)3"% 5 K$4?'>1%)D$0&-' 4131*"%%&'3)3@ G$/D*10$)3"*&' LMN/ 5 O)C1*'7*$D1/' 0?"3'G*84'/0)*1/-' 4"/'/0"0$)3/-'"3G' 4*)D1*&'/0)*1/ 5 P)#7"*"H%1'0)' #"//'#1*D?"30/ 5 Q>4;'H"/210'$/' +9I.'"3G'F'0)'<' $01#/5
>*"9(#?67=74$&$7%@#?6$5(#*%A#B7%;(%$(%5(
Dollar stores offer pricing comparable to Wal-Mart in a more convenient format. Lower income customers use dollar stores as weekly fill-in trips between
supercenter destination shopping. The average FDO store visit is 8 minutes
Dollar stores offer pricing comparable to Wal-Mart in a more convenient format. Lower income customers use dollar stores as weekly fill-in trips between
supercenter destination shopping. The average FDO store visit is 8 minutes
Wal-Mart and dollar stores can coexist. Management believes FDO has ~3% share of their core customer’s wallet compared to WMT’s ~35% share
Wal-Mart and dollar stores can coexist. Management believes FDO has ~3% share of their core customer’s wallet compared to WMT’s ~35% share
Concept
Price Index
Store Size ('000)
Dollar Stores
100
7
Drug Stores
~120
40
Grocers
~115
40
6
C'*6(#D*$%#$%#E(&*$"#
High unit and same store sales growth have led to significant share gains for the dollar store channel
High unit and same store sales growth have led to significant share gains for the dollar store channel
________________________________________________
Source: Bernstein, 2009
R1D1//$)3
?9F"$5#37""*6#C&76(4#C'*6(#7G#B76(#E(&*$"#C*"(4#HE7""$%I#JK#!;ILM
R1D1//$)3
0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% 9.0% 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 7
B7%4$4&(%&#C*+(#C&76(#C*"(4#D67<&'
Family Dollar, like other dollar store retailers, has consistently grown SSS over the last decade even during recessions
Family Dollar, like other dollar store retailers, has consistently grown SSS over the last decade even during recessions
C*+(#C&76(#C*"(4#D67<&'
________________________________________________
Note: Years are Fiscal Year Ending August
8
C*"(4#-$N
Consumables make up a growing percentage of Family Dollar’s sales volume. Growth in consumables is responsible for most of FDO’s recent traffic and same-store sales growth
Consumables make up a growing percentage of Family Dollar’s sales volume. Growth in consumables is responsible for most of FDO’s recent traffic and same-store sales growth
B7%49+*F"(4#C*"(4#-$N C*"(4#F,#B*&(I76, 57.0% 59.0% 61.0% 63.0% 65.0% 67.0% 2007 2008 2009 2010 Home Products, 13% Apparel and Accessories, 11% Seasonal & Electronics, 11% Consumables, 65%
9
C9F4&*%&$*"#O7%IPQ(6+#D67<&'#:==76&9%$&,
The three major dollar store retail chains (Family Dollar, Dollar General, Dollar Tree) operate ~20k units today. We believe there is room for 10k to 12k
additional stores¹ or a decade of store growth at the current industry build rate
The three major dollar store retail chains (Family Dollar, Dollar General, Dollar Tree) operate ~20k units today. We believe there is room for 10k to 12k
additional stores¹ or a decade of store growth at the current industry build rate
________________________________________________
Source: ¹For research see Morgan Stanley, 2010; Bernstein, 2009; Dollar General management comments Map: UBS, 2010
R$I'#E*&(4#7G#E(&96%#7%#
B*=$&*"
0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 11
R$4&76$5*"#E(&96%4#7%#B*=$&*"
Family Dollar has a strong track record of earning high returns on capital
Family Dollar has a strong track record of earning high returns on capital
S.B'Q>4;
________________________________________________
Note: Years are Fiscal Year Ending August
ROIC Defined as: (Taxed EBIT)/Average (Assets – Cash – A/P – Accrued Expenses)
?(65(%&#E(&96%#7%#B*=$&*"#H<$&'79*=$&*"$S$%I#"(*4(4M
12
C'*6('7"A(6P:6$(%&(A#B*=$&*"#!""75*&$7%#C&6*&(I,
!
New Store Growth (~$60mm Capex, ~$15mm SG&A):
!
300 new store openings and 80-100 store closings, 3% net growth
!
Long-term, management expects to grow store count 5-7% annually
!
Store Renovation Program (~$60mm Capex, ~$30mm SG&A):
!
Over 800 stores in FY2011
!
Going forward, management expects to renovate 1,000+ stores per year
!
Share Repurchases & Dividends:
!
Management has committed to buyback $750mm of shares by fall 2011
!
FDO raised its dividend this year to $.72/share ($85mm)
In FY2011, Family Dollar plans to invest $300-$350mm of capex and repurchase nearly $750mm of stock
In FY2011, Family Dollar plans to invest $300-$350mm of capex and repurchase nearly $750mm of stock
-2,500 5,000 7,500
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011E 2012E 2013E
# U n it s 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% % A n n u a l G ro w th 13
T(<#U%$&#D67<&'
New unit growth is accelerating after a pause that allowed management to
refocus on improving core operations. Management now believes that with the current model FDO can grow units 5-7% per year by FY2013
New unit growth is accelerating after a pause that allowed management to
refocus on improving core operations. Management now believes that with the current model FDO can grow units 5-7% per year by FY2013
QDD1%1*"0$34'0)' <B'@,B'4*)C0?
________________________________________________
Note: Years are Fiscal Year Ending August
14
T(<#U%$&#V57%7+$54#
New units are generally inexpensive to build and highly profitable. On average, units are 90% productive in their first year
New units are generally inexpensive to build and highly profitable. On average, units are 90% productive in their first year
Estimated New Store Investment
Capex $ 200,000
SG&A 50,000
Inventory, net 75,000
Estimated Investment $ 325,000
New Store Earnings Low High
Mature Revenue $ 1,200,000 $ 1,200,000 Estimated Mature 4-wall EBIT Margin 10.00% 15.00%
Estimated EBIT $ 120,000 $ 180,000
15
R$I'#E(&96%#7%#E(%7;*&$7%#B*=$&*"#
Management began an ambitious renovation program this year. While the
company has not disclosed detailed data, it has revealed that renovated stores achieve at least a 10% sales lift
Management began an ambitious renovation program this year. While the
company has not disclosed detailed data, it has revealed that renovated stores achieve at least a 10% sales lift
FDO plans to renovate 6,000 stores
FDO plans to renovate 6,000 stores
O)C1*'0?"3' D)#7"3&'">1*"41' TJ<;,BU'0)'"DD)830'
6)*'$3D*1"/1G' D)3/8#"H%1/'#$V
Renovation ROIC Estimate
Capex $ 77,000
SG&A 38,000
Estimated Investment $ 115,000
Low Mid High
Base Store Sales $ 1,200,000 $ 1,200,000 $ 1,200,000
Sales Lift % 10.00% 12.50% 15.00%
Incremental Gross Margin 30.00% 30.00% 30.00%
Estimated Incremental EBIT 36,000 45,000 54,000
)*+$",#37""*6#;4L#37""*6#D(%(6*"
In many ways, Family Dollar and Dollar General are very similar companies:
In many ways, Family Dollar and Dollar General are very similar companies:
!
Number of Stores
!
Sales per Store
!
Size of Average Store
!
Consumables Mix
!
Properties
Despite these similarities, the two business’ performance has diverged…
Despite these similarities, the two business’ performance has diverged…
+,-... +W-<.. +9I;S## +9I;F## +,2'/560 +,2'/560 A<B ,SB O1"/1G-' X)/0%&'*8*"%' Y'/8H8*H"3 O1"/1G-' X)/0%&'*8*"%' Y'/8H8*H"3
18
)*+$",#37""*6#;4L#37""*6#D(%(6*"#HB7%&LM
For many years, the two companies had very similar performance:
For many years, the two companies had very similar performance:
________________________________________________
Note: Family Dollar results are calendarized to year end Feb.
V8WQ#=(6#4X9*6(#G77&# $-$2.00 $4.00 $6.00 $8.00 $10.00 $12.00 $14.00 2000 2001 2002 2003 2004 2005 2006 Dollar General Family Dollar
$-$5.00 $10.00 $15.00 $20.00 $25.00 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Dollar General Family Dollar 19
)*+$",#37""*6#;4L#37""*6#D(%(6*"#HB7%&LM
In July 2007, KKR bought Dollar General. Less than four years later, let’s compare the two companies:
In July 2007, KKR bought Dollar General. Less than four years later, let’s compare the two companies:
V8WQ#=(6#4X9*6(#G77&#
________________________________________________
Note: Family Dollar results are calendarized to year end Feb.
MMR'Z8&)80' [8%&'S..,
$-$5.00 $10.00 $15.00 $20.00 $25.00 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Dollar General Family Dollar 20
!%A#&'(#Y$%%(6#$4@#37""*6#D(%(6*"
V8WQ#=(6#4X9*6(#G77&# ________________________________________________Note: Family Dollar results are calendarized to year end Feb.
MMR'Z8&)80' [8%&'S..,
J,B' \1*6)*#"3D1'
]"7
5.0% 6.0% 7.0% 8.0% 9.0% 10.0% 11.0% 2003 2010
Dollar General Family Dollar
$100 $120 $140 $160 $180 $200 $220 2003 2010
Dollar General Family Dollar
21
?67A95&$;$&,#D*=#
Family Dollar’s lower profitability is a result of both lower sales per square foot growth and lower margins
Family Dollar’s lower profitability is a result of both lower sales per square foot growth and lower margins
________________________________________________
Note: 2003 Family Dollar results are calendarized year end Feb. 2004
!(^':B'%)C1* !(^'I<B'%)C1* !(^',.H7/'?$4?1* !(^'S<.H7/'%)C1*
Sales Per Square Foot EBIT Margin
(] !(^ (] !(^ (] !(^ (] !(^
0.00% 2.00% 4.00% 6.00% 8.00% 10.00% 12.00% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Dollar General Family Dollar 22
E("*&$;(#-*6I$%#Q6(%A4
Under KKR’s ownership, Dollar General has dramatically improved margins
Under KKR’s ownership, Dollar General has dramatically improved margins
V8WQ#-*6I$%
________________________________________________
Note: Family Dollar results are calendarized to year end Feb.
MMR'Z8&)80' [8%&'S..,
0.00% 1.00% 2.00% 3.00% 4.00% 5.00% 6.00% 7.00% 8.00% 9.00% 10.00% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Dollar General Family Dollar 23
E("*&$;(#C*"(4#Q6(%A4
After years of similar SSS results, since the KKR deal, Dollar General has grown at a much faster rate than Family Dollar
After years of similar SSS results, since the KKR deal, Dollar General has grown at a much faster rate than Family Dollar
C*+(#C&76(#C*"(4
________________________________________________
Note: Family Dollar results are calendarized to year end Feb.
MMR'Z8&)80' [8%&'S..,
24
37""*6#D(%(6*"#?74&#ZZE
Despite similar sales mix, geography, unit count, and store size:
Dollar General has
-Despite similar sales mix, geography, unit count, and store size:
Dollar General has
-!
Higher sales per square foot
!
Higher margins
-*%*I(+(%&#$4#Y76[$%I#&7#
B"74(#&'(#D*=
26
)3:#$4#?"*,$%I#B*&5'#U=
FDO has launched gross margin enhancement initiatives that are similar to the ones DG has successfully implemented
FDO has launched gross margin enhancement initiatives that are similar to the ones DG has successfully implemented
!
Private Label Penetration
! Dollar General’s consumable private label penetration is ~22% ! Family Dollar’s consumable private label penetration is ~14% ! Family Dollar’s goal is to get to 20%
!
Global Sourcing
! Bypassing a broker and directly sourcing unlabeled and private labeled goods can offer 1,000bps to 1,500bps of margin improvement
! Currently, only 9% of FDO’s goods are directly imported. We believe this number could approach 15% in the future
!
Improved Pricing
! FDO recently implemented sophisticated pricing software allowing management to better manage regional pricing zones and elasticity data
27
)3:#$4#?"*,$%I#B*&5'#U=#H57%&ML
We estimate FDO will benefit significantly from its gross margin initiatives
We estimate FDO will benefit significantly from its gross margin initiatives
FDO’s substantial gross margin opportunity and high percentage of sales in low-priced necessities, provide a margin of safety against commodities inflation
Estimated Gap
2010 Potential
Global Sourcing 9% 15%
Private Label - Consumables 14% 20%
Estimated Margin Improvement
% of Sales Delta Total Global Sourcing 6% 1250 bps 75 bps Private Label - Consumables 4% 1250 bps 50 bps
Shrink, Pricing 100 bps
Offsets - Private label reinvestment, inflation, mix ?
Total <225 bps
________________________________________________
28
CD\!@#R$I'",#O(;(6*I(*F"(
Two thirds of Family Dollar’s SG&A expense is composed of occupancy and store payroll costs, which are highly leverageable. Management believes core SG&A costs, excluding growth initiatives, will grow modestly at 2 to 3% per year
Two thirds of Family Dollar’s SG&A expense is composed of occupancy and store payroll costs, which are highly leverageable. Management believes core SG&A costs, excluding growth initiatives, will grow modestly at 2 to 3% per year L]YQ'$3D%8G1/'+9F<##' T+<.H7/')6'/"%1/U')6' *13)>"0$)3'"3G'31C'/0)*1' 7*1@)713$34'1V713/1' CD\!#B7+=74$&$7%#H)]#.11^M#
29
C*"(4#D67<&'#:==76&9%$&,
Family Dollar has several initiatives in place to support management’s 4-6% medium-term SSS growth guidance
Family Dollar has several initiatives in place to support management’s 4-6% medium-term SSS growth guidance
!
Expanded hours
!
FDO completed its expanded hours rollout Q2 FY2010
!
New store growth and renovations
!
Could contribute 1.5% to 2.0% SSS at the current build rate
"New stores can contribute a ~10% comp in the second year
"Renovated stores are growing SSS at a double digit rate
!
New fixtures to support continued consumables growth
!
FDO’s consumable mix trails DG by ~700bps
!
Managing to lower stock outs
31
)3:#C'*6(4#*6(#B'(*=
!
Stable, secular sales
growth
!
The opportunity to invest in
an existing store base at
high rates of return
!
10+ years of high return
new unit growth
What you get What you pay
!
The option that FDO closes
a large productivity gap
with its closest competitor,
Dollar General
!
A modest forward multiple
on consensus numbers
(7.6% EBIT margin)
!
14.7x FY2012 EPS
………
(August)
!
Nothing – FDO trades at
nearly the same consensus
forward EBIT multiple as
DG (~9x), a company with
similar growth prospects,
excluding the productivity
gap
DG FDO % Diff '12 EPS
FY 2012 Sales/sqft $ 210 $ 180 17% $ 0.65
FY 2012 EBIT Margin 10.5% 7.6% 38% 1.46
EBIT/sqft $ 22.05 $ 13.65 62% $ 2.36
FY 2012 EPS - Consensus $ 3.68
FY 2012 EPS - Pro Forma $ 6.03
Price at 15x EPS (Including 1.5yrs of dividends) $ 92
% Return 70%
32
Y'*&#W4#&'(#?67A95&$;$&,#D*=#:==76&9%$&,#Y76&'_#
________________________________________________
Note: Estimates for DG are FY ending Jan. 2013, and for FDO FY ending Aug. 2012
P)3/13/8/
If Family Dollar’s square footage were as productive as Dollar General’s, the company would earn ~$6 of EPS and be worth ~$90 per share at a 15x P/E
If Family Dollar’s square footage were as productive as Dollar General’s, the company would earn ~$6 of EPS and be worth ~$90 per share at a 15x P/E
% of DG Profit Gap Closed
FDO 2012 EBIT Build 0% 50% 100%
2012 Selling Sqft (mm) 51 51 51
Sales/sqft $ 180 $ 195 $ 210
EBIT Margin 7.6% 9.1% 10.5%
Pro Forma FY 2012 EBIT $ 692 $ 893 $ 1,118
Pro Forma FY 2012 EPS $ 3.68 $ 4.79 $ 6.03
2012 P/E 14.7x 11.3x 8.9x Price @ 15x EPS $ 56 $ 73 $ 92 % Return 4% 35% 70% 33
Y'*&#$G#)3:#7%",#?*6&",#B"74(4#&'(#D*=_#
________________________________________________Note: Estimates for DG are FY ending Jan. 2013, and for FDO FY ending Aug. 2012 Price includes 1.5yr of dividends
$20 $25 $30 $35 $40 $45 $50 $55 $60 1/4/2010 4/4/2010 7/4/2010 10/4/2010 1/4/2011 4/4/2011 35
)3:#$4#U%A(6#?6(4496(#&7#?(6G76+
JCP shares are down 75% since early 2007. At this point, cash on balance sheetDisappointing first quarter results and the rejection of Trian’s $55 - $60 per
share offer have raised shareholder’s performance expectations
Disappointing first quarter results and the rejection of Trian’s $55 - $60 per share offer have raised shareholder’s performance expectations
R$4&76$5*" C&75[#?6$5( _*$"3'!$%1/'IJ@( _*$"3'#"21/'"'?)/0$%1' )661*'H10C113'9<<'@ 9A. _*$"3'6$%1/'"'%1001*' 8*4$34'#"3"41#130'0)' "DD170'$0/')661*')*' D)##$0'0)'D%)/$34'0?1' 71*6)*#"3D1'4"7'C$0?' ()%%"*']131*"% Z)"*G'*1`1D0/' _*$"3a/ )661*' X"3"41#130'' *17)*0/'bI'1"*3$34/' "3G'*1G8D1/'0)7'13G' )6'!cS.II'48$G"3D1
36
)*+$",#37""*6`4#C'*6('7"A(6#8*4(#$4#B'*%I$%I
Since Trian’s February 15th bid, the shareholder base has changed to more
opportunistic investors:
Since Trian’s February 15th bid, the shareholder base has changed to more
opportunistic investors: \1*/?$34'L58"*1' 78*D?"/1G'$0/'7)/$0$)3' /0"*0$34'$3'!1H*8"*&'"0' 7*$D1/'H10C113'9FJ'"3G' 9<F'
FDO has implemented a poison pill at 9.9% that expires on March 2, 2012.
FDO has implemented a poison pill at 9.9% that expires on March 2, 2012.
________________________________________________
Note: Pershing Shares as of May 24, 2011
Holder Name Shares Held % Of Company
Change Since 12/31/10
TRIAN FUNDS 9,966 8.2% 1,130
HOWARD LEVINE (CEO) 9,691 7.9% 0
PERSHING SQUARE CAPITAL MGMT 8,369 6.9% 8,369
VANGUARD GROUP INC 6,725 5.5% 36
BANK OF AMERICA CORP 5,654 4.6% (498)
LONE PINE CAPITAL 5,633 4.6% 900
FRANKLIN RESOURCES 5,288 4.3% 208
STATE STREET CORP 4,661 3.8% (167)
CREDIT SUISSE AG 4,657 3.8% 489
PAULSON & CO 3,455 2.8% 3,455
BLACKROCK 3,272 2.7% 228
INTECH INVESTMENT 3,164 2.6% 824
ADAGE CAPITAL 2,448 2.0% (970)
BANK OF NEW YORK 2,248 1.8% 528
YORK CAPITAL MANAGEMENT 1,962 1.6% 1,962
ETON PARK CAPITAL 1,782 1.5% 1,782
RENAISSANCE TECHNOLOGY 1,782 1.5% (602)
D E SHAW & COMPANY 1,476 1.2% (1,248)
37
Q'(6(#*6(#-9"&$="(#Y*,4#&7#!5'$(;(#)9""#>*"9(@
!
Current management
!
Operational Opportunity
"
Margin improvement initiatives and renovation program
!
Capital Structure Opportunity
"
FDO remains under leveraged. A leveraged buy back would
create meaningful value for shareholders
!
Sale of the company
!
Strategic Buyer
"
Another retailer would bring synergies to the combined company
and possibly accelerate the closing of the productivity gap
!
Financial Buyer
"
A private equity firm could optimize the capital structure and work
with management to improve the business
Leveraged Buy Back Accretion Analysis:
Incremental Debt Raised ($mm) $ 1,000 $ 1,500 $ 2,000 Base EPS: Consensus
FY2012 EPS $ 3.91 $ 4.04 $ 4.19
Accretion $ 0.23 $ 0.37 $ 0.51
Value per share at 14x EPS $ 55 $ 57 $ 59 Base EPS: Pro Forma Closing 50% of Productivity Gap
FY2012 EPS $ 5.22 $ 5.47 $ 5.76
Accretion $ 0.42 $ 0.68 $ 0.96
Value per share at 14x EPS $ 73 $ 77 $ 81 Assumptions:
Incremental Debt Raised $ 1,000 $ 1,500 $ 2,000
Total Net Debt (End FY2011) 1,385 1,885 2,385
Net Debt/EBITDAR 3.8x 4.2x 4.6x
Assumed Cost of Total Debt (Gross) 5.6% 5.9% 6.1%
38
R7<#!556(&$;(#Y79"A#*#O(;(6*I(A#89,#8*5[#F(_#
If FDO raised an incremental $1.5bn of debt, bought back stock at $60, and closed only half the productivity gap, the company would earn ~$5.50 of 2012 EPS and trade in the high $70s at a 14x P/E
If FDO raised an incremental $1.5bn of debt, bought back stock at $60, and closed only half the productivity gap, the company would earn ~$5.50 of 2012 EPS and trade in the high $70s at a 14x P/E
Trian has sourced $5bn dollars of debt financing for their proposed deal
Low Mid High
Credit for Productivity Gap (% of total) 25% 50% 75%
$ Value per share @15x EPS $ 9 $ 18 $ 27
Reduction in Overhead 20.0% 30.0% 40.0%
% Shared with Seller 50.0% 50.0% 50.0%
$ Value per share @15x EPS $ 3 $ 5 $ 6
Gross Margin Expansion 0.5% 1.0% 1.5%
% Shared with Seller 50.0% 50.0% 50.0%
$ Value per share @15x EPS $ 2 $ 4 $ 6
Total $ Premium to Market $ 14 $ 26 $ 38
% Premium to Market 26% 48% 71%
Implied Takeout Price $ 68 $ 80 $ 92
39
Y'*&#B79"A#*#C&6*&(I$5#89,(6#?*,_
A strategic buyer could justifiably pay a ~50% premium to market
A strategic buyer could justifiably pay a ~50% premium to market
+I<B')6'L]YQ'$/' D)*7)*"01'1V713/1/;' ($/0*$H80$)3'1V713/1'$/' "%/)'"'7)0130$"%'/)8*D1' )6'L]YQ'/&31*4& \)//$H%1'P^]L' /&31*4$1/'$3D%8G1d' D)3/)%$G"0$34'G$*1D0' /)8*D$34')71*"0$)3/-' 7*$>"01'%"H1%'H*"3G/-' "3G'3"0$)3"%'H*"3G' H8&1*'7)C1*
40
)$%*%5$*"#C=7%476`4#V57%7+$54#
A financial buyer could pay 40% to 55% above the current stock price and still earn a high teens to low 20s% rate of return over four years
A financial buyer could pay 40% to 55% above the current stock price and still earn a high teens to low 20s% rate of return over four years
Returns assume a 10% terminal EBIT margin, $230 sales sqft in 2015, and $5bn of leverage (7x FY2011 EBITDAR) at 7.5%
Returns assume a 10% terminal EBIT margin, $230 sales sqft in 2015, and $5bn of leverage (7x FY2011 EBITDAR) at 7.5%
IRR Sensitivity (2015 Exit)
Exit EBITDA Multiple (FY2016)
40.3%
7.0x
7.5x
8.0x
8.5x
67
$
9.5x
24%
27%
30%
33%
70
10.0x
21%
24%
26%
29%
74
10.5x
17%
20%
23%
26%
78
11.0x
15%
17%
20%
23%
81
11.5x
12%
15%
17%
20%
85
12.0x
10%
13%
15%
17%
88
12.5x
8%
10%
13%
15%
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Even if we’re wrong on both the value of the standalone operating opportunity and the transaction value, we believe shareholders will still make money owning FDO due to the company’s attractive growth opportunities and modest forward earnings multiple
Even if we’re wrong on both the value of the standalone operating opportunity and the transaction value, we believe shareholders will still make money owning FDO due to the company’s attractive growth opportunities and modest forward earnings multiple
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Decreasing Timing and Execution Risk ¹% of performance gap closed
