E&Y increases valuation for Cadbury India

Ernst & Young (E&Y) on Friday recommended Rs 2,014 per share for Cadbury India’s offer to purchase the remaining 2.42 per cent stake from its minority shareholders, 15 per cent higher than what it had suggested last year.

The independent valuer gave its latest valuation report to the Bombay high court on Friday. As directed by the court, E&Y had considered the discounted cash flow (DCF) method for valuing Cadbury India’s shares this time with September 30, 2009, as cut-off date.

In a DCF method, a valuer uses future free cash flow projections of a company and discounts these to arrive at a present value. Cadbury India’s minority shareholders were expecting a jump of at least 25 per cent over the chocolate maker’s last buyback offer of Rs 1,900 per share. The next hearing of the case will be on Monday.

A valuation report from JC Desai & Company, presented by minority shareholders in court, had recommended Rs 2,375 per share for Cadbury India shares, which included a 20 per cent exit premium.

In May 2010, E&Y had recommended Rs 1,743 per share for Cadbury India’s buyback offer, based on the comparable companies multiples method. This method involves evaluating the value of a company using the metrics of other businesses of similar size in the same industry.

In January this year, Cadbury India had sweetened its buyback offer and had agreed to pay Rs 1,900 per share to the 8,000 minority shareholders to settle the prolonged court battle. However, minority shareholders were not happy with this price and demanded the valuation be done based on DCF. UK-based Cadbury Plc, Cadbury India’s former parent, bought by Kraft Foods last year for $19.6 billion, wanted to buy back the remaining 2.42 per cent stake from minority shareholders of its Indian unit.

However, the latter was not happy with the company’s offer of Rs 1,340 per share and had approached the HC, which had appointed E&Y to revalue Cadbury India’s shares.