Premium for Control – Corporate Finance or Voodoo Valuation?
International News and Media’s offer (in partnership with private equity firms Providence Equity Partners and the Carlye Group) of $6.20 per share for APN has been been deemed fair and reasonable in an independent valuation report provided by Deloitte Corporate Finance (full report). Deloitte has undertaken a detailed analysis of the media industry, evaluated each of APN’s business units, considered comparable companies and transactions in an effort to determine a value for APN. Deloitte conclude their analysis by applying an arbitrary 20% premium for control to their valuation. This is a common but flawed practice that Valuecruncher has addressed previously. Aswath Damodaran from the Stern School of Business at New York University has published an excellent paper on the value of control in which he concludes “The value of control in a firm should lie in being able to run that firm differently and better. Consequently, the value of control should be greater in poorly performing firms, where the primary reason for the poor performance is the management.”. Does the control premium applied by Deloittes imply that a new management team could increase the value of APN by 20%? Interesting considering International News and Media currently own 40% of APN.