"... a CVD, Chief Value Destroyer" — Dan Loeb
[1] Nestlé. What a great story (*). This is exactly what we discussed in the Summer I course on Security Analysis BSF313—how companies can enhance their own value to make themselves less attractive to potential predators. (We used Prof. Damodaran's book and his excellent VIDEO on the topic). Just days after activist hedge fund manager Daniel Loeb took a 1.25% stake in the $263bn venerable Swiss company, management announced the equivalent of $21bn in stock buybacks. According to this Bloomberg article, any CEO who'd oppose Mr. Loeb would be branded a 'CVD'—Chief Value Destroyer. Note that Nestlé [NESN: VX] now "aims to gear up its balance sheet, setting a target of 2 times net debt to ebitda, up from 1.3 times at the end of last year". A debt-financed stock buyback is just what the doctor would order for a mature, underlevered company that seeks to enhance its value in the equity market.
(*) Ralph Atkins & Scheherazade Daneshkhu: "Nestlé unveils $21bn buyback days after activist Loeb urges shake-up", Financial Times, 28 June 2017.
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[2] Uber. Prof. Damodaran is valuing Uber—again (*). In his book Narrative and Numbers. The Value of Stories in Business, he came up with at $23.4bn valuation in his most optimistic DCF valuation. Now he applies a different method —a bottom-up approach called 'user-based valuation'— and he estimates Uber's value of equity at $37.2bn. "Talk about a moving target!", he says. I am also noting that in his recent valuations, Prof. Damodaran is putting more effort in the estimation of cash flows, and less in the calculation of discount rates. It's a bit less fun, but more useful.
(*) "User/Subscriber Economics: An Alternative View of Uber's Value", Musings on Markets blog, 28 June 2017.
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