Friend of the blog and MBA classmate, Saj Karsan of BarelKarsan.com fame published a great article yesterday comparing an investment in Supervalu Inc. (NYSE:SVU) to an investment in an LBO. Given today’s SVU love-fest, here’s an excerpt and a link to the original article in full. Be sure to check out today’s earlier posts on SVU here and here.
The price of the entire Supervalu enterprise (debt + equity) is around $9 billion, against earnings before interest, taxes and non-cash writedowns of about $1.1 billion, for an EV/EBIT ratio of about 8. Since SuperValu has both the breathing room and the cash flows to make the debt repayments and capital expenditures it needs to, the company should see an increase in the market value of its shares even if its enterprise value were to fall.
Check out Saj’s full article here.