WEBVTT 1 00:00:01.880 --> 00:00:05.120 One of the key points of this case is that we know the end of the 2 00:00:05.260 --> 00:00:09.220 story. Therefore, we are able to confront what actually happened 3 00:00:09.560 --> 00:00:13.220 with the initial predictions made by the investors. 4 00:00:15.240 --> 00:00:18.380 I propose you the following agenda for this last module. 5 00:00:18.460 --> 00:00:22.220 First, we are going to observe what actually happened, the real figures, as 6 00:00:22.240 --> 00:00:25.960 opposed to the planned figures, the predictions which were made ten years 7 00:00:26.000 --> 00:00:29.870 before. This is going to be about the business operations and 8 00:00:29.940 --> 00:00:33.520 the financing of the holding. Then we'll have a look at the financial 9 00:00:33.560 --> 00:00:37.320 economics of the takeover bid made by Pitney Bowes in two 10 00:00:37.420 --> 00:00:41.180 thousand and one. And what's interesting is we'll get some financial 11 00:00:41.400 --> 00:00:45.330 documents about, uh, Secap, because there will be a squeeze out, a 12 00:00:45.340 --> 00:00:49.320 buyout offer for the remaining Secap shares listed on 13 00:00:49.360 --> 00:00:53.000 the stock market. Then we have the financial statements for 14 00:00:53.040 --> 00:00:56.700 ninety-nine and two thousand. Then we are going to be able to 15 00:00:56.740 --> 00:01:00.240 calculate the actual rate of return for each and every funding 16 00:01:00.360 --> 00:01:03.280 tranche, and we are going to confirm the actual versus the 17 00:01:03.340 --> 00:01:07.160 expected. Later on, we are going to have a look at what happened 18 00:01:07.200 --> 00:01:11.100 to Pitney Bowes twenty years after the deal, twenty 19 00:01:11.140 --> 00:01:14.880 years after the bid. Then I will propose you a few 20 00:01:14.960 --> 00:01:18.000 comments. First, a look back at the process. 21 00:01:18.060 --> 00:01:19.820 Second, a few conclusions. 22 00:01:22.360 --> 00:01:26.120 Let's first have a look at what happened on a commercial point of view and on a 23 00:01:26.180 --> 00:01:29.320 financial point of view, actual versus planned. 24 00:01:29.800 --> 00:01:33.690 If we look at the revenues in nineteen ninety-nine, the actual revenue is 25 00:01:33.800 --> 00:01:36.230 a bit more than eight hundred million. What was planned? 26 00:01:36.260 --> 00:01:40.000 You remember in the valuation of the company, eight hundred and forty. 27 00:01:40.040 --> 00:01:43.640 So we are extremely close in terms of revenues. 28 00:01:44.100 --> 00:01:47.180 EBIT is a little bit disappointing, but not that much. 29 00:01:47.240 --> 00:01:51.040 Almost one hundred and thirty million out of the one hundred and fifty-five 30 00:01:51.100 --> 00:01:55.080 million, which were planned. So basically, the actual is extremely 31 00:01:55.160 --> 00:01:58.399 close to what was predicted a few years before. 32 00:01:58.770 --> 00:02:02.060 But the additional good information is that the company is in a 33 00:02:02.120 --> 00:02:06.080 positive net cash situation, which is very 34 00:02:06.100 --> 00:02:09.780 good because it means that it's a commercial success, but on a financial point of 35 00:02:09.820 --> 00:02:11.680 view, it's absolutely healthy. 36 00:02:14.180 --> 00:02:17.900 So it's about predominantly good news for Secap as a company. 37 00:02:17.920 --> 00:02:21.660 What about Financière Secap, actual versus plan? 38 00:02:21.720 --> 00:02:25.600 Well, life is okay because Financière Secap has repaid all the debts, 39 00:02:25.720 --> 00:02:29.480 all the loans, all the bonds, and converted the bond redeemable 40 00:02:29.500 --> 00:02:33.380 into shares, into equity. So there is no cash to 41 00:02:33.460 --> 00:02:37.340 allocate to payment of coupon, redemption of the debt. 42 00:02:37.380 --> 00:02:40.840 There's a little bit of negligible debt, which is covered by current 43 00:02:40.940 --> 00:02:44.520 assets. Now, as no cash has to be allocated to the 44 00:02:44.560 --> 00:02:48.540 repayment of the debt and the remuneration of the financial creditors, you can 45 00:02:48.549 --> 00:02:51.180 start returning the cash to the shareholders. 46 00:02:51.260 --> 00:02:54.760 This is why some dividend is paid in two thousand, sixty-five point 47 00:02:54.840 --> 00:02:58.460 something, in two thousand and one, almost fifty. 48 00:02:58.530 --> 00:03:02.320 The number of shares is up. You remember the initial number of shares, which is 49 00:03:02.380 --> 00:03:05.880 incremented by the conversion of the bond redeemable in 50 00:03:05.900 --> 00:03:09.840 shares, plus marginal additional number of shares, 51 00:03:09.880 --> 00:03:13.340 which were added as a consequence of stock options and so 52 00:03:13.400 --> 00:03:14.750 on. 53 00:03:16.520 --> 00:03:20.480 So now if you conclude about the situation of Secap and Financière 54 00:03:20.500 --> 00:03:24.000 Secap, it's definitely a commercial and a 55 00:03:24.060 --> 00:03:27.420 financial success. 56 00:03:28.320 --> 00:03:31.220 Now we can move to the transaction, which is offered by Pitney 57 00:03:31.300 --> 00:03:35.160 Bowes. The price which is offered for the acquisition of Secap is two 58 00:03:35.200 --> 00:03:39.000 hundred and twenty million euros, which is one 59 00:03:39.060 --> 00:03:41.940 hundred and twenty point five euros per share. 60 00:03:41.980 --> 00:03:45.060 But now we are in euros. Initially, we were in French franc. 61 00:03:45.120 --> 00:03:48.920 It represents seven hundred and ninety point three French franc per 62 00:03:48.960 --> 00:03:52.900 share in twenty twenty-one. You remember that 63 00:03:53.080 --> 00:03:57.040 in the analysis of the financial return allocated to 64 00:03:57.060 --> 00:04:00.960 the shareholders, we had considered a terminal value median case of 65 00:04:01.040 --> 00:04:04.020 seven hundred and sixteen in ninety-nine. 66 00:04:04.060 --> 00:04:07.380 So the figure is now a little bit higher two years 67 00:04:07.400 --> 00:04:11.260 later. We are going to calculate the returns for each and every tranche of 68 00:04:11.320 --> 00:04:15.180 financing. As far as senior debt and subordinated bond 69 00:04:15.280 --> 00:04:18.800 yields are concerned, this is identical to forecast because it's a 70 00:04:18.820 --> 00:04:22.750 contractual remuneration. This is about debt, but then 71 00:04:22.780 --> 00:04:26.560 we have to make the calculation for the bonds redeemable in shares 72 00:04:26.660 --> 00:04:28.550 and for the ordinary shares. 73 00:04:31.060 --> 00:04:34.570 Let's calculate the rate of return for the equity and the 74 00:04:34.640 --> 00:04:38.480 quasi-equity holders. Actual versus expected 75 00:04:38.540 --> 00:04:41.070 return of each and every funding tranche. 76 00:04:41.100 --> 00:04:44.280 Let's start with the bonds redeemable in shares. 77 00:04:44.340 --> 00:04:47.130 You buy the bond, which costs you twenty-six thousand. 78 00:04:47.140 --> 00:04:50.540 Then you receive a coupon, which represents one percent of the nominal, two hundred 79 00:04:50.560 --> 00:04:51.680 and sixty each and every year, 80 00:04:52.480 --> 00:04:56.420 and then the bond is redeemable into equity, so there is no 81 00:04:56.480 --> 00:04:59.700 cash. But starting in two thousand, you start 82 00:04:59.960 --> 00:05:03.720 receiving some dividends, cashing in some dividends, and as the bonds 83 00:05:03.780 --> 00:05:07.580 are redeemable into one hundred and eighty-five shares, you receive 84 00:05:07.660 --> 00:05:10.890 one hundred and eighty-five times the dividend. 85 00:05:10.960 --> 00:05:12.750 Same story in two thousand and one. 86 00:05:12.800 --> 00:05:16.560 In addition to that, you sell the one hundred and eighty-five shares at the price 87 00:05:16.600 --> 00:05:18.940 which is proposed by Pitney Bowes. 88 00:05:18.980 --> 00:05:22.490 You calculate the internal rate of return, and you get nineteen percent. 89 00:05:22.520 --> 00:05:26.430 You remember the median case was twenty percent, which is extremely 90 00:05:26.460 --> 00:05:29.900 close. And then you move to the ordinary shares. 91 00:05:29.940 --> 00:05:32.920 Then there is no coupon and there is no dividend during ten years. 92 00:05:32.940 --> 00:05:36.100 You buy the share for one hundred, then you start receiving 93 00:05:36.560 --> 00:05:40.250 one dividend in two thousand, one dividend in two thousand 94 00:05:40.300 --> 00:05:42.820 and one, plus the sale of the shares. 95 00:05:42.860 --> 00:05:46.740 You calculate the internal rate of return, you get twenty-two percent, when 96 00:05:46.800 --> 00:05:49.540 the median case was twenty-four 97 00:05:49.640 --> 00:05:51.280 percent. 98 00:05:52.900 --> 00:05:56.840 Now we can put all the figures together and confront the anticipated and the 99 00:05:56.850 --> 00:06:00.280 actual return. We have two layers of debt and two layers of 100 00:06:00.460 --> 00:06:04.300 equity. Senior debt, anticipated and actual return are 101 00:06:04.340 --> 00:06:06.814 exactly the same because there is no default.... 102 00:06:06.814 --> 00:06:10.524 and it's the same story for the subordinated bond, sixteen point eight, 103 00:06:10.564 --> 00:06:13.844 sixteen point eight. This is a contract, and if the contract is 104 00:06:13.884 --> 00:06:17.864 respected, the actual return is the same as the anticipated 105 00:06:17.904 --> 00:06:21.684 return. No upside, no downside. What about 106 00:06:21.904 --> 00:06:25.344 equity? There might be an upside and a downside. 107 00:06:25.404 --> 00:06:29.164 If you look at the bonds redeemable in shares, their range of 108 00:06:29.204 --> 00:06:31.144 return was nineteen to twenty-two. 109 00:06:31.184 --> 00:06:34.904 The actual return is nineteen. It is within the range. 110 00:06:34.944 --> 00:06:38.914 Ordinary share, twenty-three to twenty-six, depending on the beta, depending on 111 00:06:38.944 --> 00:06:42.224 the WACC, and the actual return is twenty-two. 112 00:06:42.264 --> 00:06:45.284 So you have a remarkable consistency between the 113 00:06:45.364 --> 00:06:49.024 anticipated return and the actual return, which is going to be 114 00:06:49.104 --> 00:06:52.484 attributed to the investors of the LBO. 115 00:06:54.684 --> 00:06:58.404 When you confront the actual versus the expected return of funding 116 00:06:58.464 --> 00:07:02.424 tranches in the structuration of a leveraged buyout in project 117 00:07:02.504 --> 00:07:06.064 finance, in financial restructuring, you always have these two 118 00:07:06.104 --> 00:07:09.744 perspectives: the contractual return for debt and the 119 00:07:09.804 --> 00:07:13.364 residual return for equity. In this case, there is no 120 00:07:13.444 --> 00:07:17.224 default, so the contract is fulfilled, and there is a perfect consistency 121 00:07:17.244 --> 00:07:21.164 between actual and expected return for the 122 00:07:21.224 --> 00:07:25.204 debt holders. About equity and quasi-equity, residual 123 00:07:25.284 --> 00:07:29.124 return target is achieved, even though it is a little bit in the low 124 00:07:29.264 --> 00:07:33.044 bracket, but it does not tell you anything about the performance and the value 125 00:07:33.164 --> 00:07:36.244 creation. What about the remuneration of risk? 126 00:07:36.284 --> 00:07:39.944 Are investors paid for the risks they actually took 127 00:07:40.284 --> 00:07:42.544 investing in this company? 128 00:07:44.404 --> 00:07:48.104 In order to be able to conclude about the actual financial performance for the 129 00:07:48.114 --> 00:07:51.704 equity holders, we need to calculate the expected return on 130 00:07:51.744 --> 00:07:55.164 equity and confront with the actual return on equity. 131 00:07:55.204 --> 00:07:58.864 Expected return on equity is provided by the capital asset pricing 132 00:07:58.924 --> 00:08:01.964 model, and then for this, we need a beta. 133 00:08:01.984 --> 00:08:05.124 We need the equity market risk premium and the risk-free rate. 134 00:08:05.984 --> 00:08:09.924 The average debt ratio, the gearing of the holding company throughout the ten 135 00:08:09.984 --> 00:08:13.574 years, is about one point three. It started very high and 136 00:08:13.644 --> 00:08:17.164 ended very low, but on the average, it's one point three. 137 00:08:17.304 --> 00:08:21.104 Now, to calculate the kind of average beta, we are going to use the AMADA 138 00:08:21.144 --> 00:08:24.784 formula. Beta L is beta unlevered, 139 00:08:24.824 --> 00:08:28.604 multiplied by a coefficient, which is a function of the financial 140 00:08:28.724 --> 00:08:32.365 structure. Then the beta L, starting with a medium 141 00:08:32.444 --> 00:08:36.044 range, which is point nine, gets to one point 142 00:08:36.244 --> 00:08:40.144 eight. Then the expected return on equity is ten percent 143 00:08:40.304 --> 00:08:44.264 plus one point eight times five. One point eight 144 00:08:44.424 --> 00:08:48.164 times five is nine, plus ten is nineteen percent. 145 00:08:48.284 --> 00:08:51.844 Now, if you take the actual return on equity, it is twenty-two 146 00:08:51.964 --> 00:08:55.904 percent, so the actual return exceeds the expected 147 00:08:55.944 --> 00:08:59.684 return by three percent. This is the economic profit, so the 148 00:08:59.724 --> 00:09:03.664 financial performance is there, and as a consequence, there is value creation 149 00:09:03.704 --> 00:09:06.864 for the equity holders. 150 00:09:07.844 --> 00:09:11.824 Then, as far as the Secap shareholders are concerned, the success is 151 00:09:11.864 --> 00:09:14.904 there, financial performance and value creation. 152 00:09:14.924 --> 00:09:18.094 What about Pitney Bowes? Pitney Bowes makes the acquisition in two thousand and 153 00:09:18.184 --> 00:09:21.984 one, and we are going to observe what happened in the company during the next 154 00:09:22.024 --> 00:09:25.784 twenty years. We have some data about the 155 00:09:25.864 --> 00:09:29.784 squeeze out. There are some shares which are still listed on the stock 156 00:09:29.844 --> 00:09:33.354 market, so when Pitney Bowes buys Secap, they are going to also 157 00:09:33.764 --> 00:09:36.484 withdraw these shares from the capital market. 158 00:09:36.524 --> 00:09:40.144 To do so, you need to issue a valuation report, and in the 159 00:09:40.184 --> 00:09:44.084 valuation report, we read that the acquisition is justified 160 00:09:44.124 --> 00:09:47.984 by growth potential and by an EBITDA margin of thirty 161 00:09:48.244 --> 00:09:51.794 percent, which you remember, was what predicted in the early 162 00:09:51.884 --> 00:09:55.524 days of the transaction. But in two thousand and one, there's a 163 00:09:55.584 --> 00:09:59.464 bursting of the internet bubble. You remember that 164 00:09:59.524 --> 00:10:03.204 Secap is in the postal mail business, but 165 00:10:03.244 --> 00:10:07.024 basically, is it going to be replaced by the email? 166 00:10:08.704 --> 00:10:12.124 As a matter of fact, the next twenty years are going to be a little bit dramatic 167 00:10:12.224 --> 00:10:15.844 for Pitney Bowes. Revenues are going to almost 168 00:10:15.904 --> 00:10:19.604 double from two billion to three point five billion. 169 00:10:19.624 --> 00:10:23.504 Capital employed is going to be dramatically down because the company is going to 170 00:10:23.604 --> 00:10:26.944 outsource part of its non-current assets. 171 00:10:26.963 --> 00:10:30.164 But what about EBIT, EBITDA, and ROCE? 172 00:10:30.224 --> 00:10:33.924 The EBIT is one billion, so almost fifty percent of the 173 00:10:33.964 --> 00:10:37.524 revenues in two thousand and one, and it is one hundred and 174 00:10:37.644 --> 00:10:41.304 twenty million in twenty twenty-two, just three 175 00:10:41.424 --> 00:10:44.784 percent of revenues. EBITDA is going to go down from 176 00:10:44.924 --> 00:10:48.194 sixty-two percent of revenues to eight percent of 177 00:10:48.264 --> 00:10:52.024 revenues, and the return on capital employed is going to move 178 00:10:52.044 --> 00:10:55.384 down from thirty-eight percent to eight percent. 179 00:10:55.404 --> 00:10:58.584 So it's going to be quite dramatic for Pitney Bowes. 180 00:10:58.644 --> 00:11:02.504 As a consequence, the stock price is going to penalize the company and the 181 00:11:02.584 --> 00:11:06.404 market-to-book enterprise value over capital employed, 182 00:11:06.444 --> 00:11:10.124 which measures the stock market credibility of the company and the value creation 183 00:11:10.184 --> 00:11:13.984 for the shareholders, is going to go down from four point eight to 184 00:11:14.124 --> 00:11:17.724 one point five. And one point five is between 185 00:11:17.824 --> 00:11:20.844 quotes, "nicely paid," because the economic 186 00:11:20.924 --> 00:11:24.864 profit, ROCE less WACC, is negative, so 187 00:11:24.904 --> 00:11:28.724 the market-to-book should be less than one, and it's still one 188 00:11:28.824 --> 00:11:29.544 point five. 189 00:11:32.284 --> 00:11:34.964 Now, let's have a look at what happened to the stock price over the 190 00:11:35.004 --> 00:11:38.944 period. When the acquisition is made, the stock price is about 191 00:11:38.984 --> 00:11:42.964 forty dollars per share. It's going to go down because of the 192 00:11:43.064 --> 00:11:46.474 internet bubble explosion, then it's going to recover. 193 00:11:46.524 --> 00:11:49.844 It's going to go up almost to fifty dollars per share. 194 00:11:50.064 --> 00:11:53.204 The subprime crisis is going to be terrible for the company 195 00:11:53.844 --> 00:11:57.604 because the stock price is going to go down to twenty and then to 196 00:11:57.644 --> 00:12:01.504 ten, and it's going to go up and finally, eventually 197 00:12:01.644 --> 00:12:04.844 go down to three point eight twenty years later. 198 00:12:05.424 --> 00:12:09.364 So you understand that the stock price has been divided by ten over the 199 00:12:09.484 --> 00:12:13.444 period.... Another way to look 200 00:12:13.504 --> 00:12:16.764 at the evolution of the stock price is to confront it with the 201 00:12:16.824 --> 00:12:20.384 market, so Pitney Bowes versus S&P five 202 00:12:20.484 --> 00:12:24.404 hundred. What you can observe on the graph is that there's a kind 203 00:12:24.444 --> 00:12:28.354 of consistency between the evolution of the index and the 204 00:12:28.444 --> 00:12:32.344 stock price of Pitney Bowes. Then there will be a break in two thousand 205 00:12:32.384 --> 00:12:36.024 and nine, and then the S&P is going to go up over the 206 00:12:36.064 --> 00:12:38.944 periods, plus one hundred and ninety percent. 207 00:12:38.984 --> 00:12:42.524 For Pitney Bowes, over the period, is going to be minus ninety 208 00:12:42.624 --> 00:12:46.604 percent. Again, the stock price is going to be divided by 209 00:12:46.664 --> 00:12:50.644 ten, when the stock market is going to be up, is going to 210 00:12:50.704 --> 00:12:54.424 be multiplied by almost two. 211 00:12:55.744 --> 00:12:59.384 Before I propose you some conclusions about this case study, 212 00:12:59.944 --> 00:13:03.744 I would like to get back to the process, have a look back at the 213 00:13:03.764 --> 00:13:07.144 process of the financial engineering itself. 214 00:13:07.164 --> 00:13:08.714 There were three steps in the process. 215 00:13:08.724 --> 00:13:11.644 The first one was to look at the past, the financial 216 00:13:11.684 --> 00:13:15.304 analysis. Financial analysis means that we have to assess the 217 00:13:15.344 --> 00:13:19.204 performance level of the company, but the performance is not only the return on 218 00:13:19.364 --> 00:13:23.284 capital employed, it is also the ability of the company to transform 219 00:13:23.294 --> 00:13:27.184 the performance into cash flow. The conclusions were absolutely 220 00:13:27.304 --> 00:13:31.244 straightforward. As far as profit generation is concerned, as far as 221 00:13:31.324 --> 00:13:34.474 cash flows are concerned, they are both high and 222 00:13:34.544 --> 00:13:38.524 predictable. There's a very high level of visibility in 223 00:13:38.564 --> 00:13:41.924 this business. Then, as a conclusion, the operating risk is 224 00:13:41.984 --> 00:13:45.904 low. If the operating risk is low, we can pile up some financial risk 225 00:13:45.964 --> 00:13:49.764 on top of that. This is why this company is eligible for a 226 00:13:49.824 --> 00:13:53.764 leveraged buyout. The second step is about the 227 00:13:53.804 --> 00:13:56.824 future. Now we are going to predict the cash flow, financial 228 00:13:56.864 --> 00:14:00.544 forecasting, so that we can discount free cash flows at the cost of 229 00:14:00.564 --> 00:14:04.544 capital. This is about the company target evaluation, 230 00:14:05.064 --> 00:14:07.384 but it is also about financial modeling. 231 00:14:07.424 --> 00:14:11.204 We have to predict the financial statements, the P&L, the cash flow, the 232 00:14:11.244 --> 00:14:14.884 balance sheet, not only to do something which is fundamental, the 233 00:14:14.924 --> 00:14:18.844 price justification, but also understand the cash 234 00:14:18.904 --> 00:14:22.724 impact of this acquisition. And in fact, what we observe is that there 235 00:14:22.763 --> 00:14:26.484 was an excess cash. When you measure this excess 236 00:14:26.564 --> 00:14:29.924 cash, you can understand that it's going to be used for the financial 237 00:14:29.934 --> 00:14:33.724 structuring. And the third step, or the financial structuring, the 238 00:14:33.764 --> 00:14:37.344 financing. Which kind of resources do you need? 239 00:14:37.444 --> 00:14:40.984 How much? The amount and nature, is it going to be straight debt, straight 240 00:14:41.044 --> 00:14:44.784 equity, hybrid instruments, and the rates? 241 00:14:44.804 --> 00:14:48.384 And the conclusion, though, was that this is a satisfactory 242 00:14:48.664 --> 00:14:51.344 risk-return ratio for investors. 243 00:14:51.384 --> 00:14:55.364 We have respected the hierarchy risk return, 244 00:14:55.384 --> 00:14:58.944 and the investors are quite happy investing in each and every 245 00:14:59.004 --> 00:15:00.944 tranche of this financial 246 00:15:01.064 --> 00:15:04.964 structuring. In order to complete the 247 00:15:05.024 --> 00:15:08.434 case, I would like to suggest you a few conclusions. 248 00:15:08.504 --> 00:15:12.104 First, again and again, SECAP was the ideal 249 00:15:12.264 --> 00:15:15.724 target for leveraged buyout. The company is generating 250 00:15:15.844 --> 00:15:19.424 cash, quite a lot of cash, more cash than its net 251 00:15:19.464 --> 00:15:22.844 income, and this cash is predictable, is 252 00:15:23.164 --> 00:15:25.324 stable. There is a visibility in the process. 253 00:15:25.364 --> 00:15:27.224 As a consequence, the operating risk is low. 254 00:15:27.244 --> 00:15:31.204 If the operating risk is low, you can put a lot of debt in the balance sheet, 255 00:15:31.304 --> 00:15:34.944 leveraged buyout. Then there was the financial engineering. 256 00:15:34.984 --> 00:15:38.844 It was perfectly designed. It was smart, prudent, very 257 00:15:38.884 --> 00:15:42.784 cautious. You put no additional debt at the level of the financial 258 00:15:42.864 --> 00:15:46.844 holding. If there is a need for additional financial debt, you can put 259 00:15:46.904 --> 00:15:49.924 some leverage at the level of the target because there is no 260 00:15:50.084 --> 00:15:54.004 gearing. So this is very smart, very prudent, and it 261 00:15:54.024 --> 00:15:57.944 respects the hierarchy risk return for the 262 00:15:57.984 --> 00:16:01.084 different tranches of financial resources. 263 00:16:01.104 --> 00:16:04.804 Then we had also some discussion about cash and 264 00:16:04.864 --> 00:16:08.474 value, and it's always the case. Fundamental value is about 265 00:16:08.504 --> 00:16:12.384 discounting cash flows, but it works if there's a cash 266 00:16:12.464 --> 00:16:16.214 balance which is respected at the level of the acquiring 267 00:16:16.344 --> 00:16:19.704 company. You always have to adopt these two 268 00:16:19.724 --> 00:16:22.384 perspectives the day you consider some financial 269 00:16:22.424 --> 00:16:26.364 engineering. Then there was a link between the discounted 270 00:16:26.424 --> 00:16:30.304 cash flow method, which we used, the performance, and the value 271 00:16:30.403 --> 00:16:32.694 creation. The performance was not very high. 272 00:16:32.704 --> 00:16:36.684 The economic profit in the end is about three percent, but there's a 273 00:16:36.724 --> 00:16:40.604 performance, and there's a value which is created by the shareholders of the 274 00:16:40.724 --> 00:16:44.444 company. But last, and certainly not least, there was a 275 00:16:44.504 --> 00:16:48.473 remarkable exit sequence. The shareholders of the 276 00:16:48.564 --> 00:16:51.944 company cashed in the terminal value as it was 277 00:16:51.984 --> 00:16:55.864 predicted in the early days of the transactions, but the terminal 278 00:16:55.984 --> 00:16:59.764 value for SECAP and for Fimalac is not 279 00:16:59.804 --> 00:17:02.973 exactly the economic value for Pitney Bowes, 280 00:17:03.704 --> 00:17:05.944 and this is something very fundamental. 281 00:17:05.964 --> 00:17:09.664 The terminal value is definitely the internal 282 00:17:09.724 --> 00:17:11.524 rate of return for the shareholders. 283 00:17:11.565 --> 00:17:14.994 You remember when we calculated the internal rate of return for the ordinary 284 00:17:15.085 --> 00:17:19.024 shares, everything is in the terminal value, and that's 285 00:17:19.065 --> 00:17:22.565 fundamental. But the terminal value is very uncertain. 286 00:17:22.624 --> 00:17:26.024 It depends on the evolution of technology, of innovation, of 287 00:17:26.104 --> 00:17:29.704 socioeconomic conditions. And at the end of the day, the exit 288 00:17:29.784 --> 00:17:33.464 was great for Fimalac, and it was a little bit 289 00:17:33.504 --> 00:17:37.464 terrible for Pitney Bowes because the terminal value for 290 00:17:37.604 --> 00:17:41.484 one is the investment value for the other, and the investment 291 00:17:41.584 --> 00:17:45.404 value was a little bit too high, considering what happened in the 292 00:17:45.464 --> 00:17:48.344 future. Thank you very much.