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AmericanGreetings Case1.Whatis going on at American Greetings? a.Discussthe competitiveness of the industry.b.Discussthe factors that drive the fundamental value of American Greetings.2. The shares...

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American
Greetings Case





1.
What
is going on at American Greetings?



a.
Discuss
the competitiveness of the industry.



b.
Discuss
the factors that drive the fundamental value of American Greetings.



2. The shares of
American Greetings are currently trading at an EBITDA multiple that is at the
bottom of its peer group. Do you think a
3.5 times multiple is appropriate for American Greetings? If yes, why? If not, why not? Whether you
think it is appropriate or not what alternative multiple of EBITDA do you think
could be used and why? What is the implied share price that corresponds to that
multiple?





3. Please model cash
flows for American Greetings for fiscal years 2012 through 2015. Using a marginal tax rate of 40% and a market
risk premium of 5%. What is your estimate of the appropriate discount rate for
the free cash flow forecast? Based on a discounted cash flow model, what is
your best estimate of the implied enterprise value of American Greetings and
the corresponding share price? Discuss your results and the implications for
the decision facing American Greetings.





4. What are the key
drivers of value in your model and why? Do you recommend repurchasing shares? Provide
specific reasons to support your recommendation.



Answered 3 days After Nov 01, 2022

Solution

Prince answered on Nov 03 2022
48 Votes
Question 1:
The second-largest greeting card company in the US was American Greetings. Since its founding in the 1900s, the corporation has had to deal with significant change and a highly competitive market. Given how simple it is to send an electronic card via social networks or text messaging, the greeting card sector is facing greater competition as a result of technological advancements like smart phones and social media influence. The cu
ent craze is moving away from traditional cards and toward the countless photos and canvases you can buy online. According to industry study, the sale of greeting cards has decreased significantly by 9% since 2005, and this loss is expected to continue.
The company decided to sell their greeting cards through conventional retail stores for the paper products and to various websites for the electronic products as a result of the switch from print greeting cards towards electronic ones. AG possessed the rights to well-known characters including Shortcake, Strawbe
y, the Care Bears, Holly Ho
ie, and others in order to grow their business. Additionally, they are the owners of well-known companies such as Carton Cards, Gibson, Recycled Paper Greetings, Papyrus, and DesignWare. The corporation was able to make money by licencing the rights to such characters and growing its market share.
The other major player in the US greeting card market, in addition to American Greetings, is Hallmark. If we compare the two, Hallmark is a larger organisation than AG because it also has a television network channel. The technological revolution is also hurting Hallmark, which is attempting to use fresh approaches.
With significant market advances, AG has also em
aced new methods to stay with the technological revolution. These new tactics included a new selection of electronic cards as well as the availability of online shopping for these cards with delivery of the actual card. Additionally, by adding kiosks to stores and extending the retail channel for dollar stores, they paid particular attention to distribution. By putting these tactics into practise, sales growth increased from about zero to over 7%, and operating margins increased to 9%. To stay inside the numbers, they must choose whether to purchase back $75,000,000 worth of their shares.
The huge demand for actual cards is the primary driver of AG's intrinsic value. According to a poll, 52% of US consumers still own greeting cards. This demonstrates that there is a market for AG still. Since market demand is shifting quickly, it will be difficult for AG to maintain its market position if...
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