Exhibit (c)(5)
McDonald Investments
Presentation For:
PROJECT KEYSTONE
October 30, 2002
Situation Update
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Page 2
Situation Update
• McDonald has been retained to advise the Trust on merits and risks of acquiring Keystone’s remaining public shares and to recommend a course of action
• Keystone’s stock price along with the industry has commenced as moderate rebound off 52 week lows
• Attractive value still exists if cyclical upturn occurs as forecasted
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Page 3
Presentation Objectives
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Page 4
Presentation Objectives
• What is the appropriate price to offer?
• Can Keystone service the debt?
• Range of value for Keystone
• Benefits and risks of transaction
• Recommendations and strategy
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Page 5
What Is The Appropriate Price To Offer?
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Page 6
What Is The Appropriate Price To Offer?
• Keystone currently trading at 34% of its 52 week high
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Page 7
What Is The Appropriate Price To Offer?
• Entire industry has rebounded from 52 week lows
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Page 8
What Is The Appropriate Price To Offer?
• Control premium study
— Based on MergerStat data
— January 1, 2000 to YTD
— 178 tender offer acquisitions above $100 million in value
— Stock prices above $5.00
— Eliminated negative premiums
• Control premiums range from 1.1% to 153.7%
— Implied price on yesterday’s closing stock price of $14.46
— Range of price to offer $14.62 to $36.69
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Page 9
What Is The Appropriate Price To Offer?
• Control premium study
— January 1, 1992 to December 31, 2001
— All public acquisitions
— 4,015 completed transactions
|
| Median Control Premium |
|
1992 |
| 34.7 | % |
1993 |
| 33.0 | % |
1994 |
| 35.0 | % |
1995 |
| 29.2 | % |
1996 |
| 27.3 | % |
1997 |
| 27.5 | % |
1998 |
| 30.1 | % |
1999 |
| 34.6 | % |
2000 |
| 41.1 | % |
2001 |
| 40.5 | % |
Source: MergerStat
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Page 10
Conclusions On Appropriate Price to Offer
Appropriate price to offer based on market premium of 40.5% and yesterday’s stock price of $14.46 is $20.32
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Page 11
Implications Of Appropriate Price To Offer
• Implications of control study premium range
Price Per |
| Approximate Shares to be Acquired |
| Implied Cost |
| Less Keystone Excess Cash |
| New Debt From Trust |
| ||||||
$ | 14.62 |
| 8,851,312 |
| $ | 129,406,181 |
| $ | 36,876,856 |
| $ | 92,529,326 |
| ||
$ | 20.32 |
| 8,851,312 |
| $ | 179,858,660 |
| $ | 36,876,856 |
| $ | 142,981,804 |
| ||
$ | 25.00 |
| 8,851,312 |
| $ | 221,282,800 |
| $ | 36,876,856 |
| $ | 184,405,944 |
| ||
$ | 30.00 |
| 8,851,312 |
| $ | 265,539,360 |
| $ | 36,876,856 |
| $ | 228,662,504 |
| ||
$ | 35.00 |
| 8,851,312 |
| $ | 309,795,920 |
| $ | 36,876,856 |
| $ | 272,919,064 |
| ||
$ | 36.69 |
| 8,851,312 |
| $ | 324,754,637 |
| $ | 36,876,856 |
| $ | 287,877,782 |
| ||
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Page 12
Can Keystone Service The Debt?
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Page 13
Can Keystone Service The Debt?
|
| 2002(P) |
| 2003(P) |
| 2004(P) |
| 2005(P) |
| 2006(P) |
|
Sales |
| 352,082 |
| 367,082 |
| 443,685 |
| 613,968 |
| 754,769 |
|
Gross Profit |
| 49,825 |
| 64,487 |
| 84,470 |
| 122,070 |
| 157,527 |
|
Operating Income |
| (31,338 | ) | 14,042 |
| 28,795 |
| 54,872 |
| 80,887 |
|
Interest Expense |
| (7,500 | ) | (14,476 | ) | (15,044 | ) | (13,759 | ) | (9,717 | ) |
EBITDA |
| 18,813 |
| 38,225 |
| 54,619 |
| 82,296 |
| 109,979 |
|
Net Income |
| (25,436 | ) | (434 | ) | 12,720 |
| 38,030 |
| 54,708 |
|
Free Cash Flow |
| 17,489 |
| 19,885 |
| 35,517 |
| 65,908 |
| 79,899 |
|
Cash |
| 16,687 |
| 15,000 |
| 15,000 |
| 15,000 |
| 21,837 |
|
Coors Debt |
| 100,000 |
| 100,000 |
| 100,000 |
| 100,000 |
| 100,000 |
|
New debt |
| 143,063 |
| 135,967 |
| 115,493 |
| 63,345 |
| 0 |
|
Total Debt |
| 243,063 |
| 235,967 |
| 215,493 |
| 163,345 |
| 100,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Assmuptions: |
|
|
|
|
|
|
|
|
|
|
|
Revenue Growth |
| -12.1 | % | 4.3 | % | 20.9 | % | 38.4 | % | 22.9 | % |
Gross Margin |
| 14.2 | % | 17.6 | % | 19.0 | % | 19.9 | % | 20.9 | % |
Operating Profit Margin |
| -8.9 | % | 3.8 | % | 6.5 | % | 8.9 | % | 10.7 | % |
Interest Rate |
| 2.8 | % | 5.0 | % | 6.0 | % | 7.0 | % | 7.0 | % |
EBITDA Margin |
| 5.3 | % | 10.4 | % | 12.3 | % | 13.4 | % | 14.6 | % |
Net Income Margin |
| -7.2 | % | -0.1 | % | 2.9 | % | 6.2 | % | 7.2 | % |
Assumes $20.32 purchase price
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Page 14
Can Keystone Service The Debt?
• Includes Keystone internal cash flow only without regard for additional family investments
• Modeled 2003 only as interest coverage ratio is improved in following years
— Assumed 5.00% interest rate in 2003
— Current rate at under 3.0%
Assumed |
| Long-Term Debt |
| Free Cash Flow |
| Coors Family Interest Expense |
| New Interest Expense |
| Total Interest Expense |
| Interest Coverage Ratio |
| ||||||
$ | 14.62 |
| $ | 183,068 |
| $ | 19,885 |
| $ | 7,500 |
| $ | 4,391 |
| $ | 11,891 |
| 1.66 |
|
$ | 20.32 |
| $ | 235,967 |
| $ | 19,885 |
| $ | 7,500 |
| $ | 6,976 |
| $ | 14,476 |
| 1.37 |
|
$ | 25.00 |
| $ | 279,535 |
| $ | 19,885 |
| $ | 7,500 |
| $ | 9,101 |
| $ | 16,601 |
| 1.20 |
|
$ | 30.00 |
| $ | 326,082 |
| $ | 19,885 |
| $ | 7,500 |
| $ | 11,372 |
| $ | 18,872 |
| 1.05 |
|
$ | 35.00 |
| $ | 372,629 |
| $ | 19,885 |
| $ | 7,500 |
| $ | 13,642 |
| $ | 21,142 |
| 0.94 |
|
$ | 36.69 |
| $ | 387,917 |
| $ | 19,885 |
| $ | 7,500 |
| $ | 14,399 |
| $ | 21,899 |
| 0.91 |
|
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Page 15
Range Of Valuation
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Page 16
Positioning Keystone
• Keystone has two distinct business units
— Different growth characteristics, profitability and cyclicality
• Keystone achieved $540 million in revenue and $82 million in EBITDA at last peak
— Forecasting $755 million in revenue and $110 million in EBITDA in 2006
• Keystone has historically been less profitable than other semiconductor companies
• Substantial capacity for next cycle
— $650 million of manufacturing and $150 million of assembly capacity
• Markets share gains
— 40+ new assembly and numerous new OEMs
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Page 17
Valuation
• Valued each individual business unit’s enterprise value
— Advanced Materials
— Semiconductor
• Utilized three separate valuation methodologies
— Public comparables
— Precedent transactions
— Discounted cash flow
• Combined enterprise valuations and accounted for Keystone’s capital structure to get an equity value
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Page 18
Advanced Materials Business Unit Valuation
|
| Precedent Transactions |
| ||||||||||
|
| EV/ |
| EV/ |
| EV/ |
| EV/ |
| ||||
Multiple |
| 0.8 | x | 2.2 | x | 6.7 | x | 12.2 | x | ||||
|
|
|
|
|
|
|
|
|
| ||||
Financials (12/31/2002) |
|
|
|
|
|
|
|
|
| ||||
Advanced Materials Sales |
| $ | 207,789 |
| $ | 207,789 |
|
|
|
|
| ||
Advanced Materials EBITDA |
|
|
|
|
| $ | 28,254 |
| $ | 28,254 |
| ||
Enterprise Value |
| $ | 173,900 |
| $ | 455,351 |
| $ | 189,123 |
| $ | 345,594 |
|
Enterprise Value per Share |
| $ | 14.82 |
| $ | 38.81 |
| $ | 16.12 |
| $ | 29.45 |
|
|
| Public Comparables |
| ||||||||||
|
| EV/ |
| EV/ |
| EV/ |
| EV/ |
| ||||
Multiple |
| 0.5 | x | 0.8 | x | 5.6 | x | 6.6 | x | ||||
Control Premium |
| 40.5 | % | 40.5 | % | 40.5 | % | 40.5 | % | ||||
Adjusted Multiple |
| 0.8 | x | 1.1 | x | 7.9 | x | 9.3 | x | ||||
|
|
|
|
|
|
|
|
|
| ||||
Financials (12/31/2002) |
|
|
|
|
|
|
|
|
| ||||
Advanced Materials Sales |
| $ | 207,789 |
| $ | 207,789 |
|
|
|
|
| ||
Advanced Materials EBITDA |
|
|
|
|
| $ | 28,254 |
| $ | 28,254 |
| ||
Enterprise Value |
| $ | 159,006 |
| $ | 222,095 |
| $ | 222,087 |
| $ | 262,713 |
|
Enterprise Value per Share |
| $ | 13.55 |
| $ | 18.93 |
| $ | 18.93 |
| $ | 22.39 |
|
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Page 19
Advanced Materials Business Unit Valuation
• Discounted cash flow analysis
— Range of terminal EBITDA multiples from 6.7x to 12.2 x
NPV of |
| Terminal |
| Terminal |
| Discounted |
| Enterprise |
| Enterprise |
| ||||||||
$ | 34,803 |
| $ | 39,173 |
| 6.7x |
| $ | 163,852 |
| $ | 198,655 |
| $ | 16.93 |
| |||
$ | 34,803 |
| $ | 39,173 |
| 8.0x |
| $ | 195,645 |
| $ | 230,447 |
| $ | 19.64 |
| |||
$ | 34,803 |
| $ | 39,173 |
| 9.3x |
| $ | 227,437 |
| $ | 262,240 |
| $ | 22.35 |
| |||
$ | 34,803 |
| $ | 39,173 |
| 10.6x |
| $ | 259,229 |
| $ | 294,032 |
| $ | 25.06 |
| |||
$ | 34,803 |
| $ | 39,173 |
| 12.2x |
| $ | 298,358 |
| $ | 333,161 |
| $ | 28.39 |
| |||
Base case only
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Page 20
Valuation Summary
• Advanced Materials enterprise value
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Page 21
Semiconductor Business Unit Valuation
|
| Public Comparables |
| ||||
|
| EV/ LTM Sales Min |
| EV/ LTM Sales Max |
| ||
Multiple |
| 2.0 | x | 2.6 | x | ||
Performance Discount |
| 66.7 | % | 66.7 | % | ||
Size Discount |
| 12.5 | % | 12.5 | % | ||
Control Premium |
| 40.5 | % | 40.5 | % | ||
Adjusted Multiple |
| 0.8 | x | 1.1 | x | ||
|
|
|
|
|
| ||
Financials (12/31/2002) |
|
|
|
|
| ||
Semiconductor Sales |
| $ | 144,293 |
| $ | 144,293 |
|
Enterprise Value |
| $ | 119,252 |
| $ | 156,581 |
|
Enterprise Value per Share |
| $ | 10.16 |
| $ | 13.34 |
|
|
| Precedent Transactions |
| ||||
|
| EV/ LTM Sales Min |
| EV/ LTM Sales Max |
| ||
Multiple |
| 0.6 | x | 5.0 | x | ||
Performance Discount |
| 66.7 | % | 66.7 | % | ||
Adjusted Multiple |
| 0.2 | x | 1.7 | x | ||
|
|
|
|
|
| ||
Financials (12/31/02) |
|
|
|
|
| ||
Semiconductor Sales |
| $ | 144,293 |
| $ | 144,293 |
|
Enterprise Value |
| $ | 27,916 |
| $ | 241,903 |
|
Enterprise Value per Share |
| $ | 2.38 |
| $ | 20.62 |
|
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Page 22
Semiconductor Business Unit Valuation
• Discounted cash flow analysis
— Range of terminal revenue multiples from 0.2x to 1.7x
NPV of |
| Terminal Revenue |
| Terminal Revenue Multiple |
| Discounted Terminal Revenue |
| Enterprise Value |
| Enterprise Value Per Share |
| ||||||
$ | 79,193 |
| $ | 511,339 |
| 0.2x |
| $ | 50,656 |
| $ | 129,849 |
| $ | 11.07 |
| |
$ | 79,193 |
| $ | 511,339 |
| 0.5x |
| $ | 126,641 |
| $ | 205,834 |
| $ | 17.54 |
| |
$ | 79,193 |
| $ | 511,339 |
| 1.0x |
| $ | 253,282 |
| $ | 332,475 |
| $ | 28.34 |
| |
$ | 79,193 |
| $ | 511,339 |
| 1.5x |
| $ | 379,922 |
| $ | 459,116 |
| $ | 39.13 |
| |
$ | 79,193 |
| $ | 511,339 |
| 1.7x |
| $ | 430,579 |
| $ | 509,772 |
| $ | 43.45 |
| |
Base case only
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Page 23
Valuation Summary
• Semiconductor enterprise value
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Page 24
Valuation Summary
• Keystone combined equity value per share
|
| Min |
| Max |
| ||
Advanced Materials |
|
|
|
|
| ||
Precedent Transactions |
| $ | 14.82 |
| $ | 38.81 |
|
Public Comparables |
| $ | 13.55 |
| $ | 22.39 |
|
Discounted Cash Flow |
| $ | 12.18 |
| $ | 28.39 |
|
|
|
|
|
|
| ||
Semiconductor |
|
|
|
|
| ||
Precedent Transactions |
| $ | 2.38 |
| $ | 20.62 |
|
Public Comparables |
| $ | 10.16 |
| $ | 13.34 |
|
Discounted Cash Flow |
| $ | 5.82 |
| $ | 43.45 |
|
|
|
|
|
|
| ||
Net Debt |
| $ | (3.68 | ) | $ | (3.68 | ) |
|
|
|
|
|
| ||
Combined |
|
|
|
|
| ||
Precedent Transactions |
| $ | 13.52 |
| $ | 55.75 |
|
Public Comparables |
| $ | 20.04 |
| $ | 32.06 |
|
Discounted Cash Flow |
| $ | 14.32 |
| $ | 68.17 |
|
|
Page 25
Expected Return On Investment
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Page 26
Expected Return On Investment
• Based ROI analysis on $20.32 acquisition price
• ROI ranges from 25% to 47% depending on downside case and upside case
• Acquisition ROI significantly exceeds status quo ROI expected range of 12% to 22%
• Trust ROI significantly enhanced due to the low cost of the debt financing the acquisition
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Page 27
Risks Of Transaction
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Page 28
Risks Of Transaction
• Keystone in unable to service debt load
• Keystone’s semiconductor business unit has not yet hit bottom and the turn in the cycle is further delayed
• Potential to lose Keystone once it is put in play
• Negative publicity and potential lawsuits
• Board rejects offer or tender offer fails
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Page 29
Benefits Of Transaction
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Page 30
Benefits Of Transaction
• Offer liquidity to all public shareholders at negotiated price
• Capital gains treatment to selling shareholders
• Expected ROI substantially better than status quo
• Family is currently taking greater risk for less reward than other shareholders
• Secures ownership and heritage of business for the family
• Eliminates cost of being public
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Page 31
Recommendations
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Page 32
Recommendations
• Prepare to move forward with tender offer
— Continue to monitor stock price and market conditions. Meet again on November 8 to make final decision
• Present offer to Keystone’s Board of independent directors on November 11
— Request Board response within two weeks
• Launch tender offer immediately following Board approval
— Have Board recommend transaction to shareholders
• Close transaction in January
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Page 33
McDonald Investments
Presentation For:
PROJECT KEYSTONE
October 30, 2002