1
EXHIBIT (B)(2)
PROJECT SONIC
PRESENTATION TO
THE INDEPENDENT COMMITTEE
CONFIDENTIAL
PREPARED BY BZW CORPORATE FINANCE
SEPTEMBER 1997
TABLE OF CONTENTS
PAGE
----
I Status Update..................................................................... 1
II Valuation Analysis
A Valuation Summary.............................................................. 2
B Offer Premium Analysis........................................................ 3
C Share Price Performance........................................................ 4
D Selected Comparable Publicly Traded Companies Analysis......................... 5
E Selected Comparable Transactions Analysis..................................... 6
F Discounted Cash Flow Analysis................................................. 7
III Purchase Price Ratio Analysis..................................................... 8
Appendices
A Revised Financial Projections Summary.......................................... 9
B Draft Fairness Opinion........................................................
2
STATUS UPDATE
-- On July 9, 1997, Anita Kopec resigned as President and Chief Executive
Officer.
-- Through July and June, respectively, Sonic's consolidated year-to-date
financial performance was as follows:
1997 YTD % DIFF V. BUDGET
----------------- ---------------------
JULY JUNE JULY(1) JUNE(2)
----- ----- ------- -------
(US$ IN MILLIONS)
Revenue $49.0 $38.8 (18)% (11)%
Operating Income 5.5 4.7 (41)% (23)%
Net Income 3.0 2.6 (45)% (26)%
- ---------------
(1) As provided by Sonic management.
(2) "PPI" of 2/97.
-- On August 18, 1997, Sonic's management provided BZW with revised
financial projections:
1997E 1998E
-------------------- -------------------
REVISED JULY REVISED JULY
------- ------ ------ ------
(US$ IN MILLIONS)
Revenue $92.0 $105.7 $109.2 $124.1
EBIT 7.0 16.1 11.9 21.3
Net Income 3.7 9.2 7.2 13.1
EPS $0.25 $ 0.63 $ 0.49 $ 0.89
C According to Sonic's management, downward revisions in the
projections can be attributed to:
-- Revised view of Edunetics
-- IBM contract
-- Library business performance
-- Harcourt budgeting philosophy
-- On August 28, 1997, BZW met telephonically with James Levy, President of
Harcourt's Education and Trade Group.
1
3
VALUATION SUMMARY(1)
IMPLIED REFERENCE MULTIPLES INDICATIVE SHARE PRICE(7)
OFFER ---------------------- --------------------------
VALUATION METHODOLOGY MULTIPLES LOW MID(6) HIGH LOW MID HIGH
- ----------------------------- --------- ---- ------ ---- ------ ------ ------
(US$ IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
OFFER PRICE $ 14.50
COMPARABLE COMPANIES
Price to:
LTM EPS(2) $ 0.59 24.6x 13.5x 24.1x 30.2x $ 7.97 $14.22 $17.82
1997E EPS 0.64(3) 22.7 21.6 21.8 22.8 13.82 13.95 14.59
Enterprise Value to LTM:(2)
Revenue $91.6 2.4x 0.9x 2.0x 2.3x $ 4.84 $11.63 $13.76
EBITDA 18.7 11.9 4.7 8.8 10.1 5.31 10.58 12.21
EBIT 14.5 15.3 5.6 15.3 20.9 4.93 14.44 19.93
COMPARABLE TRANSACTIONS(4) 1.1x 2.5x 3.0x $ 6.25 $14.96 $18.04
DISCOUNTED CASH FLOW
ANALYSIS(5) $12.58 $15.29 $18.39
- ---------------
(1) As of 8/29/97.
(2) Sonic LTM through 6/30/97.
(3) I/B/E/S consensus mean estimate as of July 1997. Sonic's August 1997
projections reflect $0.25 1997E EPS.
(4) Based on completed comparable transactions and LTM revenues multiples.
(5) Estimated valuation using internal projections revised as of August 1997.
(6) Represents median for all methodologies except DCF. For DCF, represents the
midpoint based on the range of terminal values and discount rates analyzed.
(7) Based on 6/30/97 balance sheet.
2
4
OFFER PREMIUM ANALYSIS
AS OF HARCOURT ANNOUNCEMENT(1)
---------------------------
OFFER PREMIUM
PRICE AT $14.50
------ -------------
SONIC STOCK PRICE
April 16, 1997(1) $10.50 38.1%
1 Month Average(2) 10.92 32.8%
6 Month Average(2) 11.20 29.5%
1 Year Average(2) 11.20 29.5%
1995-1997 ACQUISITION TRANSACTIONS(3)(4)
1 Day Prior 24.4%
4 Weeks Prior 39.3%
1995-1997 ACQUISITION OF REMAINING INTEREST TRANSACTIONS(3)
1 Day Prior 18.8%
4 Weeks Prior 25.3%
- ---------------
(1) On April 16, 1997, Harcourt announced its intention to offer to acquire the
remaining interest in Sonic for $14.00.
(2) Average for period ended April 16, 1997.
(3) Source: Securities Data Corp. as of 8/97.
(4) Includes all announced acquisitions with transaction values between $100
million - $300 million.
3
5
[GRAPH OF ONE YEAR INDEX V. S&P 500 AND COMP INDEX]
[GRAPH OF ONE YEAR STOCK PRICE HISTORY]
4
6
SELECTED COMPARABLE PUBLICLY TRADED COMPANIES(1)(2)
ENTERPRISE VALUE
52 WEEK RANGE EQUITY AS A MULTIPLE OF LTM:
CURRENT ---------------- MARKET ENTERPRISE --------------------------
COMPANY (TICKER) FYE LTM PRICE HIGH LOW VALUE VALUE REVENUES EBITDA EBIT
- ------------------------ --------- -------- ------- ------ ------ ------ ---------- -------- ------ ----
(US$ IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
Sonic 12/31/96 6/30/97 $ 13.88 $14.50 $10.50 $ 203 $ 213 2.3x 11.4x 14.7x
COMPARABLE PUBLIC
COMPANIES
Golden Books Family
Entertainment (GBFE) 12/28/96 6/28/97 $ 9.94 $13.38 $ 7.88 $ 263 $ 553 2.1x nm nm
Houghton Mifflin Co.
(HTN) 12/31/96 6/30/97 34.69 37.00 22.63 1,047 1,723 2.3 10.1x 20.9x
John Wiley & Sons
(JW/A) 4/30/97 4/30/97 32.44 35.38 26.63 528 574 1.3 7.8 14.9
McGraw-Hill Companies
(MHP) 12/31/96 6/30/97 61.31 69.50 40.13 6,126 7,054 2.1 9.7 15.7
Plenum Publishing
(PLEN) 12/31/96 6/30/97 44.00 45.50 33.00 169 96 1.8 4.7 5.6
Scholastic Corp.
(SCHL) 5/31/97 5/31/97 34.25 78.50 20.75 559 847 0.9 nm nm
Mean 1.8x 8.1x 14.3x
Median 2.0 8.8 15.3
High 2.3 10.1 20.9
Low 0.9 4.7 5.6
Sample 6 4 4
SHARE PRICE AS A MULTIPLE OF:
------------------------------- PROJECTED
CAL '97E CAL '98E EARNINGS
COMPANY (TICKER) LTM EPS EPS(3) EPS(3) GROWTH(3)
- ------------------------ ------- -------- -------- ----------
<
Sonic 23.7x 21.7x na 12.5%
COMPARABLE PUBLIC
COMPANIES
Golden Books Family
Entertainment (GBFE) nm nm nm na
Houghton Mifflin Co.
(HTN) 30.2x 22.8x 19.1x 17.5%
John Wiley & Sons
(JW/A) 21.9 21.8 na 20.0%
McGraw-Hill Companies
(MHP) 26.4 21.6 19.3 12.0%
Plenum Publishing
(PLEN) 13.5 na na na
Scholastic Corp.
(SCHL) nm nm 18.5 15.0%
Mean 23.0x 22.1x 19.0x 16.1%
Median 24.1 21.8 19.1 16.8%
High 30.2 22.8 19.3 20.0%
Low 13.5 21.6 18.5 12.0%
Sample 4 3 3 4
- ---------------
(1) Based on data from continuing operations. Excludes extraordinary and
non-recurring items.
(2) As of 8/29/97.
(3) Based on I/B/E/S consensus mean estimates as of 8/25/97. For Sonic, estimate
as of 7/97.
nm = Not meaningful.
na = Not available.
5
7
SELECTED COMPARABLE TRANSACTIONS
ENTERPRISE
TRANSACTION VALUE AS VALUE AS A
A MULTIPLE OF: MULTIPLE
DATE ACQUIROR/ -------------------- OF:
ANNOUNCED/ TARGET TRANSACTION ENTERPRISE LTM(3) BOOK -------
EFFECTIVE TARGET BUSINESS DESCRIPTION VALUE(1) VALUE(2) NET INCOME VALUE REVENUE
- --------- ------------------------------------------------------- ----------- ---------- ---------- ----- -------
(US$ IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
7/2/97 Cinar Films Inc./ $ 40.5 $ 40.5 17.0x(4) na 1.9x
7/29/97 Carson-Dellosa Publishing Corp.
provider of educational materials for primary schools
6/30/97 Harlequin Enterprises (Torstar Corp.)/ 140.0 140.0 na na 1.1
7/22/97 Troll Communications LLC
publishes and distributes children's books
11/13/96 IBM Corp./ 120.0 95.2 110.4 3.0 x 3.0
Edmark
12/17/96 publishes and distributes software educational
packages to children and adults struggling with
fundamental skills.
4/17/96 Harlequin Enterprises (Torstar Corp.)/ 33.0 33.0 na na 3.0
4/17/96 Tom Snyder
publisher of educational software for elementary and
middle grades
2/5/96 Tribune Co./ 82.0 na na na 2.6
3/11/96 NTC Publishing Group
publishes educationally-oriented materials
1/29/96 Tribune Co./ 200.0 197.2 na na 2.9
3/11/96 Educational Publishing
publish educational materials
12/18/95 National Education Corp./ 12.0 12.0 nm 1.1 2.1
4/30/96 Edunetics
researches, develops and supports computer
network-based software systems at the middle and high
school levels
8/28/95 Tribune Co./ 25.0 25.0 na na 1.9
8/28/95 Everyday Learning Corp.
publish educational books
4/26/94 Harlequin Enterprises Ltd. (Torstar Corp.)/ 83.0 83.0 na na 2.3
5/31/94 Frank Schaffer Publications
produces children's supplementary educational
products
1/24/94 Tribune Co./ 100.0 100.0 na na 2.9
2/22/94 Wright Group
publish books
Mean 63.7x 2.0 x 2.4x
Median 63.7 2.0 2.5
High 110.4 3.0 3.0
Low 17.0 1.1 1.1
Sample 2 2 10
% PREMIUM PRIOR TO
DATE ANNOUNCEMENT
ANNOUNCE EBITDA EBIT ---------------------
EFFECTIV EBITDA EBIT MARGIN % MARGIN % 1 DAY PRIOR 4 WEEKS
- --------- ------ ---- -------- -------- ----------- -------
7/2/97 8.1x(4) na 23.0%(5) na na na
7/29/97
6/30/97 na na na na na na
7/22/97
11/13/96 98.2 nm 2.8% nm 35.5% 33.3%
12/17/96
4/17/96 na na na na na na
4/17/96
2/5/96 na na na na na na
3/11/96
1/29/96 na na na na na na
3/11/96
12/18/95 na na na na 53.1% 50.0%
4/30/96
8/28/95 na na na na na na
8/28/95
4/26/94 na na na na na na
5/31/94
1/24/94 na na na na na na
2/22/94
Mean 53.2x na 12.9% na 44.3% 41.7%
Median 53.2 na 12.9% na 44.3% 41.7%
High 98.2 na 23.0% na 53.1% 50.0%
Low 8.1 na 2.8% na 35.5% 33.3%
Sample 2 0 2 0 2 2
- ---------------
(1) Transaction Value = Equity Value
(2) Enterprise Value = Transaction Value + Net Debt
(3) LTM = Latest Twelve Months
(4) Multiple based on press account of fiscal 1998 projections.
(5) Estimated by BZW based on implied multiples.
nm = Not meaningful.
na = Not available.
Source: Securities Data Corp. and publicly available information.
6
8
DISCOUNTED CASH FLOW ANALYSIS(1)
TERMINAL VALUE BASED ON AVERAGE OF UNLEVERED NET INCOME, EBITDA AND REVENUE
WACC
--------------------------------------------------
13.0% 14.0% 15.0% 16.0% 17.0%
------ ------ ------ ------ ------
(US$ IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
PRESENT VALUE OF UNLEVERED FREE CASH
FLOWS: 7/97-12/01E $ 41.0 $ 40.1 $ 39.1 $ 38.3 $ 37.4
PRESENT VALUE OF TERMINAL VALUE MULTIPLE
2001E Unlevered Net Income 15.0x $208.1 $200.0 $192.3 $185.0 $177.9
17.5 242.8 233.3 224.4 215.8 207.6
20.0 277.5 266.7 256.4 246.6 237.3
2001E EBITDA 7.0x $181.3 $174.3 $167.6 $161.2 $155.1
8.0 207.2 199.2 191.5 184.2 177.2
9.0 233.2 224.1 215.5 207.2 199.4
2001E Revenues 1.50x $160.2 $153.9 $148.0 $142.3 $136.9
1.75 186.8 179.6 172.7 166.1 159.8
2.00 213.5 205.2 197.3 189.8 182.6
Average Terminal Value LOW $183.2 $176.1 $169.3 $162.8 $156.7
MID 212.3 204.0 196.2 188.7 181.5
HIGH 241.4 232.0 223.1 214.5 206.4
PV Enterprise Value(2) LOW $214.1 $206.0 $198.3 $191.0 $183.9
MID 243.2 234.0 225.2 216.8 208.8
HIGH 272.3 262.0 252.1 242.7 233.7
Value per Share(2)(3) LOW $14.56 $14.03 $13.52 $13.04 $12.58
MID 16.48 15.87 15.29 14.74 14.21
HIGH 18.39 17.71 17.06 16.44 15.85
- ---------------
(1) Estimated 1997E-2001E based on August 1997 internal projections.
(2) Estimated value as of 6/30/97.
(3) Assumes net debt of $10.1 million, 14.5 million shares outstanding and 0.7
million options with an average exercise price of $10.33.
7
9
PURCHASE PRICE RATIO ANALYSIS
PURCHASE
PRICE
(US$ IN MILLIONS, EXCEPT PER SHARE AMOUNTS) PER SHARE
-----------------
PURCHASE PRICE ANALYSIS $ 14.50
Premium to 4/16/97 Share Price ($10.50 per share) 38.1%
ENTERPRISE VALUE
Aggregate Equity Value(1) $ 212.0
Net Debt(2) 10.1
------
Enterprise Value $ 222.1
======
FINANCIALS(3)
-------------
ENTERPRISE VALUE TO REVENUES
LTM $ 91.6 2.4x
1997E 92.0 2.4
1998E 109.2 2.0
ENTERPRISE VALUE TO EBITDA
LTM $ 18.7 11.9x
1997E 11.3 19.7
1998E 16.9 13.2
ENTERPRISE VALUE TO EBIT
LTM $ 14.5 15.3x
1997E 7.0 31.7
1998E 11.9 18.7
PRICE TO EPS
LTM $ 0.59 24.6x
1997E 0.25 58.0
1998E 0.49 29.6
- ---------------
(1) Assumes 14.5 million shares outstanding and 0.7 million options with a
weighted average exercise price of $10.33. Assumes 40% marginal tax rate and
treasury method repurchase of shares.
(2) As of 6/30/97.
(3) LTM through 6/30/97. 1997E and 1998E based on internal forecasts revised as
of 8/97.
8
10
APPENDIX -- REVISED FINANCIAL PROJECTIONS SUMMARY(1)
1997E 1998E
------------------------------- -------------------------------
REVISED JULY % CHANGE REVISED JULY % CHANGE
------- ------ -------- ------- ------ --------
(US$ IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
REVENUES
Core Publishing................. $77.6 $ 80.8 (4.0%) $ 89.2 $ 92.9 (4.0%)
Summit.......................... 11.0 11.8 (6.8%) 13.2 14.2 (6.8%)
Edunetics....................... 3.4 13.1 (74.0%) 6.8 17.0 (60.0%)
----- ------ ------ ------ ------ ------
Total Revenues.................. $92.0 $105.7 (13.0%) $ 109.2 $124.1 (12.0%)
EBIT
Core Publishing................. $13.4 $ 16.5 (18.7%) $ 16.8 $ 18.7 (10.0%)
Summit.......................... (0.0) 0.3 (104.3%) 0.6 1.1 (40.5%)
Edunetics....................... (6.4) (0.8) (751.5%) (5.5) 1.5 (477.4%)
----- ------ ------ ------ ------ ------
Total EBIT...................... $ 7.0 $ 16.1 (56.4%) $ 11.9 $ 21.3 (43.8%)
TOTAL NET INCOME.................. $ 3.7 $ 9.2 (60.0%) $ 7.2 $ 13.1 (45.3%)
EARNINGS PER SHARE(2)............. $0.25 $ 0.63 (60.0%) $ 0.49 $ 0.89 (45.3%)
- ---------------
(1) Projections revised as of 8/97.
(2) Based on 14.7 million shares outstanding.
Source: Sonic Management
9
11
DRAFT
September [ ], 1997
Committee of Disinterested Directors of the
Board of Directors
Steck-Vaughn Publishing Corporation
4515 Seton Center Parkway, Suite 300
Austin, TX 78759-8365
Gentlemen:
You have requested us to provide our opinion with respect to the fairness,
from a financial point of view and as of the date hereof, of the consideration
to be received by holders of common stock, $.01 par value ("SVPC Common Stock"),
of Steck-Vaughn Publishing Corporation ("SVPC"), other than Harcourt General,
Inc. ("Harcourt"), National Education Corporation, a wholly-owned subsidiary of
Harcourt ("NEC"), and SV Acquisition Corporation, a wholly-owned subsidiary of
NEC ("SVAC"), pursuant to the Agreement and Plan of Merger dated as of September
, 1997, by and among SVPC, Harcourt, NEC and SVAC (the "Agreement").
The Agreement provides for the merger of SVAC with and into SVPC (the
"Merger"). In the Merger, each outstanding share of SVPC's Common Stock, other
than shares owned by Harcourt, NEC, SVAC or any other direct or indirect
wholly-owned subsidiary of Harcourt or of SVPC, will be converted into the right
to receive $[ ] in cash, without interest (the "Merger Consideration").
For purposes of this opinion we have: (i) reviewed financial information
with respect to SVPC furnished to us by SVPC, including certain internal
financial analyses and forecasts prepared by the management of SVPC; (ii)
reviewed publicly available information regarding SVPC; (iii) held discussions
with the senior management of SVPC and Harcourt concerning the business, past
and current business operations, financial condition and future prospects of
SVPC; (iv) reviewed the stock price and trading history of SVPC; (v) reviewed
the valuations of publicly traded companies which we deemed comparable to SVPC
and compared the financial terms of the Merger with such valuations; (vi)
compared the financial terms of the Merger with other transactions which we
deemed relevant; (vii) prepared a discounted cash flow analysis with respect to
SVPC; (viii) reviewed the Agreement; and (ix) made such other studies and
inquiries, and reviewed such other data, as we deemed relevant.
In connection with our opinion, we have not, however, independently
verified any of the foregoing information and have relied on all such
information being complete and accurate in all material respects. Furthermore,
we did not obtain, or assume any responsibility for obtaining, any independent
appraisal of the properties or assets and liabilities of SVPC. With respect to
the financial and operating forecasts of SVPC which we have reviewed, we have
assumed that such forecasts have been reasonably prepared in good faith on the
basis of reasonable assumptions and reflect the best currently available
estimates and judgments of SVPC's management, and that such projections and
forecasts will be realized in the amounts and in the time periods currently
estimated by the management of SVPC. This opinion is necessarily based upon
market, economic, and other conditions that exist and can be evaluated as of the
date of this letter, and on information available to us as of the date hereof.
BZW has provided certain investment banking and corporate banking services
to NEC from time to time, including the acquisition of NEC by Harcourt, and has
received fees for those services. Furthermore, BZW has acted as financial
advisor to the Committee of Disinterested Directors of the Board of Directors of
SVPC in connection with the Merger, and is entitled to receive fees in that
regard.
12
Based upon and subject to the foregoing considerations, it is our opinion
that, as of the date hereof, the Merger Consideration is fair to the holders of
SVPC Common Stock, other than Harcourt, NEC and SVAC from a financial point of
view.
Very truly yours,
BZW
A division of Barclays Bank PLC
By:
------------------------------------
Richard J. Adubato
Director
2