Decoding Monster’s $3.40 Acquisition Price: Is A Failed Turnaround Implied In The Price?

As part of its second quarter earnings release last month, Monster Worldwide (NASDAQ:MWW) announced that it had agreed to be acquired by Randstad Holding for $429 million at a purchase price of $3.40 per share. This was around 23% ahead of the company’s trading price on August 8th, the last trading day prior to the announcement, and represented an almost 30% premium over the company’s 90-day average stock price.

Although the bid price offers a substantial premium over Monster’s 90-day average stock price (May 9-Aug 8 2016), it is pertinent to note that the company’s stock price touched a high of $7.65 in October 2015 and the company bought back shares at an average price of about $6.00 in December 2015. Unsurprisingly, some of the company’s institutional investors are unhappy with the acquisition price agreed to by Monster’s management. MediaNews Group Inc. released an open letter recently to dissuade shareholders from accepting the $3.40 acquisition price citing an arbitrary and low valuation. MediaNews Group Inc. is Monster’s largest shareholder, with an ownership interest of 11.6% of the company’s outstanding shares.

Below we dig deeper into Monster’s discounted cash flow (DCF) valuation model and look at the possible forecasts which justify a $3.40 per share price for the company. (For an interactive chart of Monster’s $3.40 Model, Click Here) It will also become clear that the company’s inability to turn around declining sales in North America was likely a primary reason behind the decision to sell at this price. 

As shown above, our price estimate for Monster (referred to as the Old Case) is $4.00, which is based on an EV/EBITDA ratio of 4.3. To arrive at the current acquisition price of $3.40, we have to slightly change our growth forecasts for Career Services revenue and Career Services EBITDA margin over our forecast period. Career Services is the primary division, as it contributes over 90% of the company’s top line, and Monster has been struggling to improve its performance over the last several quarters, especially in North America.

If we revise our Career Services revenue forecast to decline from an existing CAGR (compounded annual growth rate) of -2.6% to -3.8% over the 2017-23 period, and lower the segment EBITDA margin forecast by 200 basis points in the final year of forecast, our estimate for Career Services’ division value declines by 22% to $177 million and Monster’s share price estimate falls to around $3.40.

Based on the above tables, it seems likely that the company does not expect to arrest the decline in its Career Services revenue in the near term, and therefore agreed to a valuation which many investors thought was too low. In fact, the company’s recent top line performance suggests that this 4% CAGR decline estimate could even be conservative in the short term. 

Have more questions about Monster? Please refer to our complete analysis for Monster