Extracts from the Independent Expert's Report from Dec 2003:"6.4...

Extracts from the Independent Expert's Report from Dec 2003:

"6.4 Underlying Value of VRL (page 65)

The equity in VRL has been valued in the range $1,040-1,324 million. The valuation is summarised below:

VRL – Valuation Summary (A$ millions)
.....................................Low.......High
Operating businesses
Austereo (59.7%).....................435.......475
Exhibition...........................370.......425
Production...........................280.......330
Theme Parks..........................130.......170
Distribution..........................75........95
Corporate Overheads/other...........(225).....(200)
Enterprise Value...................1,065.....1,295
Other liabilities...................(100)......(50)
Net cash at 31 October 2003...........75........79
Value of net assets................1,040.....1,324

The valuation represents the full underlying value, and exceeds VRL’s expected share market capitalisation in the absence of a takeover offer or other similar transaction. VRL has been valued by aggregating the estimated market value of VRL’s businesses and its 59.8% shareholding in Austereo, adjusting for corporate overheads, subtracting other liabilities and adding net cash. Limited recourse borrowings relating to each of the businesses, including the production borrowings, have been included in the valuation of each business. Net cash is based on VRL’s management accounts as at 31 October 2003. The principal approach to valuing VRL’s major businesses was by capitalisation of earnings. Discounted cashflow analysis was undertaken as a secondary check for some of the businesses."

Page 77:

"Assessments of underlying value aim to estimate the value that would be realised in a change of control. In the event of a takeover of VRL, it is likely that the bidder would extend its offer to the ordinary shares created on conversion of the Preference Shares. Holders of Preference Shares would be likely to receive the same price as holders of ordinary shares. Accordingly, Grant Samuel believes that, for the purpose of this analysis, it is appropriate to allocate the estimated full underlying value of VRL equally as between the ordinary and Preference shares. On this basis, the estimated underlying value per share (for both ordinary and Preference shares) is as follows:

VRL – Underlying Value per Ordinary and Preference Share
.......................................Low........... High
Value of net assets...................1,040..........1,324
Ordinary shares on issue (millions)....234.9.........234.9
Preference Shares on issue (millions)..250.2.........250.2
Total shares on issue
(ordinary and preference) (millions)..485.1........485.1
Value per share........................2.14..........2.73

The value attributed to the Offer of $1.21-1.24 per Preference Share is substantially less than the estimated underlying value attributable to the Preference Shares of $2.14-2.73 per share. If the Proposal proceeds, there will be a significant value transfer from holders of Preference Shares to holder of ordinary shares.

However, comparisons between the value of the Offer and estimated underlying value are of only limited relevance. Holders of Preference Shares have no way of accessing underlying value, other than in circumstances in which a successful takeover offer is made for VRL ordinary shares. Given the controlling shareholding of VRC, the company associated with the Kirby family and Graham Burke, shareholders’ prospects of realising full underlying value through a takeover offer appear remote. Even if VRC was prepared to accept a takeover offer, third parties may not offer full underlying value for VRL. The value of many of VRL’s businesses depends, at least in part, on elationships with Warner Bros., and a change of control could affect value, potentially materially. It is possible that VRC could seek to privatise VRL at some future time. However, given the existing controlling shareholding and the limited prospects for a competitive offer, there would be no need for any privatisation bid to be made at a price reflecting full underlying value."


Regards

SP