Centcom Case

Topics: Revenue, Income, Generally Accepted Accounting Principles Pages: 2 (402 words) Published: May 22, 2012
Case 05-6
Centcom Inc    
Britel is a telecommunications company based in Italy and completely owned by TTL Group LLC. Centcom Inc, a telephone company just entered into an agreement to manage Britel. The agreement gives Centcom the opportunity to acquire the company completely if Centcom desires to do so.  Based on the terms and the agreement between both companies it is a good opportunity for Centcom to actually consolidate Britel. Britel has a current deficit in shareholders’ equity however the benefits that Centcom can obtain by acquiring the company are much larger than the disadvantages. If Centcom in fact decides to acquire Britel, the company will acquire a vast amount of benefits. One of the benefit with the current agreement is that Centcom is entitled to receive 80 percent of Britel EBTIDA by simply paying a fee that it is actually paid from sufficient cash being generated from Britel’s own operations. Centcom will have the power to manage the administrative and operational activities of Britel, including hiring and terminating employees. Centcom actually plans to integrate Britel’s activities into its own operations. On the other hand there are also some disadvantages. Centcom will only have one member on the six-member board of directors which are key when it comes to major expansion transactions such as acquisitions or joint ventures. The fact that Britel currently holds a deficit in shareholders equity can be offset with the fact that Centcom would be able to provide additional services to Britel’s customer that Britel did not provide before. Not only are they providing more services, but they estimate that under its management, economies of scale benefits will be realized, and therefore it will reduce Britel’s operating costs.  Assuming that Centcom estimates and new services are actually liked by customers, they will increase Britel revenues and lower cost which will lead to a higher revenue, which will eventually eliminate the shareholders...
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