1. Is Robertson an attractive acquisition for Monmouth? (MON) 2. What is the maximum price that MON can afford to pay based on a discounted cash flow (DCF) valuation? What would be the maximum price per share?
• Estimate the WACC
• Credibility of the forecasts developed by Vincent and Rudd? • Estimation of the terminal value.
• What determines whether sales growth is value-creating versus destructive of value? 3. What is the maximum price based on market multiples of later four quarters? EBIAT? Based on prospective EBIAT? (also on a per share basis).
4. What price will be necessary to gain the support of the Robertson family, Simmons, and the great majority of the stockholders?
What are the interests, concerns, and alternatives of each group? Does MON have a competitive advantage over the NDP in the bidding contest? How likely is NDP to increase its offer in response to the bid by MON? 5. What price can MON pay without harming its long-term trend in earnings per share (EPS) and its shareholder value?
EXECUTIVE SUMMARY IS REQUIRED. IT HAS TO BE 1 PAGE –DOUBLE SPACE ALL QUESTIONS MUST BE ANSWERED ON A WORD DOCUMENT .
PLEASE ATTACH ALSO YOUR EXCEL SPREADSHEET
HBS Professor Thomas R. Piper and HBS MBA Heide Abelli prepared this case solely as a basis for class discussion and not as an endorsement, a source of primary data, or an illustration of effective or ineffective management. This case, though based on real events, is fictionalized, and any resemblance to actual persons or entities is coincidental. There are occasional references to actual companies in the narration. Copyright © 2010 Harvard Business School Publishing. To order copies or request permission to reproduce materials, call 1-800-545-7685, write Harvard Business Publishing, Boston, MA 02163, or go to http://www.hbsp.harvard.edu. No part of this publication may be reproduced, storedin a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of Harvard Business Publishing. Harvard Business Publishing is an affiliate of Harvard Business School. THOMAS R. P IPER
Harry Vincent, executive vice president of Monmouth, Inc., was reviewing acquisition candidates for his company’s diversification program. One of the companies, Robertson Tool Company, had been approached by Monmouth three years earlier but had rejected all overtures. Now, however, Robertson was in the middle of a takeover fight that might provide Monmouth with a chance to gain control.
Monmouth was a leading producer of engines and massive compressors used to force natural gas through pipelines and oil out of wells. Management was concerned, however, over its heavy dependence on sales to the oil and gas industries and the violent fluctuation of earnings caused by the cyclical nature of heavy machinery and equipment sales. Although the company’s long-term sales and earnings growth had been above average, management believed that its cyclical nature had dampened Wall Street’s interest in the stock substantially. Initial efforts to lessen the earnings volatility were not entirely successful. Monmouth acquired a supplier of portable industrial power tools, a manufacturer of small industrial air and process compressors, a maker of small pumps and compressors, and a producer of tire-changing tools for the automotive market. The acquisitions broadened Monmouth’s markets but still left it highly sensitive to general economic conditions.
The continued volatility prompted a full review of the company’s acquisition strategy. After several months of study, three criteria were established for all acquisitions. First, the industry should be one in which Monmouth could become a major player. This requirement was...