STRATEGY & FINANCE
MID-SEMESTER ASSIGNMENT Dr. John Heptonstall Bao Chau Nguyen Xuan May 2011
I/ Summary of FVC & RSE’s business activities 1. Flinder Valves and Controls Inc. Flinder Valves and Controls Inc. is a small company located in Southern California, manufactured specialty valves & heat exchangers. This company realized an outgrowth in 1980s of previous century from a small company for engineering on an experimental heat-exchanger product. After 7 years, it acquired the properties of the engineering corporation under the leadership of Bill Flinder, an outstanding researcher. He always concentrates on R&D not only to improve current products but also to create new products with patent protection. Moreover, it also owns a reputation for engineering excellence in the most complex phases of the business that helped them reward a U.S government contract on an advanced hydraulic-controls system, code-named “widening gyre”. Especially, in competitive erosion in the mid-2000s, FVC came onto the market many new products for the aerospace & defense industries. As a result, sales in the first quarter of 2008 grew 23% while many other competitors experienced a limited growth. Additionally, FVC’s plants were also organized efficiently with modern constructions. The Auden Company is a large firm which was an important foreign distribution channel of FVC (about 15% of FVC’s sales came from Auden Company). With FVC’s success, in 1996, Flinder Valves decided to take public and obviously, Auden became a big holder of 20% FVC common stock. From 1998, FVC received various merger proposal (Auden company included), but none reached the stage of working out an agreement until the advances of RSE International Corporation. 2. RSE International Corporation RSE International Corporation is considered as a Russell 1000 company is founded by Tom Eliot in 1970. Based on what he perceived to the firm’s challenges, Tom Eliot persuaded RSE’s board to realize an aggressive growth-by-acquisition program which aims to create opportunities & entries into more dynamic markets. In 2008, RSE produced and sold a range of advanced industrial products for aerospace propulsion, for navigation assemblies and for missile & fire-control systems. With an ample supply from various producers, RSE is known as a lowcost producer although RSE’s plants always were well-equipped with substantially modern machinery. In late 2006, RSE started to implement a project CORE to improve & unify the corporate wide information systems. With the latest sales & earnings forecasts, RSE’s managers think that they can earn sales of $3 billion with a steady increase over the next five years. In spite of Eliot’s confidence for the future of the company, he believed that RSE’s stock is undervalued.
II/ Answer questions 1. Does the proposed acquisition make sense? Is there potential synergy and if so where will it come from? The idea of selling FVC to a bigger firm seemed to be very imperative and almost necessary. I can be sure that the proposed acquisition makes sense. Based on the case and the provided data; we can see FVC’s situation as well as its strengths and weaknesses. Strengths: - FVC had an excellent engineering team as well as a good top management team, an excellent prospect for improved performance, modern efficient plants. - FVC got a government contract to develop an advanced hydraulic-controls system “widening gyre”. - FVC is a company with lots of growth potential in the future. Weakness: - Bill Flinder was approaching retirement and despite FVS’s good top-management team, none of them were qualified enough to run the company alone. - It lacks infrastructure to manage growth as well as fund to expand their R&D activities finding a well-financed partner, who is capable of supporting, would be a good solution. - FVC just have a logistically structured for small production. It has limited expertise in high-volume manufacturing. Contrast to FVC’s weakness,...
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