EXPANSION INTO EUROPE
The management of Custom Snowboards, Inc. is considering an expansion to Europe. The
percentage of the total sales from Europe has grown and the growth is expected to
continue. The company could pursue this expansion from a variety of different options.
Business Risk Assessment:
The CEO is concerned about the risks of expansion into Europe. In particular, he wonders
about what affects a European expansion will have on the internal operations of the
European entity and how the company can react to external issues that any company
expanding into Europe will encounter.
1. Custom Snowboards has investigated expanding into Europe by procuring a building
and equipment and creating a new manufacturing facility. This would involve
purchasing a building and equipment for $800,000. An additional $200,000 of
working capital would need to be acquired for starting up operations. There are
some additional considerations that the company can consider:
a. Build a facility and install equipment.
b. The company has researched alternatives of paying for the building and
equipment on a time basis. They have identified an option of entering into a
sale-leaseback and an option that will involve a straight purchase over time.
2. European SnowFun Inc. is currently operating in Europe and has heard about your
expansion plans. European SnowFun has proposed to combine businesses with
Custom Snowboards. European SnowFun’s product is less durable, but the company
sales are relatively strong based on offering a personalized paint job on snowboards
that are special ordered. The two alternatives are under consideration:
a. A merger where the shareholders of European SnowFun Inc. would receive one
share of Custom Snowboards Inc. stock for each three shares they hold at the
time of the merger. (stock swap)
b. An Acquisition. European SnowFun Inc. has offered to be acquired. Custom
Snowboards Inc. is... [continues]
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