Proposed Acquisition of Southern Comfort

Topics: Stock market, Stock, Financial markets Pages: 11 (2253 words) Published: March 18, 2011
1.Executive Summary
The case study has been approached from different valuation methods to ascertain if there is value in the acquisition of Southern Comfort. These methods all yield the same result, i.e. Southern Comfort is expensive at the asking price of $94.6million. The valuation methods also examined the reasonableness of the acquisition using methods such as Free Cashflow Analysis, Book Value methods and Price Earnings ratios analysis

The qualitative aspects have also been analysed to find out if there is value from a qualitative perspective. Methods such as SWOT analysis have been utilized to check if there would be a ‘perfect fit’. A perfect fit is basically an analysis that the acquisition will bring synergy between the two corporations. Key success factors were also looked at, as these can point out the viability of the acquisition by highlighting what will be key to the success of the new venture.

Evaluation of Private Company
The evaluation criteria will de done using the following:
Evaluate reasonableness of the asking price of $94.6 million Effects of the acquisition on BF share price
How BF have chosen to position itself among its competitors would affect the appraisal of SC

1977 BF adopted long-range financial goals
1)Hurdle rates for investment - 14% after tax
2)Size of capital budget through 1980
3)Target capital structure
4)Dividend payout
Objective of these goals was to “increase the value of the stockholders’ investment”

Other objectives
Creation of business approaches that BF could have not taken on its own Focus on developing a new vision, a new set of expectations, a solid operating style and a culture that draws upon and respects the BF traditions but that rises above family roots The proposal should offer a comprehensive analysis of the strategic and financial rationale behind the proposed acquisition transaction within the overall mission of BF Best fit strategically

3.Qualitative Analysis: Impact on Strategic Position
Brown-Forman Distillers Corporation (BF) as a company with listed Class A shares on the American Stock Exchange (ASE) was growing, always under pressure to ensure a respectable value return to its shareholders. This pressure is however, compounded by the return on equity received by its counterparts in the same sector and are also listed on the ASE and/or any other bourses.

Notwithstanding the above, the recognition of strategic threat and opportunity in BF’s competitive area should motivate any strategic acquisition deal which the company may impact on. Besides the critical evaluation of the financial matrix that is crucial importance to the conclusion of this deal, it is also equally important to link them to the qualitative factors that may be in some cases more convincing than otherwise thought to be. In assessing these factors, it is important to first of all ask a question, why is BF considering buying Southern Comfort (SC)? To answer this question from a strategic analytical point of view, it is it is important to assess the key industry success factors, opportunities and threats vis-à-vis BF and SC strengths and weaknesses.

Industry Key Success Factors, Strength, Weakness, Opportunities and Threats (SWOT) There are number of factors that are important in order to succeed in the liquor, wines and whiskey industry. These are vigorous marketing, heavy advertising and adverting expenditures, skillful branding, accurate product positioning and a well blended product-mix. (See Appendix?). In respect of the above, BF is presently positioned at a vantage point. Industry independent reports noted that BF is the leading producer, marker and importer of distilled spirits. It also has a strong balance sheet, the firm has a long-term marketing philosophy and commitment to its strategic intend and special competencies in building brand franchises (see Appendix?). However, there are still weaknesses in the product-line mix which SC could...
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