Southern Comfort Corporation Case Summary
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Brown-Forman Board Report | Potential Acquisition of Southern Comfort Corporation | | This board report summarizes the arguments for why it is believed that the acquisition of Southern Comfort Corporation (including Caligrapo Inc.) is a strategic fit that will increase shareholder value through increased sales and profitability | | Vinny Perumal | 3/7/2011 | |
CONTENTS
1. Executive Summary 2 2. Background 3 1.1 An Industry Analysis 3 1.1.1 A Mature Industry 3 1.1.2 Key Success Factors 3 1.1.3 Competitor Analysis 5 3 Qualitative Analysis 7 3.1.1 Strategic Analysis 7 3.1.2 SWOT Analysis 7 3.1.3 Strategic Fit 8 4 Quantitative Analysis 9 4.1 Comparison of Southern Comfort to its peers* 9 4.2 Increasing Shareholder Value 10 4.2.1 Return rate …show more content…
Increasing Shareholder Value
Return rate (Gross Profit)
Currently Southern Comfort is showing a good average gross profit growth rate of 7% which will enhance the shareholder value after the acquisition. The company shows a healthy 5 year forecast but growth slows and then declines in year 10 by -1.15 %( Refer to Appendix 3). This slow down and decline could be attributed to the lifecycle of the product. The product could have reached maturity and will need some form of innovation.
The Earnings per share
The level of value created for shareholders individually is not only dependant on the company’s results, but also the number of shares held. If the acquisition goes ahead, the number of Brown-Foreman shareholders stays the same and as such shares are not diluted. This means that earnings per share will go up from $2.45 to $2.82 that is a 16% increase (assuming the net income growth for Southern Comfort will be the same for 1978 as the growth rate from 1976-1977). Refer to appendix 2
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Brown-Forman Board Report | Potential Acquisition of Southern Comfort Corporation | | This board report summarizes the arguments for why it is believed that the acquisition of Southern Comfort Corporation (including Caligrapo Inc.) is a strategic fit that will increase shareholder value through increased sales and profitability | | Vinny Perumal | 3/7/2011 | |
CONTENTS
1. Executive Summary 2 2. Background 3 1.1 An Industry Analysis 3 1.1.1 A Mature Industry 3 1.1.2 Key Success Factors 3 1.1.3 Competitor Analysis 5 3 Qualitative Analysis 7 3.1.1 Strategic Analysis 7 3.1.2 SWOT Analysis 7 3.1.3 Strategic Fit 8 4 Quantitative Analysis 9 4.1 Comparison of Southern Comfort to its peers* 9 4.2 Increasing Shareholder Value 10 4.2.1 Return rate …show more content…
Increasing Shareholder Value
Return rate (Gross Profit)
Currently Southern Comfort is showing a good average gross profit growth rate of 7% which will enhance the shareholder value after the acquisition. The company shows a healthy 5 year forecast but growth slows and then declines in year 10 by -1.15 %( Refer to Appendix 3). This slow down and decline could be attributed to the lifecycle of the product. The product could have reached maturity and will need some form of innovation.
The Earnings per share
The level of value created for shareholders individually is not only dependant on the company’s results, but also the number of shares held. If the acquisition goes ahead, the number of Brown-Foreman shareholders stays the same and as such shares are not diluted. This means that earnings per share will go up from $2.45 to $2.82 that is a 16% increase (assuming the net income growth for Southern Comfort will be the same for 1978 as the growth rate from 1976-1977). Refer to appendix 2
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