The Atlantic Corporation Case
Case 1 Atlantic Corporation
Maastricht University School of Business and Economics Corporate Governance and Restructuring
1. Is the acquisition of Royal’s linerboard mill and box plants a sound strategic move? Consider the short- as well as long-term outlook for linerboard prices and the profitability of the linerboard industry. Furthermore, what basis, if any, is there for expecting AtlanticRoyal’s combined linerboard and box mill operations to do better/worse than the industry overall?
The background information about the industry and also a detailed description of the competing firms represent a good base for evaluating the firm’s decision making when engaging in the purchasing project.
From industry background perspective The outlook of the linerboard and box industry promises a healthy and stable economic recovery. First of all, the demand of linerboard and box were predicted to increase approximately by 7 percent annually. Furthermore only 1 to 2 percent new capacity might be available in the market until 1986 which results in a capacity utilization of almost 100%. The linerboard price for the year of 1987 was predicted $410 indicating high profitable sales. Thus increasing the linerboard production seems to be a smart and profitable strategic move. Especially due to its missing production capacity for linerboards the purchasing project asks for in time decision in order not to lose customers to competitors. Purchasing linerboard from Atlantic’s competitors to retain customers will have a tremendous effect on the profits. Noting that 70% of the Atlantic profits came from its building products until 1983 it faces a large capacity lack compared to its competitors. The forest products industry was directly linked to the interest rate fluctuations, thus after the acquisition of Royal’s linerboard mill and box plants would reduce Atlantic’s potential economic risk.
From market perspective The competitive environment of linerboard industry was
Maastricht University School of Business and Economics Corporate Governance and Restructuring
1. Is the acquisition of Royal’s linerboard mill and box plants a sound strategic move? Consider the short- as well as long-term outlook for linerboard prices and the profitability of the linerboard industry. Furthermore, what basis, if any, is there for expecting AtlanticRoyal’s combined linerboard and box mill operations to do better/worse than the industry overall?
The background information about the industry and also a detailed description of the competing firms represent a good base for evaluating the firm’s decision making when engaging in the purchasing project.
From industry background perspective The outlook of the linerboard and box industry promises a healthy and stable economic recovery. First of all, the demand of linerboard and box were predicted to increase approximately by 7 percent annually. Furthermore only 1 to 2 percent new capacity might be available in the market until 1986 which results in a capacity utilization of almost 100%. The linerboard price for the year of 1987 was predicted $410 indicating high profitable sales. Thus increasing the linerboard production seems to be a smart and profitable strategic move. Especially due to its missing production capacity for linerboards the purchasing project asks for in time decision in order not to lose customers to competitors. Purchasing linerboard from Atlantic’s competitors to retain customers will have a tremendous effect on the profits. Noting that 70% of the Atlantic profits came from its building products until 1983 it faces a large capacity lack compared to its competitors. The forest products industry was directly linked to the interest rate fluctuations, thus after the acquisition of Royal’s linerboard mill and box plants would reduce Atlantic’s potential economic risk.
From market perspective The competitive environment of linerboard industry was
References: Ross, S.A., R.W. Westerfield and J. Jaffe. 2002. Corporate Finance. 6th edition, McGraw- Hill. Damodaran, A. 2002. Investment Valuation: Tools and Techniques for Determining the Value of Any Asset. 2nd edition, Whiley Finance.