Asset and Builders Square

1818 WordsAug 27, 20118 Pages
Kmart Inc. and Builders Square Case 1. What happens if Kmart 's managers decide NOT to accept the Leonard Green offer? If Kmarts managers decide not to accept the offer they become limited in their options: ● They can continue to wait for a better bid, but they have struggled to get any one interested in their company as it is. If they decide to turn down Green, but end up not securing another buyer, they would be forced to return to Green who could offer a much lower bid because Kmart would now be left out of options. ● It was also projected that Builders Square only had enough cash and working capital to continue its operations for one more year without any other changes. So their other option is to try and…show more content…
As a result of Kmart guaranteeing its subsidiaries leases, the value of this merger depends not only on the cash received, but also the credit worthiness and skill of the buyer. If the newly merged company fails, Kmart would be in a much worse position to pay off the debt then if they had just ran a nonprofitable Builders Square. 5. Leonard Green has put together some projections on the Builders Square/Hech combo. Assess those projections in light of your industry analysis. ● According to exhibit 1 the Home Improvement market has been growing at a steady pace of about 3.5% for the past 5 years. A lot of this growth steams from the do it yourself consumer market which is the primary target for the Builders Square and Hechinger Co. merger. Although Home Depot and Lowe 's dominate the bulk of the home improvement market, only 6% of Home Depot’s sales come from building materials and related products compared to the combined 3.4% for Builder’s Square and Hechinger Co. As seen in exhibit 10, the Combined Projections for Proposed Builders Square - Hechinger Merger, Green projects an increased gross profit margin as well as EBITDA assuming a 2% growth rate for the combined firm. Their profits do struggle in the beginning due to an increasing amount of revenues lost to competitors along with their high count of closing stores. After year 3 the effects of competitor openings and store closings levels off with only a 1% change simulating what appears to be the end

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