Case 43: Flinder Valves & Controls (FVC)
Case 43: Flinder Valves & Controls Inc.
I. Developments so far…
Bill Fender, president of Flinder Valves & Controls Inc. (FVC) and Tom Eliot, CEO of RSE International are trying to determine final details on RSE acquisition of FVC. Formal conversation have been going-on for approximately 3 months. During this time they and their respective advisors have:
Discussed broad motives and benefits of the merger
Discussed management issues
No-lay-off for employees
Recent analyst predictions of: “Difficult/challenging borrowing conditions and restrictions in the US, warning…show more content… In the agreement FVC would become a subsidiary of RSE, and would maintain its identity and management staff, furthermore no lay-offs of staff are expected or desired. RSE believes FVC’s personal brings in a significant intangible asset to their company and want to preserve it.
To this effect, they are looking to keep Flinder (62 years old) as CEO of the new subsidiary with a potential salary increase of between $50,000 and $200,000 per year. This RSE hopes will be enough incentive to keep Flinder from retiring and overseeing the training of his eventual replacement. The only remaining issues are:
Price of the deal:
FVC is traded in NASDAQ while RSE is traded in the American Stock Exchange
Market CAP for both companies are FVC $100M and RSE $1.4B
Recent rapid growth over competitors/market segment despite weakened economy has both companies feeling their stocks are undervalued.
Method of settlement: Cash, Stock a combination of both, etc.
RSE has sufficient credit capacity to finance the purchase through debt
Auden Co. who holds 20% of FVC stock has signaled they will not opposed the acquisition but will sell their stock.
What is a reasonable offer price for FVC?
RSE want to make a reasonable offer price for FVC and they need to know FVC’s corporate Value. So we need to calculate WACC first. We can found Flinder’s Equity from Exhibit 1 which is 36764. And Debt equal Total