Mr. Loewen –
After some careful consideration and examination, I recommend that we accept SCI’s bid of $43 per share. My recommendation is based upon my assessment of four things: * Our position after the Mississippi case settlement * Our financial situation * Our business model * SWOT and Industry Analysis
First, the Mississippi case has somewhat damaged our company’s image and may portray us as a company that does not honor legal agreements. Not only was a contract broken that brought the case originally, but so was the settlement as a number of the “subject to” provisions were not met. If this be the case, then it could stand to reason that we may be viewed as untrustworthy in other agreements. Being that…show more content… These financial issues lead me to my next point; our business model and its effect on our financial situation.
While our model of leaving as much individuality of our acquisitions in place as possible; allowing previous business arrangements, staffing levels and management to continue has been effective in building our reputation, efficiency has suffered. By not standardizing things such as automobile fleet usage and sharing facilities, we are incurring more administrative expense than is really necessary. By not centralizing purchasing across the board the company is not taking full advantage of economies of scale. As growth continues the administration of costs and the different contracts will become nightmarish. Expenses as % of total revenue are beginning to move up and currently stand at their highest level (18%). A move away from this model, especially after the image issues I mentioned earlier, may further damage our reputation as being the “preferred acquirer.” To further complicate such a move is our acquisition of numerous rural homes which will present a problem to the logistics of integrating services, etc. efficiently.
Finally, SWOT and Five Forces analysis point to an increasingly competitive industry that will be experiencing substantial profit margin pressure as buyers gather more power due