Flinder Valves and Controls Inc - Case Study Example

? Flinder Valves and Controls Inc. Flinder Valves and Controls Inc. Executive Summary FVC Company is an outgrowth company established in 1980 for development projects and engineering on experimental heat-exchanger product. When the products of the company were introduced into the market, the company strategized to obtain properties, both leased and owned, of the engineering corporation. Bill Flinder is the president of the company since it was established. The company’s raw materials are obtained from several competitive suppliers. Marketing of the company’s products is done by skilled sales engineers. Its sales originate majorly from Auden Company and other economies, which include Mexico, Korea, Brazil, Germany, Italy and United Kingdom. Stiff competition of mid-200 temporarily interfered with FVC’s sales growth, due to better economic status of developed countries than other markets. The company’s success and structure have attracted most prominent companies who are seeking for financial resources, diversification, management capacity and plant efficiency. In May 2008, RSE’s President, Tom Eliot, entered into an agreement with Bill Flinder to acquire FVC Corporation. This paper discusses the strengths and weaknesses of both the companies, which led to the plans to acquire Flinder Valves Company. Strength of FVC FVC’s strengths are the internal factors that led to the success of the in its operations. The company has a good top-management team who organizes and runs the company’s daily operations. The management team is comprised of highly innovative team that develop innovate products that are desired by their potential customers (University of Virginia, 2008). Weakness of FVS The company lacked enough finances to expand and venture into international markets. This made it experience stiff competition from highly established companies in this industry. The company also lacked the knowledge for high volume manufacturing. The company sometimes produces fewer products that do not meet customers’ demands. Low volume of production is also associated with fewer sales, which generate less revenue for the company (University of Virginia, 2008). Lack of enough resources and revenue are the principal constrains towards the company’s expansion. Strengths of RSE The company has enough resources to venture into global markets and acquire other small companies in this industry. With the enough resources, the company’s management team is capable of initiating new project activities which can add value to the business operations (Weaver & Weston, 2004). The company’s marketing strategies are well planned, and this has made it gain a bigger market share than its key rival companies. Its products are also designed in away that meet its customer’s expectations (University of Virginia, 2008). Weaknesses of RSE The company management team lacks innovative skills. The company has not developed new products over a long period, and this has made it face stiff competition from its highly innovative key rivals (University of Virginia, 2008). Low profit turn over are occasionally realized by this company, and this calls for new strategies to be implemented. Frequent changes and implementations of new strategies make the company lose focus on its potential projects, thus making it to operate behind schedules (Beam, 2001). The Situation and Need for Negotiation Both FVC and RSE Companies want to improve on their strengths and solve their weaknesses. In order to achieve this, the companies’ presidents want to enter into a merger for mutual benefits. Both the companies want to take advantage of each others strengths so as to improve their business operations (University of Virginia, 2008). FVC want to become a subsidiary of RSE International so as to improve and maintain its identity. After the acquisition, FVC will maintain its top management team including other employees. FVC’s also wanted to take advantage of RSE’s resources to expand into the global market and improve its competitive strength against its key rivals (Beam, 2001). FVC’s innovative management team is one of the factors that attracted RSE to acquire RSE. With this team, RSE believed it was going to design new products that are more appealing to its customers more than the usual products (Beam, 2001). It also wanted to expand its operations through FVC’s operations. The price deal of the acquisition was, however, less clear. RSE traded on the American Stock Exchange while FVC’s shares traded on the NASDAQ (University of Virginia, 2008). FVC’s worth The market capitalization s for RSE and FVC are approximately $1.4 million and $100 million respectively. Both the companies’ share prices rose rapidly due to strong performances despite of recessions and weak economic environment (University of Virginia, 2008). As at December 31, 2007, FVC’s assets, and liabilities and shareholder’s equity stood at $1,289,985. The key value drivers for this business include quality and cost control, research and development, and highly skilled workers (Weaver & Weston, 2004). For example, the company’s management team creates innovative products that solve customers’ problems. Flinder should consider the value the company’s current assets and liabilities, when determining the open price at which the company will be sold. For example, if the company was to be sold in 2007, then the company’s assets and liabilities in the balance sheet on December 31, 2007 were worth $1,289,985. When selling the company to RSE, FVC’s president and top management should not accept amount that is less than $1,289,985 (University of Virginia, 2008). Any price that is above this should be welcomed as the opening price. The two company’s at the time of negotiations had not yet settled on the mode of payment. RSE can pay this amount either through cash or its stock. In order to gain quick stability after the transaction, it is advisable for RSE to pay this amount using cash. If it is paid through stock, there will be a problem in incorporating and balancing RSE stock with FVC’s stock (Weaver & Weston, 2004). Conclusion The merger between RSE and FVC is mainly for mutual benefits. Every company wants to exploit each others strengths so as to improve on their weaknesses. Lack of innovative teams is RSE’s main weakness. Highly innovative team is FVC’s main strength, and this is the main factor that attracted RSE to acquire it. FVC on the other side lacked enough resources to expand and venture into the global market. This is the reason why it wanted to take advantage of RES’s adequate resources so as to maintain its survival and success in this industry. References Beam H. H. (2001). Finance and Accounting. Pennsylvania: Kendall/Hunt Pub. Co. University of Virginia. (2008). Flinder Valve and Control Inc. Valueing the Enterprise , 609-620. Weaver S. C, Weston J. F. (2004). Finance & Accounting for Non-Financial Managers. New York: McGraw-Hill Professional. Read More