Unicord PLC: The Bumble Bee Decision - Case Study Example

Unicord PLC: The Bumble Bee Decision Case Analysis Executive Summary Unicord was a company established in Thailand in 1978. Unicord PLCs core business included the canning and processing of fresh tuna which were sold globally. The worldwide tuna industry comprised of tuna angling as well as canning. Globally, the United States was the biggest importer of tinned tuna. With the purpose of breaking into the US market and avoiding costly tariffs, Unicord acquired Bumble Bee, a US based tuna firm for a sum that stretched out the company’s monetary solubility thin. It used $280 million in 1989 to purchase Bumble Bee Seafood Inc., a San Diego tuna canner whose forename is recognized around the world. After the acquisition, the company was able to penetrate the US market but was faced with a lot of internal and external challenges. These challenges included price battles in the US market, cultural barriers and differences between the Thai and US management, tuna-dolphin controversies and controversial fishing methods. The company was unable to deal with these challenges and fell into receivership in 1995. This report is a case analysis focused on Unicorn PLCs acquisition of Bumble Bee. The analysis is done from finance, marketing, production and CEOs point of view, presenting the facts about the acquisition. This report will also give feasible solutions and recommendations of how Unicord can be resuscitated from its current position. Table of Contents Introduction………………………………………………………………………………… 3 Logic underlying Unicord’s acquisition of Bumble Bee…………………………………… 3 Evaluation of the logic underlying the acquisition…………………………………………. 5 Advantages and disadvantages of acquisition……………………………………………… 6 Acquisition Risks…………………………………………………………………………... 9 Analysis……………………………………………………………………………………. 10 Controllable aspects……………………………………………………………………….. 12 Uncontrollable aspects…………………………………………………………………….. 13 What could have been done differently…………………………………………………… 13 Discussion of alternatives…………………………………………………………………. 14 Recommendations and conclusion………………………………………………………… 17 Works cited……………………………………………………………………………….. 19 Introduction Acquisitions are a customary exit approach for many corporations, as well as startups. Several companies and startups have the definitive goal of structuring the business to the state where it is pleasant to larger corporations or investors, and vending the firm when the time is right. Once a firm is acquired, there are several benefits and shortcomings to the corporation’s executives, stakeholders and employees. Explanations for these company actions comprise of a tactical plan to eradicate competition by procuring it, a need to enlarge into another topographical area or commodity line or a necessity to vend or amalgamate the firm because of proprietor retirement or business financial drawbacks (King et al, p 56). The same can be said of Unicord’s acquisition of Bumble Bee. Logic Underlying Unicord’s Acquisition of Bumble Bee In regard to Porter’s Five Forces Model of Competition, Unicord’s acquisition of Bumble Bee was aimed at enabling Unicord to fully penetrate and capture the US market and avoid expensive tariffs. The rationale used to explain Unicord’s acquisition of Bumble Bee is supported by the following motives based on Porter’s Five Forces Model of Competition: i) Economy of scale: This denotes the fact that the joint company can often decrease its fixed prices by eliminating duplicate operations or departments, reducing the costs of the corporation relative to the same returns stream, therefore increasing profit margins. ii) Economy of scope: This denotes the competences primarily allied to the demand-side alterations, such as decreasing and increasing the scope of distribution and marketing of dissimilar types of commodities (King et al, p 12). iii) Intensified revenue or market share: This undertakes that the purchaser will be engrossing a key competitor and therefore increase its market power (by seizing amplified market share) to set prices (King et al, p 19). iv) Cross-selling: For example, a bank purchasing a stock dealer could then sell its funding products to the stock agent's customers, whereas the dealer can contract the bank's customers for brokerage accounts, or else, a manufacturer can obtain and sell complementary commodities (King et al, p 20). v) Synergy: For instance, administrative economies such as the intensified prospect of managerial specialization. An additional example is buying economies because of increased order size and concomitant bulk-buying price cuts (King et al, p 23). vi) Taxation: A lucrative company can purchase a forfeiture maker to use the target's forfeiture as their benefit by lowering their tax accountability. In the United States and several other countries, rules are in place to restrict the capacity of profitable corporations to “shop” for loss generating companies, restricting the tax intention of an acquiring firm (King et al, p 29). vii) Topographical or other diversification: This is aimed to smooth the incomes results of a firm, which upon the long term even the stock price of a firm, giving conventional investors more assurance in investing in the firm. Conversely, this does not constantly offer value to stakeholders (King et al, p 30). viii) Resource transfer: capitals are unequally distributed allocated across firms (Barney, 1991) and the relation of target and obtaining company resources can generate value by either permeating information irregularity or by combining meager resources (King et al, p 20). ix) Vertical integration: It comes about when a downstream and an upstream firm merge (or one acquires the other). There are some reasons for this to transpire. One purpose is to internalize an externality hitch. A common instance of such an externality is duple marginalization. Duple marginalization comes about when both the downstream and upstream firms have control power and each company lowers output from the competitive point to the monopoly point, forming two albatross losses (King et al, p 21). Succeeding a meld, the vertically assimilated company can amass one albatross loss by putting the downstream company's output to the competitive point. This intensifies returns and customer surplus. A meld that creates a vertically assimilated company can be profitable. x) Hiring: certain corporations use procurements as an alternative to the standard hiring process. This is particularly common when the focus is a small private corporation or is in the startup stage. In this case, the procuring company basically employs the staff of the target private corporation, thereby obtaining its talent (if that is its chief asset and petition). The target private corporation basically liquefies and slight legal matters are involved (King et al, p 21). xi) Absorption of same businesses under single management: analogous portfolio invested by two dissimilar mutual funds (King et al, p 20). Evaluation of the Logic Underlying Unicord’s Acquisition of Bumble Bee This could simply be interpreted to mean the advantages and disadvantages that accrued from the acquisition of Bumble Bee by Unicord. The following section of this report clearly discusses the advantages and disadvantages that are evident from any acquisition, relating the points to the acquisition of Bumble Bee by Unicord PLC. Advantages and disadvantages of acquisition Financial The monetary repercussions of a corporation acquiring another firm can be either beneficial or damaging. If the corporation being acquired is highly lucrative, then it will probably make a lot of cash vending it off to a bigger corporation. But if the corporation did not do as well as it had been anticipated, it might not make ample or may statistically lose money on the trade deal. Similarly, the stakeholders and employees of the firm are impinged on financially as well by the procurement of the corporation being acquired. They make cash on all shares they have in the corporation; the share value is established during the procurement negotiations (DePamphilis, p 30). Emotional As a corporate owner, it is habitually an emotional encounter to watch a firm being assimilated. This can either be beneficial and damaging, reliant on the situations surrounding the transaction. If the main objective was to restructure a business, vend it, and retire, then the procurement is classically a happy time, particularly if the firm is vended for more than had initially been premeditated. However, it also can be sensitively tough to watch somebody else take control of a firm, particularly if they instantly change the ideal or other features that one was zealous about (DePamphilis, p 46). Free Time One main benefit of a corporate procurement is the free time that one will have as soon as the transaction is done. Particular executives stick with the firm after the acquirement, so their busy life might not adjust (DePamphilis, p 70). But if he executive leaves the firm immediately it is vended, he or she will have a lot of extra time to take on fads, expend time with treasured ones and start a new corporate. An executive might also wish to let somebody else do the leg exertion and go labor for another firm rather than begin a new one. Whatsoever an executive resolves, the free time assigned to him or her from procurement offers them the benefit of cautiously calculating the next professional move. Letting Someone Else Take Over Whether your company was thriving or struggling before the procurement, there is the benefit of observing somebody else take over the firm once the transaction is done. Organizing a firm is hard work and regularly commands long hours. Whereas an executive may miss the involvement, the stress liberation he or she experiences when somebody else takes over is inexorably a gain. It is correspondingly a benefit and liberation if an executive is capable of working out a deal where he or she leaves the firm in good care that will keep on pursuing their dream for the business (DePamphilis, p 100). Reaching New Markets Acquisition companies can be a speedy and efficient way to inaugurate a presence in a spanking new souk. For example, attaining a corporation in a new nation where a firm does not presently function offers a prompt souk presence devoid of having to shaping new amenities. The executive correspondingly gains the benefit of having a labor force already in abode that is conversant with the language and customs of the topographical area. This may prominently decrease the expenditures related with the acclimation method while eluding violating ethnic values that might upset the citizens, for instance the use of incongruous publicizing techniques (DePamphilis, p 178). Increased Revenues Another benefit of procurements is that they can result to a hasty increase in the overall returns of the executive’s actions. Attaining a flourishing, lucrative business denotes that one take an additional instantaneous return stream. The extra revenue may offer a needed lift if the cash flow is not in good physical shape as desired. If the business functions as a corporation, supplementary revenues may correspondingly make it more appealing to current stakeholders, in addition to prospective investors (DePamphilis, p 174). Merging of Cultures A shortcoming of business acquisitions is that they propound the challenge of amalgamating sometimes dissimilar corporate ethos. For instance, if the procurement encompasses taking over a foreign corporation, there may be cultural and language barriers that make exchanges between the two corporations difficult. All the more if the two corporations are in the similar topographical region, employees of the assimilated establishment may resist adjusting to the ways of the parent corporation and may even dislike its new existence, seeing it as an intruder. Disruption The process of purchasing and assimilating a new corporation can be unsettling to both entities. Workers of the parent firm may need to expend time mentoring persons in the assimilated corporation, which takes away from their own efficiency. It may correspondingly take some time for the new associates to be able to keep up with the ways of the parent firm. The whole procurement process may take a lot of time, possibly more time than an executive had initially planned or accounted for (DePamphilis, p 10). Acquisition Risks Reckless Enthusiasm Acquisitions begin in calculated planning sessions after a company’s management resolves to procure another establishment to be assimilated. The next step is employing an investment attorney specializing in acquisition work. The whole process is long, stressful and time-consuming. Most acquisition specialists say the utmost hazardous part is project tiredness, which causes firm management to resolve on a contender just to get the task over and done with. Careless enthusiasm born of project tiredness is one of the key reasons for letdowns of acquisitions (DePamphilis, p 3). Return on Investment The erroneous acquisition can ruthlessly harm a firm's profitability. Much debate in the acquisition business focuses around whether to execute exhaustive plans because of thoroughness and negotiations or to just make a start and buy with the first corporation that looks virtuous, worrying about the magnitudes later (DePamphilis, p 16). Corporate Integration The second key risk in acquisition projects is unfortunate incorporation of the corporations. An example of this is when a firm attains another for a definite technology it industrialized and then in the misunderstanding of assimilating, the two corporations misguidedly close the division that created the targeted machinery asset. Other instances of poor integration are corporation culture clashes. A third instance of shared integration letdown is the forfeiture of imperative customers who liked doing business with the parent firm, not the new one (DePamphilis, p 10). Legal Surprises No matter how cautious the due assiduousness effort, approximately every acquisition experiences law related surprises. These are habitually in the form of charges that the petitioners abruptly resolve to file since the combination of corporations has offered greater resources to attach. One can presume everything from canceled licenses, expiring patents, unreported fraud, violation on another firm's patent and stakeholder class action suits. Threat management, in this case, encompasses the unsurpassed deals that can be produced. This is one reason why good acquisition attorneys are so obligatory and costly. Analysis It is important to note that there are very few options available for Unicord to return itself to its once profitable state. In order to establish which solutions will work best in doing this, it is essential to understand the reasons why things went so wrong and the events that took place at the company. This case relates to a shreds-to-riches-to-tatters saga of a Thai company. The case offers a thorough history of pre and post-procurement proceedings that would help them aid Dr. Juanjai Ajanant, special advice-giver to Unicord's board in his task of reviving the firm (Straub, p 51). Unicord’s rationality underlying the attainment of Bumble Bee was to efficaciously counter mounting trade protectionism enacted by United States which was partaken by its own tuna processors. Hurdles to competition occurred in several forms: import duties, tariffs and quotas as well as food safety and environmental criterions. The tuna processors in Thailand observed these barriers to be a substantial competitive impediment that required to be overcome in the United States (Straub, p 23). In assessing Unicord’s procurement of Bumble Bee, the lucidity was tactically sound. Unicord would achieve better access to its biggest market (the United States), and safeguard a buyer for its tuna. Unicord would also get closer to its objective of owning amenities in all five regions. It would also be less subjected to market instabilities and could better safeguard its future (Straub, p 23). The Bumble Bee procurement would make Unicord the world's largest tuna canner, raising the reputation of Unicord's proprietors and decision-makers, and also the Thai people. Financially, Bumble Bee was ramming the limits of Unicord’s monetary solubility. Thailand’s economic thrive masked this fact making it viable for the deal to go through. Subsequently, with Unicord’s procurement of Bumble Bee, the aim changed from basically having access to the US souk to determinedly increasing souk share and making Bumble Bee successful (DePamphilis, p 77). Purchase of Bumble bee would assist Unicord diversify and stabilize its supply of raw tuna. Unicord would find a ready buyer for its white products. Unicord would own Bumble Bee’s distribution network that could be used to push other Unicord products into the vast American market. Lastly, Unicord would benefit the effectiveness arising from Bumble Bee’s Puerto Rican manufacturing plants which enjoyed labor and low tax rates (Straub, p 23). In 1993, it was clear to many that Unicord urgently needed to rethink its strategy, a need downplayed by the management. The owners claimed that Unicord’s problems were only of financial competitive nature. The managers listed Bumble Bee on the New York exchange. They also went to the public with a profit forecast of one million US dollars yet it had suffered a loss of forty million US dollars. The finance’s VP for Unicord resigned in the very same year. This position remained unfilled a year later. The weakening buht-dollar exchange made it impossible for Unicord to find creditors to help in restructuring the company (DePamphilis, p 91). Some of the reasons that resulted to Unicord’s downfall were manageable and some were not. The aspects that were irrepressible by Unicord were: 1. The tuna-dolphin dispute had not only decreased profit margins but also powered a noticeable decrease in tuna intake in United States. These effects further deepened rivalry in the product industry. This was as a result of Tuna processors’ over-all disregard for dolphin killings that led to a rise in consumer activism. Various conservational groups challenged the efficacy of purse-seine fishing, and pressured industry incumbents as well as government over tenacious dolphin killings (DePamphilis, p 99). Bumble bee bought full pages of several page advertisements stating that it supported legislation that protected dolphins and had the environmental community place an observer with Unicord. Earth Island institute later counteracted that Bumble bee conceded it needed more time to implement dolphin-safe policy. This did not happen as Bumble deceived Americans for eight months hence jeopardizing its own credibility (Kelly, p 35). 2. In 1992, the U.S. per person consumption of tinned tuna continued to drop; it had dropped almost 15% over the preceding three years. In a product industry, this was a substantial drop (DePamphilis, p 102). 3. In eagerness of price battles, many brokers had subscribed tinned tuna in wholesale for redistribution. Once tuna prices increased, only the brokers gained since all profits were basically redistributed from tuna canners to middlemen (DePamphilis, p 45). 4. The Bangkok Bank asserted Unicord pays back its $113 million arrears by the end of 1995. Thus, the company’s dividends fell to an all time low of 5.80 bahts. These proceedings en masse intensified the remarkable pressure on Dumri to plan Unicord's way out of problematic waters. On June 13, 1995, Dumri slug himself dead in his office. At the rear of his suicide, Unicord fell into insolvency, therefore ending one of Thailand’s utmost corporate triumph stories (DePamphilis, p 56). The aspects that were manageable by Unicord were: 1. Determinedly cutting prices to put incumbents out of place. Although the price cutting worked as Bumble Bees’ US market share rose by 25.7% in 1992, the industry profitability remained low due to price battles comprising of powerful competitors. 2. Putting in 189 million bahts to upturn its (annual) Thai manufacturing capability of processed tuna by 33%. The firm was poised of further souk share profits even nevertheless industry profitability remained low due to price battles comprising powerful competitors. In retrospect Unicord could have done the following differently: 1. Unicord could have been more accommodating in its cross cultural associations with the executive at Bumble Bee. This means that Dumri could have been more direct or more engrossed in breaking down cultural hurdles (Straub, p 23). These cultural hurdles ultimately played part in the demise of Unicord. For instance, when the administration at Bumble Bee was told to sell the plant in Puerto Rico and send back the revenues to Thailand, they declined. Had more effort been laid on breaking down cultural dissimilarities from the commencement of the association, this could have been escaped (King et al, p 88). 2. Unicord could have been more conventional in its aim of increasing market segment in the United States. Though the United States was the main tuna souk, it was still the only one of the souks Unicord functioned in and was enormously competitive with trim profit margins. Beginning a price battle may have injured Bumble Bee’s competitors but it also injured Bumble Bee and Unicord. 3. Unicord could have been more conventional in its procurement of a United States based corporation and maybe observed at buying number four or five instead of number three. This nevertheless would have permitted them to achieve their goals of getting into the world’s largest tuna market devoid of stretching their monetary solubility so thin. Discussion of alternatives Below are some practicable alternatives that can be exploited to resuscitate Unicord: 1. Do nothing, that is to say wind up all assets and pay any returns to creditors. 2. Search for new creditors and carry on operating as status quo. 3. Vend Bumble Bee and focus on reviving Unicord’s Thai based ventures. 4. Get hold of a private equity investment company to buy, reorganize, restructure and sell Unicord intact or in parts. Bearing in mind alternative number one, doing nothing to revive Unicord and basically liquefying its assets to recompense its creditors, it is absolutely an option and possibly the most prospective considering its monetary state (King et al, p 64). Option number two would be to search for fresh creditors who would be eager to refinance Unicord’s liability such that the corporation can continue functioning as it has but with some organizational changes. The difficulty here is that any corporation ready to refinance Unicord’s arrears would do so at a relatively high interest ratio considering the instability of the corporation. This would generate even more stretched profit margins and less possibility financially for Unicord to make the essential changes to revive the company. In addition, keeping on doing business the way it has been would not make Unicord’s exterior environmental problems disappear and would possibly lead the corporation down the same path to bankruptcy again (King et al, p 13). Alternative number three is something that can be attempted by Unicord as it exists as a company now. Unicord would need to sell Bumble Bee, sell its plants and assets that were acquired to supply Bumble Bee, sell off any divisions of the company that would bring in immediate cash flow and reorganize Unicord so that it is once again profitable. The problem here is that the company is already in receivership and would not have the time to carry out these tasks quickly enough to appease its creditors (King et al, p 56). Option number four would be to allow a private equity investment firm procure Unicord at a deduction from its souk value, recompense its creditors, reform, reorganize and vend Unicord intact or in parts at a profit. This would permit Unicord to keep on operating as a corporation and consequently have the least economic effect on its employees, industry and the countries in which it does business. The catch here is finding a private equity investment firm with the desire and capital to take on such a deal (King et al, p 74). Figure 1 will try to analyze the benefits and shortcomings of the alternatives. Alternative Benefits Shortcomings Accept/Reject 1. Wind up Unicord and recompense creditors. - Unicord is liquefied and glitch for decision makers ends. - Industry, economies and employees in which Unicord ran business fall off. - Does not realize main aim of reviving Unicord Reject 2. Look for new creditors. - Unicord can keep operating as it is. - Tauter profit margins - Does not ease undesirable peripheral environmental factors Reject 3. Reorganize Unicord, vending Bumble Bee and all other superfluous assets. -Industry, economies and employees in which Unicord ran business would be slightest affected. - Creditors may not permit for the time needed to restructure. Reject 4. Obtain a private equity firm. - Instant injection of capital. - Industry, employees and economies in which Unicord ran business would be slightest affected. - May be hard to obtain a private equity corporation to take the deal. Accept Recommendations and conclusion One recommendation would be to confer the takeover of Unicord by a private equity company. Negotiating the appropriation of Unicord by a private equity company would give the firm the injection of capital and thus the time required to restructure and reorganize the corporation. Once the purchase has been finalized the private equity corporation should complete the following tasks: 1. Vend Bumble Bee and any other holdings that are no longer required. This would place Unicord back in a lucrative position. 2. Vend any nonpaying divisions of Unicord if any or add capital into the divisions with the utmost aptitude for growth. 3. Push the Thai government for regulation that will help corporations like Unicord be more efficacious internationally. 4. Search for a minor US based corporation to procure or one that has a more practical price tag but that would still permit Unicord to renter the US tuna souk. 5. Allot revenues to re-educate and reorganize management in ways of doing cross ethnic business transnationally. 6. Vend Unicord in part or as whole at a gain. The majority of cross-border contracts do not culminate in bloodshed. Nevertheless as regulatory barriers and falling trade around the world apt more and more corporations to "go worldwide," numerous find they pay recompense a heavy price for purchasing their way into overseas souk. Ahead of the usual encounters of attaining a corporation--paying a just price, blending two management teams and apprehending the indefinable "synergy" that is thought to brighten up the bottommost line-distinctive costs and risks ascribe to cross-border melds. They frequently encompass wide variances in language, distance and culture that can result to serious conflicts and misunderstandings. There is actual query about the value added of procurements in over-all, since for cross-border contracts; the price is even harder to measure. For instance, Unicord eventually fails and it does not earn back its cost of capital (King et al, p 90). The lucidity of international melds has always appeared compelling. Obtaining existing distribution or production overseas tends to be easier and cheaper than beginning from scratch. For instance, Unicord’s rationality underlying the attainment of Bumble Bee was to efficaciously counter mounting trade protectionism enacted by United States which partaken its own tuna processors. This, unfortunately did not happen since Unicord was faced with a lot of competition (Straub, p 23). Logic doesn't always translate into profits. In assessing Unicord’s procurement of Bumble Bee, the lucidity was very sound tactically. Unicord would achieve better access to its biggest market (the United States), and safeguard a buyer for its tuna. Unicord would also get closer to its objective of owning amenities on all five regions (King et al, p 33). It would also be less subjected to market instabilities and could better safeguard its future. Strategically smart as the deal might have been, none of these objectives were attained and those that were achieved none lasted. It is also unlikely for Unicord to pay off fiscally for a long time. As the Bumble Bee exhibits, the dangers are high and vary beyond simple cultural pitfalls. Extraneous acquirers, for example, on stability pay almost twice as much as a local buyer would (King et al, p 154). Works cited DePamphilis, Donald. Mergers, Acquisitions, and Other Restructuring Activities. New York: Lexis Law Publications, 2008. Print. Kelly, Robert, "Unicord Shareholders OK Deal to Merge with U.S. Tuna Firm Bumble Bee," America's Intelligence Wire. Hoboken, NJ: John Wiley & Sons, 2004. Print. King, D et al. "Meta-analyses of Post-acquisition Performance: Indications of Unidentified Moderators". New York: Elsevier, Academic Press. 2004. Print. Straub, Thomas. Reasons for frequent failure in Mergers and Acquisitions: A comprehensive analysis. Wiesbaden: Deutscher Universitäts, 2007. Print. Read More