Merger and Acquisition: Flower Foods, Inc. vs. Tasty Baking Company - Assignment Example

 Merger and Acquisition: Flower Foods, Inc. vs. Tasty Baking Company Case Study Flower Foods, Inc is based in Georgia in United States of America. The company deals with baking and marketing of various products such as bread, buns, snack cakes, brownies, sandwich rounds, hotdog rolls, pastries, cupcakes sandwich rounds, rolls and tortillas among other products (Investors Alliance, Flower Foods, Inc. ). The company has been experiencing an upward growth in both equity and liquidity for a long time. In the year 2011, Flower Foods, Inc set to purchase the shares of Tasty Baking Company from Philadelphia. This action by Flower Foods, Incl. is anticipated to result to an increase in performance of the activities as food bakers and distributors across the nation and outside the nation. The purchase of a company by another company will make the purchased company to lose control over their business since the managerial roles will be taken over by the new owner (Stair & Reynolds, 75). However, this move will result to expansion of Flower Foods operations to cover a wider market. The new owner brings in new managerial techniques and strong financial base which enables the company to strengthen their operations. Tasty Baking Company is also an American based company which was set up almost one hundred years ago. The company was opened at Philadelphia before the management transferred it to a new location at Navy Yard following its desire to expand their operations (Investors Alliance, Flower Foods, Inc.). The reason for moving to a new site was to enable the company to have a wider space where they could be able to expand their production activities and be able to meet the increasing demand for their products. They had obtained many orders which the available production capacity could not be able to meet. The management of this company acquired loan to enable them to transfer their business to a wider plant where they could be able to supply all the orders .The company had a cumulative debt of about $100 million, which they had acquired to start a new business firm in South Philadelphia at Navy Yard. The company however started experiencing financial difficulties which limited them from achieving the targets (Investors Alliance, Flower Foods, Inc.). They were not able to meet their orders as requested by their clients, and it was then that they opted to sell out their business. Flower Foods, Inc. which was bigger rival came to their rescue and acquired all the remaining stocks at a value of $165 million (Investors Alliance, Flower Foods, Inc). By the time flower Foods Company was purchasing the Tasty Baking Company’s stocks, the stocks had declined in value drastically and had started selling at a value of $1.6. Flower Foods purchased all the remaining stocks at a value of $4.00 per share at a total value of $165 million, inclusive of the debt they had acquired. The Flower Foods Company immediately stopped the market activities of the Tasty stocks and their prices started hiking suddenly. The stock prices shot up to $3.8 during that week as an indicator of anticipated impeccable performance of the business. Tasty Company had a full time workforce of 740 in total by the time they were selling their business. The company was to continue its operations in the same place. The expectations were that the company would maintain the workforce except the senior most ranks, which the new owners would have to replace with members of their own choice (Stair & Reynolds, 53). However, the top managers would be replaced by different team selected by the new owner (Sharpe, 46). This is because managers are most crucial in determining the performance of a business and incase a company has weak management; they cannot be able to achieve target result. When investors commit their money in any business, they anticipate making returns from their capital and having their capital grow in value. The value of the companies stocks is determined by different factors (Sharpe, 57). When a company has sound management staff and strong financial base, investors have self-assurance that their resources will be managed efficiently and yield greater returns (Dewatripont, et.al, 93). It was for this reason that the stock of Tasty Baking Company’s stock had declined in value due to their weak performance of the business. In the year 2012, Flower Foods, Inc. stocks were performing very well in the market. They were selling from $18.46 to $29.04. The company has a total of $138.30 million and a market capitalization of $3.85 billion. However, the company issued earning per share of $0.98 to the shareholders. The shareholders held 37.10% of the company’s shares whereas the rest of the shares are held by the company (Investors Alliance, Flower Foods, Inc.). This is an indication that the management has trust with the future of the company hence the shares of the company remains strong in the market. Flower Foods, Inc. has adequate resources both short term and long term assets. The company has continued to experience a steady growth of its resources and performance. For example, in the year 2010, the current ratio (given by current assets/current liabilities) was $313714/$242772=1.29 (Investors Alliance, Flower Foods, Inc.). This implies that the company was using its available cash effectively and they can manage to pay all their immediate financial liabilities without risk of going into receivership. Therefore, this proportion of current assets to current liabilities is acceptable for a well performing company (Dewatripont, et.al, 47). In the year 2012, total current assets/ total current liabilities were $464451/$354958=1.31. This was an indication of strengthening performance of the business. The company has a proper management and is utilizing its resources efficiently. Investors are also interested in performance of the company so that they can be sure their investments are secure (Dewatripont, et.al, 57). The use of assessment of the working capital of the company in relation to the company’s assets is imperative for the investors to make decision on how efficient their resources are being utilized. This ratio shows how much the company owes others in relation to what the amount of money the owners of the company have invested (Sharpe, 68). Working capital of Flower Foods Company (given by total current assets less total current liabilities) for the year 2010 was $313714-$242772=$70942. This is an indication that the company was performing well. In the year 2012, the working capital of Flowers Foods company was $464451-$354958=$109493 (Investors Alliance, Flower Foods, Inc.). Therefore, the company’s investments were growing steadily as an indicator of great performance has increased by $38551. The purchase of Tasty Baking Company by Flower Foods, Inc will enable the new company to increase their wealth and continue supplying the market with the products. Flower Foods has been in the market for a very long time and has strong management team which experienced in running business in baking industry. Since the market for baked products is already available and that they are financially stable, they will be able to serve the market effectively and increase strengthens their assets (Dewatripont, et.al, 71). The stocks of the company will continue to strengthen in the market as more investors increases their trusts with the company. In conclusion, for a company to effectively succeed in purchasing another business, they should ensure they have required expertise in running the new business. They should also ensure that they have adequate resources to enable them to take over all the activities which were being carried out by the previous owner of the business. A company with strong management team such as Flower Foods, Inc, will enable the investors to increase their trust for the company hence their stocks will continue to gain value in the market. This is because investors will prefer investing in companies which have potential for future advancement. Works Cited Dewatripont, Mathias; Rochet, Jean-Charles; Tirole, Jean & Tribe Keith, Balancing the Banks: Global Lessons from the Financial Crisis, Princeton University Press Princeton, NJ, 2004, 46-123 Investors Alliance, 2013. Flower Foods, Inc. Research Report. Retrieved on 3rd March 2013 from http://www.investors-alliance.com/r/full_research report/62af_FLO Sharpe William F. Investors and Markets: Portfolio Choices, Asset Prices, and Investment Advice, Princeton University Press Princeton, NJ, 2007, 31-97 Stair, Ralph, M. & Reynolds, George W., Principles of Information Systems Cengage Learning, 2011, 34-86 Read More