The Letter of Transmittal - Vibrant Ltd Acquisitions - Case Study Example

Report witting Name Date Course Executive summary The letter of transmittal is in relation to Vibrant Ltd acquisitions. It is also for the purposes of providing advice with regards to the risk that may be encountered as a result of the acquisition. Financial risks may occur in the course of carrying out operations as the company will be required to make several changes. Motivating and maintaining the existing staff may be a complicated process for the company and hence leading to a risk. Operational risk may also be encountered as the company will be operating in a new environment. Unforeseen risk like earthquakes may also damage the infrastructure of the company. Management conflict risk is likely due to the cultural diversity in Japan and Canada. It is recommended that the company should seek legal advice with regards to the terms of the acquisition. It is also recommended that the company should carry out training with regards to cultural diversity. An insurance policy is also a must for the company. LETTER OF TRANSMITTAL RE: VIBRANT LTD ACQUISITION This transmittal letter is sent to you in relation to the announced acquisition of Galaxy Pharma by Vibrant Ltd at a cost of Yen 102,000 million to be paid in cash. All the relevant information with regards to the acquisition must be filled and certified for the transaction to be completed. This letter of transmittal is aimed at advising you on the types of potential risks that may occur after the acquisition. Please feel free to contact me for any information or clarification with regards to the risks identified. Sincerely Potential types of risks The acquisition is likely to face various types of risks considering that the company is Canadian while the company being acquired is based in Japan. Financial risks are likely to occur as the acquisition amount is too high and it is more than double of the total worth of the company. Due to the changes in ownership of the company, the customers may be affected as they may not trust the new owners and hence. The reduction in the number of customers exposes the company to a financial risk as it may end up making losses. The company may fail to generate return on investment after the acquisition. This is considering that the acquisition amount is too high and the company had an operating income of Yen 4, 551million in the previous year. This is an indication that a drop in profitability will have a negative impact on the ability of the company to recover the amount that was spend during the acquisition. A risk of unanticipated costs also exists and this may impact negatively on the financial ability of the company. The unanticipated costs may be encountered during the operations and implementations of the strategic plans of the company under new management (Ravenscraft, & Scherer, 2011). On the other hand, the projected sales may not be attained by the company. The failure of the company to attain its goals and objectives in terms of sales may lead to losses for the company and hence exposing it to financial risks. The company also faces a risk in terms of maintain and motivating the current staff members of the company. Most of the employees usually develop a sense of insecurity when new owners take up the company (Marks & Mirvis, 2010). This impact negatively on the employee retention and hence leading to a high percentage of employee turn-over. It is also important to note that most of the customers may be used to the existing employees. Replacing the employees may therefore impact negatively on the company as it may end up loosing the regular customers. High costs may also be involved in the process of recruiting new employees and hence impacting negatively on the expenditure of the company. The ability to retain the key personnel in the company may also be difficult as they may not trust the company after the change of ownership (Wakolbinger, & Cruz, 2011). The company may also be forced to carryout a restructuring process for the purposes of ensuring that it meets its goals and objectives. The process of restructuring may have a negative outcome on the employees as some of them may end up being retrenched. The company may also face a risk in terms of the working capital. The working capital may end up being higher than anticipated and hence increasing the expenditures of the company. This risk has a negative impact on the operations of the company as it may lead to a decrease in revenue. The increase in the working capital will expose the company to financial risks. The company also faces operational risks as a result o the acquisition. The operations of the company will have to change in order to ensure that the operations are the same throughout the company. It is also important to note that the company is foreign and it method of operations will not be the same as that of the companies based in Japan. The operational risks therefore expose the company to risks as it may affect the competitiveness of the company in Japan. The operational risk may also affect the development of a new pharmaceutical product by the company and hence affective its ability to cope with the market. The relationship between the company and the supplier may also change as a result of the changes in the operational changes. Some of the suppliers may stop working with the companies while the company may also decide to terminate the contract of some of the suppliers and hence exposing the company to operational risks (Acharya, et al, 2011). It is also important to note that the operational risk may lead to the increase in working capital and hence increasing the costs for the company. The management of the company may also end up being affected by the changes in the methods of operations. Unanticipated difficulties or delays may also be experienced by the company as a result of integrating the business. This will also have a negative impact on the profitability of the company. The challenges may also affect the ability of the company to cope with operational challenges in the market. As a foreign company, it is likely to encounter risks in terms of unknown events or uncertain liabilities. The company has not been operating in Japan and it may not have adequate information with regards to the uncertainties in the country and hence exposing it to risks. Unlike Canada, Japan is prone to earthquakes which could end up affecting the infrastructure of the company. This earthquake is an unknown event and it has the potential of completely damaging the infrastructure of the company and hence leading to losses. Maintaining the product licenses may also prove to be difficult for the company in the new environment. The uncertainty in maintaining the product licenses may expose the company to losses and it may be unable to develop new products (McNulty, et al, 2012). This is also considering that different legislations are applicable to the foreign companies operating in Japan. It may also be too costly for the company to maintain an operating license and hence impacting negatively on the profitability of the company. The company may end up collapsing if it will be unable to maintain the operating licenses. This is also considering that strict legislations are in place for the purposes of governing the operations in the pharmaceutical companies. The company also faces challenges in terms of the acceptance of its products in the Japanese market. This is considering that the company may be interested in developing new products after the acquisition process. The risk may therefore impact negatively on the ability of the company to compete effectively in the market. A management conflict is also one of the risks that the company faces after the acquisition process. The management style in Canada is different from Japan. This means that the company may find it difficult to coordinate and streamline the management process. The diversity in culture is also a factor that exposes the company to the risk of management conflicts (Vermeulen, 2012). The management team in Japan may not be able to work in the same way as the management in Canada and hence exposing the company to management conflicts. The management conflict may impact negatively on the company in terms of enabling it to meet its goals and objectives. The projects of the company may also end up with a lot of delays as a result of the management conflicts. The implementation of plans may also be difficult for the company as a result of the management conflict (Koller, et al, 2010). The delays in the implementation of the plans of the company may impact negatively on its ability to compete effectively in the market and hence leading to losses for the company. Recommendations It is recommended that the company should put in place measures that will caution it from the possible risks a result of the merger. It is recommended that the company should ensure that it understands all the terms of the acquisition with the help of a legal expert. The company should also ensure that it fully understands the financial transactions for the purposes of dealing with the financial risks. The company should also ensure that it is aware of the terms of licensing of the products so as to ensure that it does not encounter risks during the licensing and development of the new products. An insurance policy should also be adopted by the company for the purposes of ensuring that it is cautioned against some of the risks and uncertainties (Miller Jr, 2011). It is also recommended that the company should train its management team how to deal with a diverse team for the purposes of avoiding the management conflicts. The company should consider retaining all the employees eve in the case of restructuring. This will play an important roe in reducing the risk of staff turnover which will have a negative impact on the operations of the company. List of References Ravenscraft, D, & Scherer, F, 2011, Mergers, sell-offs, and economic efficiency, Brookings Institution Press. Wakolbinger, T, & Cruz, J, 2011, Supply chain disruption risk management through strategic information acquisition and sharing and risk-sharing contracts, International Journal of Production Research, 49(13), 4063-4084. Acharya, V, et al, 2011, Creditor rights and corporate risk-taking, Journal of Financial Economics, 102(1), 150-166. McNulty, T, et al, 2012, Managing Risk: Board Process Matters, The European Financial Review, May, 1-4. Koller, T, et al, 2010, Valuation: measuring and managing the value of companies (Vol. 499), John Wiley and Sons. Miller Jr, E, 2011, Mergers and acquisitions: a step-by-step legal and practical guide, John Wiley & Sons. Marks, M, & Mirvis, P, 2010, Joining forces: Making one plus one equal three in mergers, acquisitions, and alliances, John Wiley & Sons. Vermeulen, F, 2012, How acquisitions can revitalize companies, Image. Read More