Essay

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Q1. Using the case and the supplementary data in Appendix TN1, how do you see FVC’s situation? What are the strengths and weaknesses of FVC and RSE? Why should the two companies want to negotiate?

FVC is an aggressive growth company. Walking through the BS and Income statements shows that FVC has decent operating and net margins. As a target for acquisition, RSE will also be interested in looking at FVC’s capital structure and outstanding debt. FVC has very little LT debt on its BS. Also, the CC&E on hand will be able to service the debt early so the acquirer doesn’t inherit the debt of FVC.

The liabilities-to-asset ratio and the debt-to-equity ratios are low. This is another attraction for the acquirer.

Strengths and weaknesses:

FVC’s strength is its growth potential. The company has developed products that have special applications in the defense and aerospace industries. It has also developed a brand name for itself as a company which is known for its operational excellence. This capability enables long term stable growth. Moreover, FVC has expanded its sales in the international and emerging markets. All these factors make it a highly attractive acquisition.

One of the weaknesses of FVC is that its logistically small structure capacity with limited production capacity. In order for FVC to grow, it will need to expand its plants and equipments which require huge amount of capital investments. This part leads to RSE’s strength which its capital strength.

RSE