Pan Europa Foods

Pan Europa

Pan-Europa foods is a Brussels based multinational food company specializing in ice cream, yogurt, bottled water and fruit juices. Sales were steady from its inception in 1924, but revenue recently started stagnating in the 1990’s. The senior-management committee is considering 11 major projects that total over 208 million Euros. However, the board of directors has imposed a spending limit of only 80 million. A decision of resource allocation needs to be made in order to strengthen market shares to all share holders.

For Pan-Europa to succeed and not be the victim of a hostile takeover, they need a defense strategy. A poison pill is a good defense strategy in which the target company offers its stockholders preferred stock in the merged firm at a highly attractive rate of exchange as a mandatory consequence of a successful takeover. The logic in adopting such a provision is to dilute the stock so much that the attacking firm loses money on its investment. There are two types of poison pills; 1. Poison pill with flip over rights occur when they are distributed after a triggering event has occurred, such as when an unwanted suitor acquires a pre-specified percentage of outstanding stock. 2. Flip-in poison pills allow stockholders the right to acquire additional shares in the target company at a substantially lower price than the current offering.

In addition to prevent a hostile takeover, it would be extremely important for the company to keep an eye on the following categories in their financials:

• Earnings per share: With a decrease in the earnings per share of a company, the shareholders would become dissatisfied with the firms performance. As given in the case, the EPS for Pan Europa has come down drastically from its value of 0.72 in 1991 to 0.54 in 1992

• Shareholders’ Equity (Book value and Market Value): As per

the financials in the case, the market value of the shareholders’ equity has not only been reducing over the past 3...