Primus

PRIMUS INC & AVANTJET: INTEGRATIVE CASE

AFM 371 & 391

PREPARED FOR ALAN HUANG AND KAREEN BROWN

Irvin Hann Pinn Choo 20243322

William Hillock 20239381

Eric Luke Loyzer 20245289

Ria Patel 20245475

Thursday, November 20, 2008

EXECUTIVE SUMMARY

Avantjet is currently in the market for an automation system to upgrade their production processes. However, they are currently experiencing difficulties with their cash flows. Primus Automation Division seems to be in the best position to address both of these issues and capitalize on a potential deal with Avantjet. Primus will offer a choice of operating leases, and both will effectively transfer the use of the equipment while permitting Avantjet to keep additional liabilities off of their balance sheet. Since Avantjet has issued a moratorium against capital expenditures that will adversely affect their financial position, they have an incentive to accept Primus’ offer which will result in at least a marginal improvement in financial statement performance compared to a capitalized lease or asset purchase.

Avantjet is also indifferent towards the equipment offered by Primus’ competitors, as they provide no discernable advantages over one another. Thus, they will be looking to accept the offer that is most competitively priced. As Primus is currently taxed at a higher bracket, it is effectively able to channel the advantages of its larger tax shields towards Avantjet through a reduction in operating lease payments. Additionally, Primus Automation is better-suited to provide additional flexibility, lower transaction costs and decreased uncertainty on residual value inherent in an operating lease.

Avantjet’s urgent need for the new system will ensure that they will come to accept the best offer provided to them. Primus, in place with its relatively superior offer, will be able to capitalize on this, enabling the Automation Division to meet its sales targets for the year.

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