Flinder Valves and Controls Inc.

FLINDER Valves and Controls Inc.

Teaching Note

Set in May 2008, this case reflects the separate perspectives of chief executive officers Tom Eliot and Bill Flinder as they approach the negotiations of RSE International Corporation to acquire Flinder Valves and Controls Inc. The task for the student is to complete a valuation analysis of the target and buyer and to negotiate a price and exchange ratio with the counterparty.

The intent of the case design is for students to be organized into teams and assigned to play the part of either Flinder Valves or RSE International in the negotiation. The case provides supplementary private information for each side of the transaction. Therefore, a unique element of the case is negotiating the terms of acquisition in an environment of asymmetric information. The case is relatively simple and provides a first exercise in the negotiation of an acquisition. It could also be taught in the usual case-discussion fashion instead of the intended joint-negotiation exercise.

The joint-negotiation exercise is appropriate for pursuing some or all of the following teaching objectives:

* Exercise valuation skills: The case affords opportunities for valuation based on discounted cash flow, comparable transaction multiples, and current market prices. Also included are such valuation details as options and contingent interests, operating synergies, gains from horizontal expansion, and the need to satisfy various stakeholders.

* Exercise bargaining skills: The two sides come to the exercise differently endowed. The case contains asymmetries in expectations, bargaining strengths, and goals. In this environment, the teams are rewarded for thinking carefully about how to approach and deal with their counterparties.

● Illustrate practical concerns about mergers and acquisitions: Additional questions the buyers and sellers face include setting the exchange ratio of shares, tax exposure, dilution, and voting...