Flinder Case

Contents:

1. DESCRIPTION AND GOALS OF THE CASE

2. QUESTIONS YOU MUST ANSWER IN YOUR REPORT

3. APPENDIX 1: CONFIDENTIAL SUPPLEMENTARY INFORMATION FOR MANAGEMENT OF FLINDER VALVES AND CONTROLS

4. APPENDIX 2: CONFIDENTIAL SUPPLEMENTARY INFORMATION FOR MANAGEMENT OF RSE INTERNATIONAL

5. SUPPLEMENTAL TECHNICAL NOTE: VALUATION AND MERGER NEGOTIATION

CASE 43: FLINDER VALVES AND CONTROLS INC.

DESCRIPTION AND GOALS

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. YOUR TASK IS TO COMPLETE A VALUATION ANALYSIS OF THE TARGET AND BUYER AND TO NEGOTIATE A PRICE AND EXCHANGE RATIO WITH THE COUNTERPARTY.

THE CASE HAS THE FOLLOWING GOALS:

• 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.

● 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 power.

Questions for your report:

1. Using the case and the supplementary data in Appendices 1 and 2, 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?

2. What is FVC worth? What are the key value drivers?

3. What opening price do you think Flinder should offer to sell the company to RSE? At what price should he walk away from the negotiation? How did you estimate those values?

4. Do you recommend that RSE pays in cash or stock? If stock, what exchange ratio do you recommend?

In a merger there are...