Sky Air, Inc Case Analysis

SUBJECT : Sky Air Inc. Negotiation Strategy Proposal

This memo is to diagnose the problem and to propose suggestions in persuading Thyestean Ventures. At present, you and your venture capitalist, Thyestean Venture, perceive different value on your firm, SKY AIR, INC. We, Group 9, are to analyze issues underlying this discrepancy, and to develop a plausible strategy to abridge the valuation differences and to achieve successful negotiation on contractual terms more desirable to you.

Discordance on prospects of SKY AIR, INC.

The reason behind Thyestean’s undervaluation on SKY AIR, INC. may be resulted from its lack of understanding on the company’s prospect, presuming little or no growth.

According to the data, the average growth of the EBIT during the past ten years is approximately 38.3% (exhibit 1). However, there has been inconsistent growth rate throughout. While the average growth rate during the first five years is 77.8%, average of the recent five years is 6.3% and that of the past three years is only 1.7% (refer to exhibit 2, 3, 4). This may have led their present market valuation calculation on the company to be much less than that of yours. To minimize the value differences, and build Thyestean’s confidence in the company’s future promising performance, we should provide explanation on the recent downtrend and demonstrate potential growth of SKY, INC.

The recent downturn is not due to the company’s incompetency. Rather, it is a result of a distinct circumstance as a family corporation. SKY AIR, INC. has been purely operated with owner’s limited equity. The operating expense, however, has increased as the business expanded. Due to the financial restraint, the company faced difficulties in seizing better opportunity and managing the internationally growing business.

As SKY AIR, INC. has already fulfilled the critical R&C as an airline company in technology, and international air route, the investment will mitigate its current financial...