ALFA COLLER Harvard Case Solution & Analysis

Introduction

Alfa originally came into existence in the 1960 s and it is mainly involved in manufacturing and selling resins. Alfa holds the first position among the large companies in its related industry based on its quality of product, different product lines and high sales volume.

It has expanded itself globally with having many offices in a wide range and staff working for Alfa while being present in different locations. However,the production of Alfa’s products is mostly done at Cernusco. Alfa has employed almost employed 350 employees and is having a turnover of 200 million Euros.

Besides its product line,Alfa is also involved in providing highly specialized and technical services to its clients and it is considered to be the most critical area by its customers.

Alfa produces resins, which are used in producing synthetic leathers; it is also used in paints. Furthermore, it is also being used in making other different product lines.

Problem Statement

Based on the current situation, it can be considered that the main issue here is the price that should be acceptable to be paid for Coller. Mrs. Mauri was the one who had to examine the financial records and to accept the offer which will result in the benefit of its share owners. She is trying to determine the price that should be paid for Coller,whichwill result in high benefits and synergies.

Analysis

Weighted Average Cost of Capital

Under the current situation,the WACC is calculated after determining the Cost of capital (Ke). It also includes the capital structure which is comprised of 25% debt and 75 % equity, the cost of debt is calculated by considering the risk free rate, which is 4.58%, then the net cost of debt is calculated by applying a tax rate of 30% respectively. The market risk premium of 4.75% also has to be included in the calculations of WACC.

Apart from that,WACC is the return that is required by the investors on the money that it has deposited in a company, however, the percentage seems to be sufficient and is greater than the market rate. Therefore,the investors will be able to benefit from the cash flows generated by the company.

The equity beta has also been calculated with the help of taking Average of the asset betas and then after calculating ungeared cost of equity (Ke) we have obtained Equity beta.

Capital Asset Pricing Model

After being dealt with calculating the cost of equity, the equity beta is then placed in CAPM by using the risk free rate and market risk premium we obtain geared cost of equity.

Coller’s Operating Cash Flows

By looking at Coller’s operating cash flows from 2003 up to 2013, it shows an increasing trend. On the other hand, its revenues are also increasing, which shows that it is able to manage its costs effectively. Even if its receivables are increasing, it is chasing the debts on time and are able to avoid bad debts.

On the other hand, its payables are increasing, which represents that it is able to negotiate better terms with its suppliers. Alfa has made the right decision on making acquisition of Coller because as a result it will be able to capture further markets, which will result in increasing its customer base.

Apart from that, by looking at the performance of Alfa, it seems to be a market leader and that’s why it is able to generate healthy operating cash flows. On the other hand, if the competitors want to move into this industry, then they should have higher capital expenditure and high cash flows in order to stay in the competition.

alfa coller Case solution

By looking at the expenses, it can be seen that the performance of Coller is much better because the costs of manufacturing are lower as compared to the increasing and higher revenues. Hence, because of this careful management of expenditure, the company will be able to make its prospects better in the future and it can even think upon entering into another enterprise in order to build a strong image.

It proved good for it to become a partner of Alfa because it is already having a quite excellent and competent staff, as long as Coller stays with it then it will be able to increase its revenues even further. Hence, the higher price that Alfa is going to pay for the acquisition of Coller is sufficient for it because by denying its offer, it will not be able to find any other prospective acquirer for its company..........................

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