Brink’s Company: Activists Push For A Spin-Off Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

Case Analysis

STRATEGIC ALTERNATIVES PRESENTED BY MMI

There are some of the strategic alternatives that are presented by MMI in a fiscal year 2006 as per Exhibit 7. Hence, it is mentioned that in order to get a direct and greater advantage in Brink’s,there is a chance that the buyers who are interested in this company may offer almost $70 to $81 per share of Brink.

In addition to this, if a leveraged buyout is taken into consideration, then the buyers are going to pay almost $70 to $73 per share of Brink. The LBO is mainly comprised of buying out a company. The buyer who is going to offer a price in order to conduct a leveraged buyout may be an employee, or the management or the private equity firm that is mainly an outsider to the Brink’s Company.

However, by taking into account the LBO, it can be mentioned that it has a positive aspect that before the acquisition it is going to under take poorly managed firms going through valuable corporate reformation. On the other hand, the LBO is going to have a significant impact upon the employees.

This will happen because Brink’s Company may have to downsize most of their operations as well and this will result in reduction of staff. However, the most beneficial option that can be taken into consideration between these three choices is the LBO, as it can provide greater leverage to Brink Company regarding the option to split up the company.

Hence, the option that will be preferred that is presented by MMI is based upon the splitting up this company. The reason behind this approach is when Brink’s Company is being split, then it can be expected that the part of the company, which is reflected in higher growth prospects, will have the ability to achieve higher trading multiple.

Despite this, the part of Brink, which has low growth prospects but has steady cash flows, then this would also result in making a continuous payment of dividends. Hence, the investors will be able to get what they want precisely and the value of the company is going to be higher as compared to the previous situation.

AFFECT OF LEVERAGED RECAP ON BCO’s VALUATION

However, by taking account of the leveraged recap,it can be mentioned that it has the ability to achieve the goals of LBO. Hence, these goals will be related to the public shareholders who may be holding an investment in the Brink’s Company.

Hence, this Leveraged recapitalization is going to affect the valuation of Brink’s Company in certain ways. It may result in yielding present value of almost $64 to $71 per share. This will ultimately result in increasing the value of Brink’s Company because if the company is going to have a positive stream of cash flows, then it will have the ability to generate sufficient amount of returns that would keep the shareholders satisfied. Moreover, the leveraged recapitalization is mainly based upon borrowing of additional debt either to make a payment of larger amounts of dividend or in order to make a repurchase of shares.

However, the additional borrowing of debt can be avoided if the company is able to generate sufficient cash flows because if BCO is going to place its reliance mostly on the debt, then this may turn out to have an adverse effect upon the going concern status of the company and Brink’s valuation may get affected.

COSTS AND BENEFITS OF A SPIN-OFF

In addition to this, by taking into consideration the costs and benefits of the spin off, it is evident that the major benefit in relation to the spin-off is based on taking an advantage of tax benefits and this may be achieved by spin-offs.

However, it is also worth mentioning that despite the advantages of spin-off, which are comprised of the lower costs of borrowing and the savings that can be achieved on the administration of Brink’s Company, there are also some costs attached to these spin-offs.

Hence, the cost based upon the spin-off is the inclusion of the unnecessary policies that will have to be taken into account by the management of BCO. In addition to this, Brink’s company may also lose the freedom to operate in a certain way in which it sees itself fit...................

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