Dressen’s proposed acquisition plan Harvard Case Solution & Analysis

Why Westinghouse wanted to sell Dressen?

Westinghouse is under consideration to sell Dressen because it is performing below the industry average performance. In the last years, it has shown a decline in its revenue and profits converted into the losses. Therefore, the division is under consideration to selling.

Westinghouse is also going through a process to sell all of its divisions that are not performing better and Dressen is one of those divisions and it is estimated by Westinghouse that the company can get a good price for this division. The division can give an inflow of $565 million shortly; therefore the division is attractive for sale.

Although the division performed well in 1995 however, the best performance is not certain because the restructuring has taken place and in future the division can be loss making and money-losing investment because the restructuring plan cannot work for many years.

The major reason for the sale of Dressen is that Washington has acquired CBS for cash consideration of $5.4 billion in August 1995. The cash consideration comprises of $2 billion bank loan that is due in February 1996, and it has to pay the loan at any cost. It is under consideration to sell many of its division with a view to raising finance to pay off the loan, and it has to run CBS, therefore it cannot have many divisions under it.

How and why do you rate John Lynch?

John Lynch has proved to be a better vice chairman as his decision to restructure and turnaround has proved to be a favorable decision for the group and the division. His experience as a Dean of Harvard Business School and his partnership withthe BIG consulting company has given him good ratings as his this decision is expected from him.

In his turnaround program, he changed the reward for sale commission to only profitable product lines that aligned the interest of the company and the sales personnel that converted loss making product lines into the profitable. He had given a new birth to discontinued product lines and made it profitable shown that his decision was effective.

The product lines were modified, and innovative products were also added to its product lines to make the product lines attractive. Therefore, this decision was also in favor of the group.

He also trained the sales staff to gain a good market share in the industry and this was the mistake that was not rectified by the previous management. However, he made it possible and trained the sales personnel to have better knowledge about the product that they are selling to the customers.

The incentives to another plant and product line managers were based on the cost efficiency and gross profit margin that reduced the costs as well without compromising the quality and production efficiency.

He is rated better because his measures were up to the extent as it was expected from him due to his efficiency and experience and his appointment was an excellent decision by Westinghouse.

Are you comfortable with management’s financial forecasts? Why?

The management’s forecast is based on the current market and after restructuring assumptions, therefore, the assumption is comfortable. The management has assumed that the company will perform along with the market growth and its decisions taken after restructuring.

The decision about the growth is sales with a 5.3% percentage before 2000 is valid because it aligns with the industry’s average and other things estimations and comforts are defined below in detail with the head of the account.

Dressen’s proposed acquisition plan Case Solution

            The cost of goods sold is also acceptable at some point as it is near the industry’s average that is 69% for industry and 67% for Dressen. In 2000, the cost of goods sold had declined to 64%, and there is certain evidence that support the cost-saving measures as discussed in the last part. This management’s assumption is also acceptable for 2000.

Gross profit is acceptable because of the acceptance of the cost saving measure. The general and administration expenses are also acceptable by 22% in 1996 and 21% for the future years because it has taken many measures to take an advantage of synergy effect that has flowed to the group in 1995 and it is expected to flow for the future years. The EBIT for the years 1996, 1997 and 1998 are 12%, 14% and 15%, respectively, the decline in cost of goods sold along with general and administrative expenses have an evidence that supports the increase in EBIT..........

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