Finance Stimulation M&amp A in Wine Country Harvard Case Solution & Analysis

Question 1:

Key Financial Differences

The three companies under stimulation in the U.S. wine industry are mainly International Beverage Corporations (IB), Bel Vino Corporation (BV) and Starshine Vineyards (SS). These are the three major companies working in the wine industry and they are each other’s competitors. Due to the differences in the size and operations of the companies, there are some key financial differences as well.

The International Beverage Corporation (IB) is one of the leading companies in US wine industry having a wide portfolio and possesses well developed distribution network. The company is financially a giant in terms of revenues which are determined as $ 3 billion net annual sales, however, the company is only able to generate $ 200 million of profits.

The revenue growth is estimated to be 10% over the past years which is derived from the aggressive acquisition strategy of the company. Whereas, in terms of organic growth the company’s revenues grew by just 1%. This depicts that although being a large company, the profit ratios of the company are quite lower.

The Bel Vino Corporation (BV) which is also a high-end company, produces quality wines and is known for its strong brand image. The annual sales of the company is about $ 370 million in the recent years which depicts very low sales in relation to its competitors.

The company is very careful about the costs of the operations and therefore, maintains high cost controls though it is among the minor companies in the industry. In this regard, the company has managed to negotiate favorable contracts which resulted in lower production costs and cost of goods sold in comparison to its competitors.

As a consequence of these cost savings, the company is able to maintain high profitability ratios despite of its slow growth.

Lastly, the Starshine Vineyards (SS) is considered to be a mid-sized public company. The company generates average annual revenue of about $ 525 million, this depicts higher sales than BV Corporation. Although the company is able to maintain healthy profits however, now it is experiencing pressures from the substitute wine products, such as, imported wine which seems to be cheaper than the SS productions.

In financial terms, the company is not very cost conscious, however, its profits and sales are more aligned with the innovative strategy of the management. Due to this reason, the company is not regarded as a well-run company by Wall Street which is mainly based on the financial terms.

Question 2:

Strategic Justifications

By evaluating the three companies in the stimulation of different sizes and financial differences, the strategic justifications whether offensive or defensive will be based on the strategic direction of the company. This is because each company has different competitive edges and is different in operational and structural terms.

Firstly, the International Beverages (IB) has grown in the recent years through its aggressive acquisition policy. The organic growth of the company seems to be negligible pertaining to the size of the company. This depicts that the company adopts defensive strategy in order to maintain the performance of the company. This might be due to the company’s preference to continue with the low-end wines whereas, the market preferences are changing as customers are demanding high quality brands.

In order to maintain its market position, IB Corporation needs to take steps in relation to changes in the strategic direction of the company that will help in improving the lacking of the company and the new preferences of customers that might arise in the future.

Secondly, the Bel Vino Corporation which is a small company has greater cost controls and is a producer of high quality branded wines. In this regard, the company seems to be strategically fit in the market in relation to the rising demand of high quality wines. However, the internal performance of the company in terms of management issues and inability to secure the relationships with the distributors resulted in deteriorating performance levels.

Finance Stimulation M&amp A in Wine Country Case Solution

Conclusively, the market forces are in favor of the BV Corporation but due to its internal matters it is facing difficulties in competing well in the market. In order to improve, Bel Vino does not require any merger or acquisition once these issues are catered internally. However, in order to determine any acquisition action, BV can merge with either of the other two companies to exploit the distribution lines that will increase the operations of the company, and this can be regarded as an offensive action.

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Finance Stimulation M&amp A in Wine Country

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