Flinder Valves and Controls Harvard Case Solution & Analysis

Strengths and Weaknesses of FVC

Strengths

1.    The company is highly innovative in the production of products related to the aerospace and defense industries.

2.    Flinder Valves and Controls is a well-equipped technological advanced company due to which it efficiently handles the small manufacturing orders.

3.    The Company has developed a vast system of research and development in order to align customer needs with the dynamic environment of the industry.

Weaknesses

The company is highly unable to manage its cost structure due to which it was highly paid greater than its earning.

Strengths and Weaknesses of RSE

Strengths

RSE International Corporation possesses the diversified portfolio of its products that strongly contributes to mitigating its market risk.

One of the most advantages, strength of the company is its strategic alliance with its suppliers due to which the company is famous as the low-cost producer with the ability to sustain the quality of its products.

Weaknesses

The company possesses a weak position in the financial market with the beta ratings of Baa due to which the RSE is paying 6.98% on its debts.

Why should the two corporations want to negotiate?

Both companies want to negotiate because it was still unclear that whether the deal will be settled through equity in the form of stock or in cash.

The negotiation has also revealed that Flinder Valves and Controls will not lose their identity after merger and will not lay off its staff. However, RSE also wants to settle on these terms.

What is FVC worth? What are the key value drivers?  USE DISCOUNTED CASH FLOW VALUATION.

With the help of discounted cash Flow valuation, the company gets the idea of its current worth. Currently, the price of a single share of the company is $39.75 however, on the basis of DCF the results show that the company will progress in the future, and its per share cost will be 318.054. Hence, from the perspective of FVC, the company must negotiate on the basis of its potential performance results through DCF and must settle the deal at a price higher than the spot price.

If the company does not go for mergers and concentrates with its current strengths then the advanced technology of the company will contribute as its key driver to its success.

What opportunity price do you think Flinder should offer to sell the company to RSE?

The Opening price would be above $39 for Flinder incorporation because the value of per share price will be determined with the help of a discounted cash flow approach as it reveals that the company will achieve the high level of growth before merger. However, the future of Flinder is also bright because after merger forecast says that it will go to achieve economies of scale. On the basis of DCF if the potential per share price of Flinder Inc. is $318 then they should never compromise on share price below its current price which is $39.

At what value should RSE/Flinder walk away from the agreement?

The current share price of RSE international is $21.98, and the share of Flinder Valve and Controls Ins is traded at $39 per share. The current share price of both companies reveals a stunning figure due to which both parties can walk away from the negotiation. From the perspective of RSE, the company can negotiate on the point that they would not acquire Flinder Valves and Controls at the share price of 39 dollars per share.

The reason given by RSE internationals is that their current share price is $21.98 hence; they cannot acquire a company whose share price is far greater than the share value of RSE. Furthermore, if RSE international will consider making Flinder Valves and Control as a part of their company then this merger will be accrued at the price range starting from $21 to $30 and not more than that range. At this, there are greater chances that if RSE would not get its desired bargain then it will leave the negotiation. On the other hand, Flinder incorporation is currently trading its share at the price of $39 per share. It is possible that the company whose growth is moving upward will compromise on low share price.

How did you estimate those values?

On the basis of growth rate, we have calculated all the estimated values as a percentage of sales growth.

Do you suggest that RSE pays in cash or stock?

If RSE international stock price will increase then Flinder should settle for the stock because the current per share value of RSE is $21.98 which is less than the price of Flinder Inc. However, the calculations on the basis of DCF shows that RSE international will lose its stock value in the coming years and will end up shrinking................................

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