Lab International Inc. Harvard Case Solution & Analysis

Lab International Inc. Case Solution

Introduction

The managers at the consolidated company are facing several issues in order to truly perform their duty of creating shareholders value. For that, the owners are focusing to spin-off one of its divisions in order to generate more cash, which could be used for further growth. However, in order to sell any one division, the market is offering quite low prices, which is one of the biggest issue. On the other hand, managers are also indifferent regarding whether to sell the entity using a single transaction or multiple transactions.

It can be seen that using multiple transactions could generate more risk for the company because of the under performance of one of its division. Moreover, the market is certain that the company is required to sell-off one of its divisions, which further is declining the entity’s value. It can be seen that the Lab Research division could not further help other division because the division made an agreement with Laval Facility for further expansion plan, which requires more cash in hand.

Qualitative Assessment of the Given Alternatives

The case proposed three different alternatives to resolve the current issue. The first and the foremost is that the company must maintain its status-quo and do not focus on selling any of its division. The Second alternative proposed in the case is to sell off its Lab Research Division and continue its business using the Lab Pharma Division as the standalone entity, whereas the third alternative is just its opposite. The qualitative assessment of each of the above alternative is given below:

Maintain Status-Quo and Hold its both divisions

Merits

A significant uncertainty could be found that the market, by selling one of its divisions, would not provide its true value, which could result in big loss. Therefore, holding both the divisions could be beneficial for the company.

Moreover, the Investors might gain interest in funding the company; this can help them raise their stock price and growth in profits. Moreover, It is also difficult to find a similar portfolio company to sell its division for the cash raised.

Demerits

From the case analysis, it can be seen that one of the divisions of consolidated company consistently requires cash for its operations from the operations of the other division. Therefore, selling none will incorporate a major loss for the company. The cash needed for expansion of one of its division may reflect major threat of selling the company.

Moreover, by not selling the unprofitable division, the market perception would not change, which could hinder improvement in the value of market share of the company.

Selling off LAB Research Division

Merits

The significant benefit associated with the selling off the Lab Research Division of the combined company is that the company could gain enough cash to meet its additional obligations, which could also be utilized for its Lab Pharma Division. It can be seen that the Lab Pharma division has full capacity to generate good cash in future because of the major products it put on the market. Moreover, the issue that the Lab Research Division requires cash for further expansion would also be resolved.

Demerits

Currently, the overall value of the consolidated company in the market is solely based on Lab Research Division and if the company sold this particular division, then it would be very difficult to further enhance its performance and gain a good market share in the reduced market value.........................

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