This assignment requries issuing a report to the board of directors that identifies a synergistic acquistion for Ashland INC.-the company I chose. (ANY COMPANY IN THE CHEMICAL INDUSTRY SHOULD DO). The report should clearly identify the following:
1. The proposed acquisition terms
4. potential negotiation strategies
Supporting financial data should include the following:
1. Price/earnings ratios
2. Book value
3. Current Market Value
5. Diluted price per share
6. Capital Budgeting Tools: NPV, IRR PRofitability index, and payback
** See ATTACHED file(s) for complete details **
THE COMPANY TO BE ACQUIRED IS:
Georgia Gulf Corporation does. The company makes chlorovinyls and aromatics used by the construction and housing, plastics, pulp and paper, pharmaceutical, and consumer industries. Its primary chlorovinyl products are PVC (polyvinyl chloride) compounds and resins, caustic soda, and chlorine; this segment also makes vinyl chloride monomer (VCM), used by Georgia Gulf to manufacture PVC resins. Aromatics include phenol (sold to makers of wood adhesives and engineered plastics), acetone (sold to makers of acrylic resins), and cumene (used by the firm to make phenol and acetone). Approximately half of Georgia Gulf's sales are to the housing and construction market.
SALES: $2,206,200,000 and NET INCOME: $105,900,000
PROPOSED ACQUISITION TERMS AND PRICE
ASHLAND will make a bid for an Georgia Gulf Corporation for $600 million to financial institutions for 50% of the shares of Georgia. Since the target company is publicly traded, the acquiring company will make an offer for the outstanding shares at the rate of $35 per share. Please note that the publicly held shares comprise only 5% of the shares and 80% of the shares are held by institutions.
This takeover is strategic in that they are thought to have secondary effects beyond the simple effect of the profitability of the target company being added to the acquiring company's profitability. For example, Ashland may decide to use the excellent distribution capabilities of Georgia for its own products as well. Ashland is built on chemicals, construction, and cars. The company operates through two divisions. The Chemicals unit consists of two subsidiaries. Ashland Distribution buys chemicals and plastics, then blends and repackages them for distribution in Europe and North America.A target company Georgia is attractive because it allows the acquiring company to enter a new market with a running start, without having to take on the risk, time, and expense of starting a new division that would compete in this new market. An Ashland also eliminates a competitor not only because the competitor is profitable, but in order to eliminate competition in chemicals and plastics and makes it easier, in the long term, to raise prices; or in the belief that the combined company can be more profitable than the two companies would be separately due to a reduction of redundant functions. The widespread belief is demonstrated by the fact that a takeover announcement typically drives up the stock price of the target company and so Ashland is offering a higher than the market price to the small shareholders and more than fifty percent of the market capitalization that is (1.3 Billion).
POTENTIAL NEGOTIATION STRATEGIES AND FINANCING
In light of the excellent terms being offered to the shareholders of the company and the financial institutions, it is suggested that Georgia, the seller finance the acquisition of the business. The seller's willingness to participate will be influenced by his or her own requirements: tax considerations as well as cash needs.
In this case Georgia can be compelled to finance the sale of its own business in order to keep the deal from falling through. Many institutions, however, actively prefer to do the financing themselves. Doing so not only can increase the chances for a successful sale, but can also be helpful in obtaining the best possible price.
The terms offered by sellers are usually more flexible and more agreeable to the buyer than those from a third-party lender. It is expected that Georgia will typically finance 30 to 50 percent--or more--of the selling price, with an interest rate below current bank rates and with a far longer amortization. The terms will usually have scheduled payments similar to conventional loans; the tax picture, however, can be better ...
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"This takeover is strategic in that they are thought to have secondary effects beyond the simple effect of the profitability of the target company being added to..."