Finance Essay

768 WordsMay 16, 20134 Pages
Qst1. 1.If you were Mr. Vincent, executive vice president of Monmouth, Inc., would you try to gain control of Robertson Tool in May 2003? Yes, based on our analysis of the case and assumptions below. We would advise Mr. Vincent to gain control of Robertson Tool. There are obvious positive synergy gains from the merger. Robertson tool has been on Monmouth’s radar for a while due to its strengths, large industry market share, assets and its mature sales distribution system, Robertson also meets all of the criteria Monmouth had established for its acquisition strategy, we will further analyze reasons Monmouth should take control of Robertson below; REASONS FOR GAINING CONTROL OF ROBERTSON TOOL IN 2003: Based on a computed WACC of 7.90% and a sensitivity analysis of different variables as shown below, Robertson would be a beneficial acquisition for Mr. Vincent and Monmouth Inc. if it can sustain a 3% growth rate into perpetuity and achieve 50% synergies from the acquisition. * Market Leader: Robertson held 50% market share of the $75million market for clamps and vises, it offers a broad, high-quality line of products and a very strong brand name. Its scissors and shears product line has an excellent reputation and holds 9% share of the market. * Distribution System: Robertson mature distribution channels globally made it a strong asset , it sold in 137 countries through 140 local sales reps. * Reduced selling and admin expenses * Monmouth will have a diversified portfolio , it will be able to leverage growth of Robertson product lines and therefore grow a business outside of the oil and gas industry * There was also the promise of Monmouth leveraging Robertson’s strong European distribution system to sell other hand tool lines Qst2. What is the maximum price that Monmouth can afford to pay, based on a discounted cash flow valuation? Based on

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