Mergers You have just been promoted to be the assistant to the VP in charge of c
ID: 432589 • Letter: M
Question
Mergers
You have just been promoted to be the assistant to the VP in charge of corporate strategy at Rawlins Oil, a NASDAQ listed company with annual revenues of about $250 million. This is a high-profile position working with a person known for her intelligence, integrity and concern about creating shareholder value. In addition to the promotion and its accompanying raise, like all other managerial level employees, you have just received your recent bonus and a special grant of stock. Because oil prices have been reached new highs the bonuses were equal to your annual salary and you received restricted shares equal to twice your annual salary!
Your first assignment is to accompany your boss to a presentation by the company's CEO, Rob 'Red' Rawlins, and Executive VP, Rick 'Rock' Rawlins, brothers and sons of the founder of the company, the late Rollo Rawlins. The brothers have been trying come out from under their father's shadow and leave their own mark on the company. Red and Rock have announced they have a great acquisition idea that they want to present to the management team. Your boss (who admired Rollo but has some doubts about Red and Rock) wants you to take notes then put together a short (one-page maximum) critique of the plan. This memo will be for her eyes only, so you may state things strongly if need be (though still maintaining standard business protocol, since things do leak sometimes). Later in the day she will take part in a discussion of the acquisition and wants you to identify benefits, pitfalls and questions regarding the acquisition that need to be discussed.
After the meeting you are in your office and begin to organize your thoughts about the memo for your boss. At the meeting you were nervous, so your notes are a little sketchy.
Red: We are preparing our proposal for the upcoming board meeting. The company is doing great. Our stock is at a new high. This is our best year and we want to capitalize on it with one or two key acquisitions. Rock and I have been doing a lot of reading and thinking, and we think we need to diversify. Computers. Oil is good but computers not oil will run the 21st century. Rock is a visionary, and he and I agree that we need to diversify, and computers are where it is at and where it is going to be for a long time.
Obviously, our results prove that we have a skilled management team that is driving our success. We want to exploit this skill set into new areas and develop some new core competencies. Everybody does well if we grow. We'll need new VPs in the acquired units.
We've identified a computer game company in California, Dega, which is ripe for the picking. It stock price is down some, but Rock says that the company makes great games. He has been doing a lot of research.
We can add a lot of value to the operation of that company. It would do well to have some of our discipline. We can get those software geeks to work at 8 in the morning and really increase production. Just moving the headquarters from California to Texas will save about million bucks a year.
Rock: Integration will be easy. We are an easy-going bunch here and we'll make those folks feel at home. This acquisition could be pretty cheap for us because we can use some of our stock. There is talk that some other company is interested Dega, but we can out bid them. We have plenty of cash. Since we don't pay dividends the company's cash is growing fast with these high oil prices.
Explanation / Answer
Internal Memorandum
Date: 7/27/2018
To: VP - Rawlins Oil
Subject: Merger: Acquisition idea proposed by Red and Rock.
This morning as disccussed by company CEO and Executive VP about diversifying the business. I would like to highlight some key points regarding the merger. We can view this as an exciting opportunity to continue to innovate and invest in a future that lies beyond the next quarter.In fact, I see more opportunity ahead than ever before. This is a key reason why I am excited about this acquisition as it helps us in the pursuit of our strategy and goals, which do not change, except we can get there faster.
Most importantly, CEO, has assured us that all operations and lines of business will continue unaffected as a result of this merger, though shifting our corporate headquarter from California to Texas can affect productivity. Also training and hiring new employees can prove a costly affair.
Sincerely,
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