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Appendix TN1


Confidential Supplementary Information for Management of Flinder Valves and Controls

As Bill Flinder neared retirement, the idea of selling FVC to a bigger firm seemed almost
necessary. He had a good top-management team, but he didnt think any one of them could step
in and run the show alone. He found stability in the RSE International combination that was
worth something to him. In the increasingly global market place with more costly development,
FVC needed a deep-pocketed partner to expand and to bankroll more research. Flinder believed
that the company would also benefit from gaining access to a large marketing and distribution
network. As the company continued to grow, it would need to gain production know-how for
high-volume manufacturing. Flinder Valves did not have this kind of expertise. Finally, there had
been an increasing trend of consolidation in Flinder Valves industry over the last year. Flinder
feared that without a well-financed partner, the company would be swamped by competition. He
was intrigued with the possibility that Flinder Valves might be more fully valued if it were part of
a larger, more diversified enterprise. Thus, when the merger opportunity with RSE International
Corporation came along in 2007, Flinder determined to make it work as best as he could.

Flinder believed that FVC had alternatives to this deal. Rockheed-Marlin Corporation, a large
defense contractor (or any of a number of others), might be induced to make an offer for Flinder Valves,
though Flinder preferred RSE International Corporation as a merger partner. FVC and RSE might
establish a joint venture of some sort, though Flinder suspected that joint ventures faced the same kinds
of integration problems as did acquisitions; as a result, he thought joint ventures were an inferior
alternative. FVC could move forward alone, but that would require raising large sums of new debt and
equity to finance the rapid expansion of the firms widening gyre program. Flinder was concerned that
he might lose voting control of the firm regardless. It seemed to him that doing a deal with a known and
friendly partner today would prepare the way for an orderly transition for himself and the firm.

Flinder expected the merger to generate significant cost gains. RSEs greater purchasing power
would lower the cost of materials and components for FVC. RSEs new resource-management system
could be expected to reduce FVCs in-process costs. Estimates from FVCs accounting group had
identified pretax constant-dollar cost savings of $1.5 million in the first year of operation and $3 million
thereafter. He also recognized other synergy gains that arose from RSEs stronger marketing clout, cross-
selling with other RSE products, and its deep financial pockets. He believed that the widening-gyre
project could have a broad application in nautical, aerospace, and automotive products. Based on the
investment required to bring such technology to market, he estimated the economic value at between $10
and $18 million

Bill Flinder had known Tom Eliot for several years, having been introduced at an industry
conference where they were both speakers. As founders and significant stockholders in their respective
firms, they liked and respected each other. Flinder hoped that RSE would recognize the fair value of his