FLINDER VALVES & CONTROLS INC.

Case Solution

Problem Diagnosis

The case highlights the perspectives and the negotiations of Bill Flinder and Tom Elliot, the
chief executive officers of Flinder Valve and Control Inc (Flinder Inc) and RSE International Inc
(RSE Inc) where RSE Inc is looking to acquiring the target company Flinder Inc. This task is to
evaluate the strategic position of both the firms, derive a rationale for the deal, value the target
company, determine the most feasible payment method and highlight the key factors and
potential threats in the proposed deal.

Case Analysis

The analysis of the case has been performing by evaluating and analyzing a range of
different factors associated with the proposed acquisition (Berk & DeMarzo, 2014). We begin
with the evaluation of the strategic position of the acquirer and the target company.

Strategic Position of Flinder Valves & Controls Inc (Strengths & Weaknesses)

Flinder Inc derived its revenues from a range of different businesses such as specialty
valves, heat exchangers and defense and aerospace industry items. Flinder Inc had extensive
excellence in engineering in the complex phases of its business. The firm also completed many
contracts for the government for highly technical devices. The company had no sourcing issues
for acquiring the raw materials and marketing arrangements were also good. The Auden
Company is one of the important sources of foreign revenue for Flinder Inc. The company derives
around 15% of foreign revenue through this company.

The company had showed good performed despite the poor economic conditions. The share
price of the company also shows an increasing trend as shown in exhibit 6. The sales in the first
quarter of 2008 had also increased by 23% as compared to the last period in 2007. The
performance of Flinder Inc was better as compared to its competitors. Other advantages of the
company include patent protection, strong leadership, and practical experience. Regarding the
weakness, the company does not have enough resources to diversify in other business for
enhancing operating capacity and offsetting its cyclical business. Moreover, the Auden Company
holds the major portion (20%) of the stock of Flinder Inc. However, overall, Flinder Inc has a
strong strategic position in the market and many growth prospects in future such as its Widening
Gyre technology.

Strategic Position of RSE International Corporation (Strengths & Weaknesses)

RSE Inc has followed a focused diversification strategy and achieved significant growth
through aggressive growth by acquisition program since the inception of the company in 1970.
The company designs a broad range of the industrial products for various industrial users. The
second division of the company produced nautical navigation assemblies and allied products and
the third division produced the fire control systems and the line of components for missiles. RSE
Inc was considered as a tough competitor due to its low cost and well equipped infrastructure
and newer machines.

The growth of the company has been high in the past and this is evident from its high share price
as depicted by exhibit 6. The financial performance of the company is also strong however; its
dividend payout ratio has been fluctuating. Moreover, the current share price for RSE Inc is
undervalued which could also be considered as a weakness on the companys part. However, the
target price could be achieved by the company by future acquisitions and growth through
diversification. This shows that the strategic position of the company is strong.

Rationale for the Deal

The US economy has been facing many difficulties, for the past 12 months. Moreover, the
industries in which RSE and Flinder operated were also affected by these economical changes.
The consumers are cutting back on their spending and the industrial manufacturers are also
prompted to reduce their production