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Case
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Reference no. 297-022-1
Authors: H Lee Remmers
Published by: INSEAD
Published in: 1997

Abstract

This is the last of a three-case series (297-020-1 to 297-022-1). In early 1994, senior managers and major shareholders of Ste Lambert, a medium sized privately held French company distributing automotive components, decided to put their company up for sale. Two of its major suppliers (CEE and MCE) were interested in buying it to increase their own market shares. The two suppliers were competitors, neither wanting the other to gain more market share by buying Lambert. Lambert''s management had recently over-invested in new facilities which greatly increased debt; for tax reasons, they had been ''milking'' the company with the result that its apparent earnings were low. Several evaluation methods besides a DCF approach are being considered by both the buying and selling companies. The case requires as analysis of the target company''s ''true'' performance and financial position, an estimate of future cash flows - growth, an overhaul of its working capital and financial structure, and an assessment of the suppliers'' relationships after sale to one or the other potential buyer. The discount rate must also be estimated, complicated because there are no publicly traded companies in the sector to provide a benchmark. The cases lend themselves to a negotiation exercise where the two buyers would try to strike a deal with the sellers. There is accompanying software (297-020-0) and a teaching note (297-020-8) to be used in conjunction with this series.
Location:
Size:
FRF250 million sales
Other setting(s):
1994

About

Abstract

This is the last of a three-case series (297-020-1 to 297-022-1). In early 1994, senior managers and major shareholders of Ste Lambert, a medium sized privately held French company distributing automotive components, decided to put their company up for sale. Two of its major suppliers (CEE and MCE) were interested in buying it to increase their own market shares. The two suppliers were competitors, neither wanting the other to gain more market share by buying Lambert. Lambert''s management had recently over-invested in new facilities which greatly increased debt; for tax reasons, they had been ''milking'' the company with the result that its apparent earnings were low. Several evaluation methods besides a DCF approach are being considered by both the buying and selling companies. The case requires as analysis of the target company''s ''true'' performance and financial position, an estimate of future cash flows - growth, an overhaul of its working capital and financial structure, and an assessment of the suppliers'' relationships after sale to one or the other potential buyer. The discount rate must also be estimated, complicated because there are no publicly traded companies in the sector to provide a benchmark. The cases lend themselves to a negotiation exercise where the two buyers would try to strike a deal with the sellers. There is accompanying software (297-020-0) and a teaching note (297-020-8) to be used in conjunction with this series.

Settings

Location:
Size:
FRF250 million sales
Other setting(s):
1994

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