Sunday, June 10, 2012

Production Forecasting


  • MTS: Make to Stock: Fully produce products and stock them in a warehouse.
    • Highly, demand forecast dependent
  • MTO: Make to Order: Produce only when order is received.
    • Generates wait time to consumer.
  • ATO: Assemble to Order: Pre-assembly stock held.
    • Some customization possible 
Posted by E.B. Holmes at 3:08 PM 0 comments

Thursday, May 24, 2012

InBev Anheuser Busch Acquisition


Source: http://images.businessweek.com/ss/09/10/1001_worlds_best_companies_2009/8.htm
Effect of Merger on Branding. Source: InBev Investor Presentation


Merger, Acquisition, Alliance and JV Timeline:

1987: Interbrew= Artois  (Stella Artois)+ Piedboeuf (Leffe Blond)
1993: AB Purchases 50% stake in Mexico’s Grupo Modelo
1994 & 1996: Interbrew formed Chinese JVs
1995: AB acquires China’s Wuhan brewery
1995: removal of trade barriers in South America
2000: Ambev= Brazil’s Brahma + Brazil’s Antarctica
2000-2003: Ambev acquires companies in Uruguay, Paraguay, Argentina, Peru and Central America
2000: Interbrew acquires UK Whitbread Beer Co.
2000: Interbrew acquires UK’s Bass
2001: Interbrew acquires Germany’s Becks (Premium Beer)
2004: AB acquires China’s Harbin
2004: InBev = Belgium’s Interbrew + Brazil’s Ambev
2005: Brito becomes InBev’s CEO
2006: AB purchases Rolling Rock brand from InBev
2008: Heineken-Carlsberg  acquires Scottish & Newcastle (S&N)
2008: MillerCoors = SABMiller + US Molson Coors
2008: ABInBev= US AB + Belgium’s InBev

AB-InBev Merger:
Global Beer Marketshare:
AmBev Culture CEO Brito:
Beer Industry White Paper:
Beer distribution in the US:
SABMiller:
2007 Beer Sales by Country:
InterBrand Branding Site:
Diego:

Posted by E.B. Holmes at 12:56 PM 0 comments

Wednesday, May 2, 2012

Mergers: Upjohn-Pharmacia Questions


1. Evaluate the strategic reasoning behind the proposed deal. Evaluate the
financial performance of both companies. Will the deal address the
challenges faced by Upjohn?


Upjohn has a R&D problem. This merger will not directly address this, but will add complementary resources to investigate new treatments and drugs. In particular, Pharmacia's cancer treatment drugs and growth hormone products can overlap with Upjohn's transplant/cancer and steroids departments. The combined R&D capability of the merged entity can better compete against larger rivals.

There are also geographic synergies. Upjohn is weak in Europe--Pharmacia's strongest market. By expanding sales activities into new areas, the combined entity can better capitalize on the increasing expense of developing new drugs and treatments.

2. Interpret the stock market reaction to the deal and the magnitude of the
expected benefits. Are these realistic?


Leading up the deal the stock price of both companies increased steadily, but not excessively. (37-$39 for Upjohn and 23-$25 for Pharmacia) The increase was greater than the S&P 500 over a corresponding period.

3. Can you think of alternative strategies? Evaluate these.
Joint ventures may prove less costly to implement and allow the firms to selectively combine activities in order to achieve mutual cost savings. This is particularly important in R&D and global marketing.

4. If you were a shareholder of Upjohn, would you support this merger?
No. There are better alternatives than a full-on merger. A JV should be investigated first, and if that goes well, a merger should be considered.


Posted by E.B. Holmes at 2:41 PM 0 comments

Mergers: Upjohn-Phamacia


  1. 9-197-034
  2. 1995 August: US Upjohn + Sweden's Pharmacia
    1. tax-free exchange of shares
      1. 248M Upjohn
      2. 255M Phamacia
    2. "bigger is better" notion: combined sales of $7B
  3. Pharmaceutical Industry:
    1. importance of worldwide marketing
    2. consolidation
    3. decreasing profitability due to social backlash against high prices
    4. spends 19% of sales on R&D
  4. Upjohn: 
    1. 20K per employee revenue
    2. faced strategic problems
    3. patent expiration
    4. few products "in the pipeline"
    5. weak foreign sales (2/3 world market)
    6. weak in Europe
    7. Segments
      1. anti-inflammatory/analgesic
      2. central nervous system
      3. critical care
      4. infectious disease
      5. metabolic
      6. reproductive/women's health
      7. steroids
      8. transplant/cancer
  5. Pharmacia:
    1. strong in Europe
    2. skilled in merging with other companies
Posted by E.B. Holmes at 2:39 PM 0 comments

Tuesday, May 1, 2012

PM: Leadership Style Essay

The Best Leadership Style for a Project Manager
By Eric Holmes

Project Managers (hereafter PMs) must define project goals, define resources such as cost, quality and time, and manage the most effective use of resources to obtain project goals. People are the most important resources at a PM’s disposal, and how a PM manages his team is crucial. Leadership has been defined as the “process of social influence”, (Chemers, 1997: p5). A distinction can be made between a leader and a manager (Daft, 1999: p35). A manager derives power from his position while a leader derives power from social influence which invariably demands effective communication with stakeholders and employees. There are many situations where a PM won’t have positional authority over his team members, for example in a matrix organization. In the absence of direct authority, a PM will need to use leadership skills to influence team members and accomplish project goals. This begs the question: “What leadership style is most effective for a PM?” This essay will discuss different leadership theories from a project management perspective, and conclude that a situation-based leadership style is the most effective.
Many researchers have described effective theories of leadership. Trait Based approaches were described by Locke (1991) and Daft (1999) who listed essential characteristics of leadership including self-confidence, honesty, and the will to succeed. Self-confidence and a strong will are important for PMs because of the limited time that a PM will have to build rapport with his team. If a PM lacks confidence in himself, it may be difficult to convince other project stakeholders of a project’s worth. A PM’s drive is a crucial tool to enable him to bind the loyalties of his workers and move forward to complete key project tasks.
Another category of leadership theory describes Behavioral approaches. The idea here is that leadership behaviors can be learned and practiced in opposed to traits which are inherent to an individual. Autocratic leadership behavior is characterized by an extremely directive leader who dictates to subordinates, allowing for very little autonomy or individual empowerment. This style may be effective in the case of training new military recruits, who cannot be expected to have the knowledge or willingness to engage in warfare, but for a PM, team-members will often be experts in their fields, and using an autocratic style would fail to utilize their expertise. Democratic leadership behavior is based on team consensus. For a PM, this style may be ineffective because individual team contributors often lack a sense of common purpose, and obtaining consensus can be time consuming and inefficient. Additionally, there are many circumstances when a team-member must act against his personal wishes to serve the project. Without the oversight of a PM to enforce project commitment, individuals will often serve their own interests or, in a matrix organization, the interests of their functional group before those of the project.
A contingency based leadership style has been adopted by many organizations, and asserts that leadership styles should be varied depending on the situation. Situational Leadership Theory, a leading contingency theory developed by Paul Hersey in the late 1970s, is the most effective and easiest framework to apply to Project Management.
Situational Leadership Theory (hereafter SLT) considers two roles, that of a leader and follower (Hersey, 1977). The theory asserts that the follower’s willingness and ability must be fully understood by the leader before an appropriate leadership style can be adopted. Hersey asserts that “Follower readiness”, is crucial to a leader’s success, and defines four categories, labeled R1 to R4, which characterize this follower attribute. The four follower readiness levels are shown in Appendix 1.1. In the SLT framework, the leader must first identify what level of readiness his follower has and adopt one of four corresponding leadership styles, known as “Supportive behaviors”, labeled S1 to S4. For example, the best approach for an R4 employee (willing and able employee) would be to use a S4 delegating leadership style in which the leader allows considerable autonomy to complete the task. SLT is essentially an observation about communication between leaders and followers. The communication framework that it establishes is useful for a PM. Communication between a PM and his team is a reciprocal process, and the PM must understand what level of willingness and skill each of his team members possesses before choosing a certain leadership and communication strategy.
The SLT framework must be adjusted somewhat to meet the needs of PMs. PMs employing a S4 delegating style should be aware that this style is not appropriate for sub-contractors, whose interests may not coincide with project goals. Here an S2 selling style is more effective because it provides some autonomy while closely monitoring progress. For most project stakeholders, PM’s will use either the S2 selling or S3 participating leadership styles because these promote communication and the free sharing of information in both directions. These styles can allow the PM to get a better understanding of project risk. There is a limit to the degree of communication that a PM will have time for. If a PM must choose between coaching a worker and delaying the project, the project goals must be put first. A PM must effectively balance the project needs and the needs of his team, particularly on long projects when worker fatigue may endanger project safety or present other key risks. A PM may employ the situational leadership framework outside of his team, “managing up” to obtain crucial resources for his team, or “managing sideways” to interact with stakeholders on equal footing. The PM must be an adequate seller to generate and maintain interest among stakeholders. SLT makes assumptions about the value of follower ability over willingness. Referring to Appendix 1.1, a follower is considered R3, or moderately able to direct themselves, by being able but not willing. In practice however, a PM may encounter highly skilled workers who are encumbered by an overriding negative attitude about a project. This risk is not considered within the SLT framework. In fact, SLT simplifies the situation to be simply the state of readiness of a follower. In reality the situation includes many other factors, some of them external to the project such as political or economic climate. Despite the above limitations, SLT recognizes the importance of communication with stakeholders. By creating an easy to apply framework, the situational leadership model gives PMs a place to start when planning their leadership strategy.
Leadership styles have been discussed with an emphasis on applying SLT to the field of project management. The SLT framework is the most useful leadership theory for a PM. PMs are busy and must quickly derive a practical benefit from any academic theory. Applying the SLT to their daily work can lead to more effective communication, a reduction in misunderstandings, and therefore more effective project leadership. Effective management of the PM’s most crucial resource, namely people, will help the project’s goals to be realized.



Posted by E.B. Holmes at 3:16 PM 0 comments

Mergers: Schneider Group takeover of Square D

Schneider- Square D

1) Prepare for the Schneider management a SWOT analysis of the proposed Square D acquisition, i.e., what are the strategic advantages and disadvantages of the transaction.


Assumptions: FF = 5.08USD


Advantages:
Good strategic and operational fit
French Franc strong relative to the USD


Disadvantages:
Disapproval of SQD management (Hostile Bid)
SQD HQ located in DE, USA (higher regulatory requirements for hostile takeover)
Overpriced deal environment (French firms overpaying)


Schneider SWOT Analysis


Strengths

  • Strong brand reputation supported by strong R&D (4% of revenue), QA
  • Customer goodwill
  • Strategy Refocused on Electrical Distribution, Electrical Power Industry
  • Subsidiary Modicon leads NA market in industrial control category
  • Strong profit, revenue increase from 1987-1990 (185% profit increase with 70% revenue increase)
Weaknesses
  • Current overall North American Market position
  • Size of NA operations compared to competitors
Opportunities
  • SQD acquisition, albeit fighting against SQD management
  • SQD operations are a good strategic fit with SG
Threats

  • Powerful competition in NA market
  • loss of access to NA market due to competition

2a) Evaluate the financial health of both companies including a decomposition of ROE for the
years of data available.

SQD is less levered than SG. While SG is the larger company in terms of sales and Market Cap., SQD is the more profitable.

ROE breakdown













Net Inc. * Sales * Assets





ROE  = Sales
Assets
Shareholder's Equity















Units: Millions FF,USD










SG











Net Inc. (FF) Net Inc. (USD) Sales (FF) Sales (USD) NPP Assets (FF) Assets (USD) Aturn SH Equity SH Equity (USD) Fleverage ROE
1987 324 1724 29294 155844 1.1% 49719 264505 59% 2754 14651 18.1 12%
1988 560 3394 40493 245388 1.4% 63991 387785 63% 4192 25404 15.3 13%
1989 877 5069 45127 260834 1.9% 45946 265568 98% 6741 38963 6.8 13%
1990 924 4703 49884 253910 1.9% 49578 252352 101% 7505 38200 6.6 12%

SQG











Net Inc. (FF) Net Inc. (USD) Sales (FF) Sales (USD) NPP Assets (FF) Assets (USD) Aturn SH Equity SH Equity (USD) Fleverage ROE
1987
110
1484 7.4%
1193 124%
680 1.8 16%
1988
119
1657 7.2%
1336 124%
636 2.1 19%
1989
102
1631 6.2%
1382 118%
556 2.5 18%
1990
115
1653 6.9%
1460 113%
604 2.4 19%


b) Determine a range of possible values for Square D based on observed premiums,
comparables, Gordon model (DDM) and discounted cash flows. Clearly indicate all your
assumptions.

c) Discuss the structure of the deal, financing issues and exchange rate issues related to the
deal.


_________________________________________________________________
Errata:
Typos in Schneider case:
p.6 first line: recording annual sales of 50 billion (not million)
p. 14 Groupe Schneider balance sheets
‘Current liabilities and current portion of long-term debt’ should be ‘Short-term debt and
current portion of long-term debt’
1988 Current total assets 50,831 (not 50, 381)
1988 Total liabilities 57,755 (not 57, 775)
1990 Total current liabilities 25,548 (not 22,548)
p. 15 Groupe Schneider Statement of income
1990 Minority interest -441 (not -141)
p.16 Square D balance sheets
‘Current liabilities and current portion of long-term debt’ should be ‘Short-term debt and
current portion of long-term debt’
p.20 item 9 replace ‘annual gross cash flow margin represents 16% of the sales figure’ by
EBITDA
Posted by E.B. Holmes at 2:40 PM 0 comments

JDSU Case Questions

2012 Merger Course: Paul André, PhD, CA
ACCOUNTING FOR ACQUISITIONS AT JDS UNIPHASE

Case Facts/Assumptions:
Assume the deal was completed on December 31 2000 and the following breakdown of ‘Tangible net assets’:
Current assets $586.4m
Property, plant and equipment $131.8m
Current liabilities $101m.

JDSU had around 1,000 million shares outstanding before the deal of which 11.2% were held by directors and officers

1. How did the 2001 acquisition of SDL impact JDSU financial statements?
(see facts/assumptions above)
  • Gained a complimentary technology: faster data transmission over fiber-optic networks
  • Satisfy customer demand for faster broadband
  • USD $39.2B theoretical boost in Intangible Assets (Goodwill). 
  • Purchase made with 333.8M shares of JDSU. Total outstanding shares swell to 1.338 Billion (34% increase in outstanding shares) ->Owner's equity temporarily boosted by 34%
Discuss the choice of accounting method.
  • "purchase method"
  • amortize goodwill on a straight-line basis over five years
  • $300M in bonus compensation classified as SG&A
Draw the deal and discuss why the purchase/acquisition method was chosen.
  • deferred tax
  • very low cash transaction ($200,000) compared to offer price >$50 Billion
  • timed to benefit from inflated share price
Discuss the purchase price allocation including valuation techniques for intangibles, the treatment of In process research and development IPR&D and the transaction costs.
  • Most of the purchase price was accounted for by the black hole of "Goodwill"

2. The staggering losses announced in July 2001 relate primarily to the write-downs of
goodwill. JDSU determined the amount of the goodwill write-down based on the fall in
its own stock price. What do you think of this procedure? Also consider why JDSU is
taking the write-downs now. What is the effect of taking the write-downs sooner rather
than later? Is there a potential downside? How will the write-down impact JDSU’s
financial statement?

3. Did JDSU go wrong with respect to the SDL acquisition? Did management abuse the
equity capital of JDSU? Did management fail to act in the best interest of shareholders?
Should management be held accountable? Comment.

Bonus question:
The deal was done before the recent changes in the rules with respect to accounting for
mergers and acquisitions (SFAS 141, 142 in 2001 and IFRS 3 in 2004). How would these
changes have affected the choice of method, the purchase price allocation, the financial
statement impact and the subsequent write-down of goodwill? What do you think of the
changes to the accounting for business combinations?

Posted by E.B. Holmes at 2:50 AM 0 comments
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