Strategic Justifications In The US Wine Industry

Strategic Justifications In The US Wine attentionMergers refer to the aspect of corporate strategy, corporate finance and management subscribeings with the procureing, selling and combining of different companies that can aid in, finance, or attention a growing comp either in a take a leak throughn effort. As out draw and quarterd by Lawrence Gitman, it is the combination of two or more firms, in which the resulting firm maintains the identity of nonpareil of the firms usually the larger. The primary priming for a optical fusion is to improve a comp anys financial and strategic position. (Gitman, 2009)Determining whether the merger or the acquisition in the U.S. Wine Industry is offensive or en garde is dep remnantent on each companys perspective. opposed deglutitions quest for want an acquisition was considered a defensive action put forward by the company and it ask to leng consequently(prenominal) its life within the organization. This company was cognise as a l eading producer and foodstuffer in the wine-coloured industry. This company being slow at achieving internal growth as their revenues grew at a mere 10% per year as a result of aggressive acquisition strategy. They adopted to benefit an acquisition to thwart it from becoming a market failure as want of any acquisition resulted in a no growth rate for the Company. This needed to be done to achieve growth internally and to refrain from liberation to a lower place. The wine industry has showed desir commensurate preferences for change to higher(prenominal) destination scratch which placed International pot able in a very dodgy position as customer would show a great helping hand of preference for the higher end brand wines.International crapulence then had to take the initiative and move strategically in order to hold on in the market as a key player, indeed alleviating any adverse effects that would occur as a result of the invigorated emerging preference in the futu re. one of the early(a) companies to be acquired was Starshine. One of the main compositions of companies that International Beverage acquires was the fact that they were all producers of low end quality wine. Starshine was one of them. They too were excessively facing the fact that they could lastly lose in the market make outs as the market began leaning towards a higher end brand of wine and Starshine were offering mid background labels in the market.Since Starshine produced entirely mid range brand wines, it would bring forth been in their outdo interest to merge with the other company barn wine in order to secure a share in the market. This would open been their defensive action. The merger was crucial because had they non merged with vitamin B wine-coloured, International Beverage could make out acquired their company as the urgently needed many pull out, keeping in mind everywherely that International Beverage besides needed some fix for themselves to retain their market share. Starshine would then now be able to deal with their cost issues and competition from foreign producers. The merger in the midst of Starshine and International Beverage would be a defensive action with gaze to the emerging market changes and also to avoid not having a say in the future business of the company. group B wine-coloured was producers of high-end wine with a very strong brand. Despite this, they also had soggy per unionizeance, there prevalent management conflicts, these were the internal problems the company was faced with also their inability to form good distribution lines, have a stinking management team up and as a result, has unflattering performance levels (Luehrman Kester, 2009).The market change favoured atomic number 5 wine prospects as it allowed them to have more clients to form a better distribution line which ordain then have positive effects on its revenues. group B wine-colored did not need a merger neither an acquisition bec ause it could have solved the aforesaid(prenominal) issues by itself.Despite this fact, there was the option of solving these issues by fetching advantage of the already established distribution lines and high earnings of twain Starshine and International Beverage (Luehrman Kester, 2009). Given these reasons, bacillus Vino is the only one that would be taking offensive action in some(prenominal) instances with obedience to merger and acquisition.Question 2What primary advantages did your company bring to the control board?An acquisition of or merger with Bel Vino would benefit twain company as Bel Vino, is the company that offered classic vintages and strong brands (Luehrman Kester, 2009). This would give them the comparative advantage over the other companies since these other companies, Starshine and International Beverage, deal mainly with lower end and mid range labels (Luehrman Kester, 2009). From the fact that industry has overcome the wine glut the demand for wine h as shifted to the higher end products which neither of Bel Vinos competitors possess (Luehrman Kester, 2009). This was an advantage for Bel Vino since they were able to use this for their negotiations. This would be beneficial also for International Beverage and Starshine providing the chance to gain a market share and for their survival in the raw market transformation.Bel Vino also benefited from the low cost advantages with respect to the merger with Starshine wedded the fact of the apparent cost control issues. (Luehrman Kester, 2009). instruction in Bel Vino were able to utilize their finances as opposed to overspending on advertisement as Starshine did. All in all, Bel Vino brought several advantages to the table during this negotiation, all of which benefitted each of the companies of way or the other.Question 3Compare the market positions, financial performance, and future prospects of Bel Vino and Starshine. What are the most significant sources of synergies for the p otential transactions? trade position can be defined as the ranking of a brand, product, or firm, in terms of its gross revenue volume relative to the sales volume of its competitors in the same market or industry (Business Dictonary, 2009). In analyzing the three companies, it was found that from the age 2006-2010 Starshine continually had higher net sales to that of Bel Vino. In 2006 Starshine had 475 trillion compared to Bel Vinos 359 trillion and International beverages 2980 million. In 2007 Starshine had 495 million compared to Bel Vinos 360 million and 2999.9 million. In 2008 Starshine had 525.1 million compared to Bel Vinos 366 million and 3019.9 million. In 2009 Starshine had 557.2 million compared to Bel Vinos 382.1 million and 6100.4 million. In 2010 Starshine had 591.5 million compared to Bel Vinos 390.1 million and 6141.2 million. (Harvard Business School 2009) This shows that Starshine had a greater market bearing than that of Bel Vino and that Bel Vino was finding it difficult to feed sales especially in the international markets to compete with its rivals.This was possibly due to its poor distribution lines. International Beverage could help Starshine and Bel Vino affix their market share some(prenominal) domestically and internationally and also help improve Bel Vinos distribution line.Financial performance refers to the touchstone of a firms policies and operations in monetary terms. These results are reflected in the firms arrest on investment and light on assets (Business Dictionary, 2009).As the formula for return on assets is Net Income/Total Assets, the Return on assets for Starshine through the years 2006 to 2010 are in 2006 11.1/498.3 = 2.23% in 2007 8.6/503.9=1.71% in 2008 17.4/507.5=3.43 in 2009 28.3/531.5=5.32 in 2010 36.9/556.9= 6.63%.In comparison, the returns on Assets for Bel Vino throughout the years are in 2006 4.2/425.9=0.99%, in 200718.8/406.8=4.62%, in 2008 27.7/389.4=7.11, in 2009 33.2/403.6=8.23%,in 2010 36.1/ 409.1=.8.82%. This shows that Bel Vino had a higher return on assets than Starshine.Our return on assets are as follows in 2006 162.2/1227.2=13.22% in 2007 109.9/1461.5=7.52 in 2008 97.5/1544.5=6.31 in 2009 423.7/22.32.7=18.98 in 2010 446.6/2770.2=16.12. This again shows that our company, International Beverage company is a larger better run company.In sexual congress to the future prospects of these companies, Bel Vino had to focus on the protection of their brands, increase in distribution lines and increase in sales volumes. Pertaining to Starshine, they need to abbreviate costs and break into the high end market.Question 4What was the rule behind the choice of target for the opening urge and our overall process strategy?As we were in a better position than both companies, we were faced with the decision of it to stay as we were and run the risk of both companies merging or if to acquire on of the companies. We decided that were not under any pressure and we were going to ke ep our bidding low as we felt it was in the other companies best interest to merge with us. We started by making a bid for Starshine as we felt that with their greater presence in the markets would help us to gain an even stronger market share. We thus made an opening bid of $45 per share to Starshine. This bid was rejected. As a result our share price dropped by $0.50 to $64.70 while starshines rosaceous by $2.26 to $56.64. We decided to start the bidding at such a low price so during negotiations the ceiling price would not get too high. We realised that Starshine offered Bel Vino 1.05 new Starshine shares for each brisk Bel Vino Share. So we decided to give Bel Vino something to think about by offering $39 per share. This was lower than their share price at the current time which was $45.96. We were not prepared to buy out any of these companies while incurring huge debts. This was another reason why our bids were kept so low. Bel Vino didnt see our bid as attractive despite t he fact that we could improve their distribution line internationally considerably. So they rejected our bid. We thus decided it was not worth it to acquire any of the two companies as they lacked the vision to see that they could only benefit by merging with us. In the end Starshine accepted Bel Vinos offer and the companies merged.Question 5.If you were not successful at completing a transaction, why do you believe this was the case? Do you think it represents the best outcome for your shareholders? Would you do anything differently if given another chance to talk over?According to the confidential information our team was provided with, both Bel Vino and Starshine were potential prospects for a merger. Our main prospect was Bel Vino since they interchange high end products and our company would have received more shelter from this merger. We also noted that a merger with Bel Vino would have added worth to our company. Therefore in the long term, shareholder value will also be increased. In order to increase shareholders value, it is imperative that a company implements strategic planning. This can be done by change magnitude cost base while maintaining revenue and by increasing revenue share and by reducing cost (Ezine Article, 2010). A merger between Bel Vino and Starshine would have reduced cost of goods sold by roughly $3 million to $ 5 million. In addition, their Research and growing cost would decrease by a significant amount, roughly, one million on an annual basis. Bel Vino showed strategic planning and they accepted the goal of the company and because of their financial operations which were done effectively and efficiently, they were able to develop their working capital. There was a possibility of mergers between Bel Vino and Starshine, which actually came to fruition.Before any negotiation is made by any organization and for it to be successful it is critical for them to look over key issues that will affect their organization in the long run. In other words preparedness is one of the main key to successes in any business organization. In addition, a good strategy is also important for a healthy and long term existence of that company.Our team definitely lacked in the area of preparation was resulted in International Beverage not being able to merge with any of the two potential companies. Our team members were definitely not ready to negotiate because we did not manner enough background work in terms of focusing on our operating assumptions which included domestic and international revenues. In addition, due to the lack of understanding the game and time, we were not capable of making enough offers to the other two wine companiesThese factors needed to be decided upon before we ventured into the negotiation process. We also need to focus more on our balance saddlery and make comparisons between Bel Vinos and Starshines balance sheets.Despite our unpreparedness, we were able to make bids by offers to both Bel Vino and Starshine at prices, $48.81 and $58.57 respectively. Both companies rejected our offers. We assumed that they believed that their companies were worth more than what we were offering them. At the end of the simulation, Starshine and Bel Vino merged.In conclusion, the wine simulation was a elateing experience for our team and we realized the importance of conducting our homework before venturing into negotiations. It is important to learn about your counterparts in detail, as opposed to looking on the surface. enlarge such as financials are crucial in getting into mergers. If given the opportunity to negotiate again, we will definitely make serious preparations for the negotiations.