Flinder Valves and Controls

Case Synopsis and Objectives: Set in May 2008, this case reflects the separate perspectives of chief executive officers Tom Eliot and Bill Flinder as they approach the negotiations of RSE International Corporation to acquire Flinder Valves and Controls Inc. The task for the student is to complete a valuation analysis of the target and buyer and to negotiate a price and exchange ratio with the counterparty. The intent of the case design is for you to play the part of either Flinder Valves or RSE International in the negotiation. The case provides supplementary private information for each side of the transaction. Therefore, a unique element of the case is negotiating the terms of acquisition in an environment of asymmetric information. The case is relatively simple and provides a first exercise in the negotiation of an acquisition. It could also be taught in the usual case-discussion fashion instead of the intended joint-negotiation exercise. Exercise valuation skills: The case affords opportunities for valuation based on discounted cash flow, comparable transaction multiples, and current market prices. Write a 2-3 page report (outside of title pages and sources cited pages), where you analyze case 50 (pages 715-726). 1. Using the case and the supplementary data in Appendix TN1, how do you see FVC’s situation? What are the strengths and weaknesses of FVC and RSE? Why should the two companies want to negotiate? 2. What is FVC worth? Use the methods available to you to value the company. What are the key value drivers? 3. What opening price do you think Flinder should offer to sell the company to RSE? At what price should he walk away from the negotiation? How did you estimate those values? 4. Do you recommend that RSE pays in cash or stock? If stock, what exchange ratio do you recommend?