Mergers and Acquisitions

Presented by
• Joshita
• Manusmriti
• Shubham
 Problem Statement

Case is about 2 major companies 1. Monmouth 2. Roberston Tool Company

Monmouth Inc is a leading producer of engines and massive compressors. There are 2
major problems that Monmouth is facing:
• Heavy dependence on the sales of oil and gas industries
• Fluctuation in earnings caused by cyclical nature of heavy machines and equipment
sales

Reasons why Monmouth was considering Mergers and Acquisitions:

1. Synergies- that increases efficiency and cut down costs
2. Helps in growth and these mergers and acquisitions will going to help Manmouth in
stable earnings
3. Increase supply-chain pricing power
4. Competitive Advantage
 Overview

Monmouth decided to go for following Acquisitions:

1. Dessex Rule Company
2. Keane Corporation
3. Kroll Electric Corporation
4. Roberston Tool Company (to be strategically analysed)

Challenges that company faced in Acquiring

Roberston Tool Company:

1. Reluctance
2. Competition
3. On what terms and conditions, do they sign the agreement
4. Robertson’s leadership and control wants
 Strategic Transactions

Strategic Transactions are the dramatic events for companies and

often represent either the end to a company as an independent
business or atleast dramatic change in its management,
ownership and fate.
Strategic transactions

New challenges

New Opportunities
Merger is a corporate
marriage
What made Robertson such an attractive deal ?

• Competitive strength : not translated into earnings

• Heavy distribution channels : strong European presence
• Ballooned inventories that can be channelised
• One of the largest domestic manufacturer of cutting and edge
hand tool
• 50% market share of clamps and vises
• 9% shares of this $ 200 million
 Points to consider in Strategic Re-alignment:

• Cost of good sold would reduce

• Selling expense will come down
• Elimination of the overhead and advertising cost
• Friendly acquisition
• Increased customer base.
• Core competencies
• Windfall from diversified product lines.
• Economies of scale
• Diversification of Risk
 Valuation model

Robertson Tool company

Book Value per Share Market Price

46 48
50 41
45
40 33 32
35
30
53.1 25
52.47
51.33 20
49.68 15
49.4
10
5
0
199 8 19 99 2 00 0 2001 2002 1998 1999 2000 2001 2002

• Constant dividend of $1.6 million

• Constant no. of shares
• Debt : 28% of capital
 Monmouth Inc. – Post merger with Robertson Tool Company

Pre-merger
Net Income(millions) Earnings per Share

2003 $ 11.0 2003 $ 2.61

2004 $ 11.9 $ 2.83
2004

2005 $ 12.8 $ 3.04

2005
$ 13.8
2006

$ 15.0 2006 $ 3.27

2007

2007 $ 3.56
• Reduction in COGS from 69% to 65%
• Reduction in selling expenses
• Reduction in overhead administrative expenses from 22% to 19%

Check Points in case of Roberston Tool Company :

• Whether the plant and machinery is an owned asset or on lease.

• Contract of long term debt of $12 million
Way Forward for Monmouth :

1. Go forward with the merger agreement with Robertson for the core competencies.

2. Propose the market price at $40 per share

3.Who will get the gravy ?

Merger synergy of 1 + 1 = 3
Lets split
4. Propose for 50% control in Roberston Tool company without harming the family corporation’s leadership and control.

Hence Monmouth can benefit strategically fulfilling its goal of never doing an unfriendly acquisition.
Thankyou