expand their business by buying out company B. Company B has the right characteristics and could be bargained for $22 million dollars

Ap Db
July 13, 2019
Case Application 2 Shifting Direction
July 13, 2019

expand their business by buying out company B. Company B has the right characteristics and could be bargained for $22 million dollars

Companies want to expand their business and improve their sales and profits. Instead of building man Show more Companies want to expand their business and improve their sales and profits. Instead of building manufacturing plants and installing new machineries companies look to buy other companies and integrate them into their current business. One of the recent purchase was GEs acquisition of Alstom to expand their power business. The following is a scaled down version of the decision process that goes into before buying another company. Company A is a major player in the energy industry and wants to expand their business by buying out company B. Company B has the right characteristics and could be bargained for $22 million dollars. There are couple of other companies also keeping their eyes on B and when exactly company A need to make a move could cost or save a good amount of money. The experts in company A feel that if they If they wait for one month there is a 30% chance the price could be reduced by $600000 and a 20% chance it could be reduced by $1200000. There is a 50% chance the price may not go down at all. If company B is available for purchase after 1 month the following situations can be predicted. a. If the price did not drop in month 1 there is a 60% chance of a $600000 price reduction in month 2 and a 10% chance of $1200000 reduction in month 2 and a 30% chance of no price reduction in month 2. b. If the price dropped by $600000 in month 1 there is a 20% chance of a $300000 price reduction in month 2 and a 20% chance of $600000 reduction in month 2 and a 60% chance of no further price reduction in month 2. c. If the price dropped by $1200000 in month 1 there is a 20% chance of a $200000 price reduction in month 2 and a 10% chance of $400000 reduction in month 2 and a 70% chance of no further price reduction in month 2. If company A bought company B they believe they could gross $30 million dollars in sales (Purchase of the company is not included). They have $22 million dollars in hand and their investments normally returns between 18 to 20%. What did Company A should do and when?


 

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