Flinder Valves and Controls Case Study

      The acquisition of FVC definitely makes strategic sense for RSE. RSE is a large industrial manufacturing company which manufactures advanced industrial components. RSE’s market cap during the time of the proposed merger was $1.4 billion, yet their founder, Tom Eliot, believes the merger with FVC will help the company to grow and diversify. In contrast, FVC’s market cap was $100 million, yet they have a lot to offer RSE. There are advantages and disadvantages to the proposed merger.

 In terms of advantages, FVC represents a significant growth opportunity for RSE based on their current success, and their exclusive government contract to develop an advanced hydraulic controls system named widening gyre. This advanced controls system has significant commercial potential in nautical, aerospace, and engineering products. Along with a strong reputation for engineering excellence, FVC brings significant R&D capability along with innovation, and a well-managed smaller manufacturing company that can produce more highly-specialized products.

RSE currently lacks innovation, as evidenced by no new products being developed for 2 years (University of Virginia, 2008). Also, leadership of both companies believes that a merger would create cost savings. Because of RSE’s size and purchasing power, economies of scale would be created. The in-process costs at FVC will be reduced by the RSE system of resource management by an estimated $1 million the first year, and $3 million in following years. RSE would also help FVC with a much larger marketing influence within industrial manufacturing.

   In terms of disadvantages, due to increasing challenges with the U.S. economy, the market view for industrial manufacturing during the time of the proposed merger is not strong. Forecasts predict that industrial manufacturers will be reducing production in both domestically and in Western Europe due to a tightening housing market and reduced spending. Internally, there is a disadvantage to the merger because of potential employee challenges adapting from two very different company cultures.

FVC is a much smaller company with an entrepreneurial culture, while RSE has a much larger corporate culture. Taking over the market of Flinder Valves (FVC) is a benefit to RSE since Flinder valve is an already established company and that has its market in United States and other big countries where the market is at its best level such as Korea and Brazil (University of Virginia, 2008). FVC deals with the heat exchangers and valves and the current market for the products is very attractive. Looking at the already established market, it is evident that RSE will benefit from the merger considering the fact that Brazil, Mexico and Korea are emerging economies in the world. At least above 30 percent of the heat exchangers and valves used in mainly Brazil and Mexico come from Flinder valves and this makes it possible for the company to even take over the market with huge levels.

The management of FVC had taken its time and done valued research which could assist the company growth and which allowed the company to be in a better position in the next 5 years. Such research is vital since it assures the company of success using the right means to reach the goals. RSE deals with products such as bolts and nuts, cables and chains and combining these two companies, there would be increased profits from one market to another (University of Virginia, 2008). Considering the financial statement for FVC since 2007 to 2012, there has been growth in the net income and this gives an assurance that the company is headed for success as the year's pass.  Most companies form mergers in order to take advantage of the already in place economies of scale. The sharing of the services and the resources of each company enable the growth and diversification of the companies. FVC is one company that has already established its existence in most cities and continents making it a practically capable company. The ready market makes it very good for RSE to reap good profits after the merger and influence the market to reach out other new markets. The risk involved when both companies are involved is reduced through innovating new techniques for the benefit of the merger.  

Mergers and acquisition in many cases lead to the loss of very talented and skilled personnel through the layoff that takes place after the merger. Skills are very important for a company and therefore very important to consider using the available skills. When RSE takes charge of the company, the workers and also those in leadership might lose their job meaning that they take away their skills which would have enabled the company growth. There might be a duplication of the services in the merger and this means that there can be an incident of cost increase with less revenue (University of Virginia, 2008). There can be cases of uncertainty during the mergers due to the high level of assurances required therefore leading to a delay of the services to be offered. Through the mergers, the companies might experience poor communication which might lead to a delay in operations and also lack of consistency with the workers. There can also be the issue of inadequate transparency in the merger since even if the management has agreed to form the merger, the workers and or the supervisors might give wrong information making it very hard to value the cost related and the benefits or losses to expect.

 

 

Reference

University of Virginia, (2008). FLINDER VALVES AND CONTROLS INC. Darden Business Publishing