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Unformatted text preview: eared to be a perfect acquisition as it would give them distribution abilities in a new region of the country. Rob and Dianne spent the next two months performing extensive due diligence on CEB by working in CEB’s offices and examining every aspect of the company. Thus they were able to uncover an extensive amount of information on this alternative. It is possible that after obtaining the tip on CEB, the couple focused on the acquisition alternative, specifically the acquisition of CEB, at the expense of uncovering more information about other alternatives within their scope. For example, a better inquiry into new product lines, perhaps through the use of a survey sent to all of their customers, could have revealed another alternative to be more attractive. Robert and Dianne may have been biased towards the acquisition alternative. Alternatives and Uncertainties At the time of FTI’s strategic decision, the following alternatives can be identified. For each alternative, important uncertainties are enumerated and quantified in terms of a probability of success (favorable outcome) or failure (unfavorable outcome). For alternatives that were outside the frame of consideration, a description of the proposed alternative is also given. Alternative Develop a new product‐line in house. Uncertainties Product line reception by customers Financial recovery within 5 years Probability Assignment Explanation A product could likely be found that is in 70% success demand by customers, although the margins 30% failure are unlikely to be as good as edgebanding. 40% success 60% failure Keeping CEB’s customers 80% success 20% failure Acquire CEB to gain COGS synergy access to new geographic location 90% success 10% failure A new product line would take a large initial investment and it would take much time to become profitable, so financial recovery would be a long and uncertain way off. This was the biggest uncertainty regarding the acquisition. CEB was owned by an individual who personally took care of all the customers, so it was a big concern that the customers might bolt after the acquisition. They could alleviate this by paying this individual to stick around. In order for the acquisition to make sense, FTI depended on renegotiating pricing with the vendors that CEB and FTI shared so in order to get FTI’s better prices for CEB. If the vendors baulked at this because it cut into their margins, the deal would be in big trouble. Operating a CEB, could have a negative effect on the owners’ lifestyle. Remote management would have to be made to work. Lifestyle 70% success 30% failure Financing 80% success of the business depended on intangibles like 20% failure goodwill that bankers don’t value highly. Financing could be a problem because so much Profitability depended on good terms. Establishing a new branch themselves would be tricky because one needs intimate knowledge of the regional industry to be successful. Again, remote management would have to be...
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This document was uploaded on 02/17/2014.
- Winter '14