Globalization Strategies and Opportunities
Fast Food Restaurants
Student: Tecu Ioan Alexandru Teacher: Ioan-Constantin Enache
Contents
A. The market
B. Main Market Players
C. Mergers/Acquisitions/Takeovers that happened in the market
D. The Advantages of the vertical and horizontal integration
E. Chose a market player and assess the advantages and disadvantages of integrating another two companies (One horizontal integration and one vertical integration)
A. The Market
The hospitality industry is much broader
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Merger between Levy Acquisition Corp and Del Taco
In March 2015 Levy Acquisition Corp announced that will acquire the American fast food chain Del Taco for over 500$ million and will also cover their debt. Immediately after the merger, LAC decided to change its name to Del Taco Restaurants inc. and continued the trade on NASDAQ stock exchange.
In the first step (“Step One”), the Levy family, together with a group of investors brought together purchase $120 million of common equity of Del Taco and increased senior debt by $35.1 million through the use of an Incremental Term Facility and the Revolving Credit Facility under the existing Credit Agreement agented by GE Capital.
Under the terms of the investment, the proceeds of the equity infusion and the additional senior debt was used to retire Del Taco’s subsidiaries'.
$111 million Senior Subordinated Notes due 2019 and 2022, to acquire approximately $29 million of the existing equity in Del Taco from its current stockholders and to pay transaction expenses. This way LLI will own approximately 46% of the Company following Step One.
In the second step of the transaction (“Step Two”), a subsidiary of LAC will merge into Del
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The Advantages of the vertical and horizontal integration
The horizontal integration represents an acquisition of business activities with the same value chain in similar or different industries that has the purpose of growing the company size, increase product differentiation, to reach the economies of scale and to reduce competition.
The horizontal integration can be found in three different form:
a. Mergers, when two different companies join together and create one strong entity.
b. Acquisitions, when another company is being purchased.
c. Hostile Takeover, when a company that doesn’t want to be acquired is being taken over by an entity with a superior economic power.
Advantages of the horizontal and vertical integration between Burger King and Canadian Coffee Chain Tim Hortons.
The main goal of the merger was to increase the market power and also to give both companies an upper hand by joining resources and
Typical value creation approach for Exxel The Exxel group was one of the pioneers of Latin American private equity. It was successful through the value creation in the buyouts, recapitalizations, acquisitions and mergers. The founder of Exxel, Juan Navarro sought to build unique deals, focused on local business, and then create value to these enterprises.
This refers to vertical integration, where the company does everything and owns every part. In contrast, horizontal integration was also another means of doing things. The Standard Oil Company, owned by John D. Rockefeller, utilized horizontal integration by controlling rail lines and buying out independently owned oil refineries. Rockefeller also formed secret trusts with his competitors, agreed on setting prices low enough that other corporations couldn't compete, bought those out when he could, and even had the railroads set prices for him and his associates low enough to where other companies would start struggling. Horizontal integration was all about controlling competing businesses, in this case, forming trusts, and eliminating the other competition.
The AIG Scandal 2005 started when AIG management was issuing a press release describing its third quarter earnings in 2000 to the public. The report showed that the premium of AIG was significantly increasing, while its loss reserves was decreasing by $59 million. However, according to many industry analysts, along with the positive earnings, AIG in fact should show an increase in its loss reserves as well. This caused the investors of AIG suspected that AIG was drawing down its loss reserves to boost its profits. The suspicious of the investors has unfortunately led to the falling of AIG stock price from $99.60 to $93.30 on New York Stock Exchange (NYSE).
Industries developed new methods to increase efficiency levels—as well as profits. Andrew Carnegie, owner of the Carnegie Steel Company, pioneered the use of vertical integration. Under this system, Carnegie bought out companies that provided raw materials and services that he needed. Iron, for example, is a main component of steel.
These grants helped to build over 18,000 acres of track. 3. Vertical integration is a type of organization in which a single company controls and owns the entire process from the raw materials to the manufacturing and sale of the product. Horizontal integration is a strategy where a company creates
Cost of equity was calculated using the 10 year UST rate, 5.02%, because it is a good measurement of the risk free rate, plus the firm’s beta, 0.56, multiplied by the risk premium, which we concluded to be 5%. This gave Blaine, when unlevered, a WACC of 7.82%. When taking the $40 million debt and $100 million cash buyout of stocks into account, cost of debt is now a factor. Cost of debt was 5.88%, the bond rating of a AAA rated company like we assume Blaine
Their three options include a loan (sweetheart), bonds or an IPO. The firm has expressed interest in the first option (loan). This appears to be a good fit as they have decreased their long-term liabilities from previous years and if they want to expand, extra liquidity will be needed. The firm’s current line of credit is about double what it normally is and the payments on their remaining long-term debts are going to increase through the next four years with a balloon payment due in 2015 of $642,000. The increased current line of credit is due to the recently added production lines and only carries a 4% interest rate.
Mergers and Acquisitions and Shareholder Wealth: The theory of finance states that maximization of shareholder wealth should be the goal of every business organization. It is not clear, however, whether maximization of shareholder wealth is the main motivation behind Mergers and acquisitions. This has generated a lot of research interest the area. Unfortunately decades of intensive research have not been able to conclusively establish the impact of Mergers and acquisitions on shareholder wealth.
Many mergers tend to fail and many others succeed. A merger is the combining of assets and operations, usually between two similar sized companies, in an agreement to join together. Mergers can cause bankruptcy, job losses, less choices, and even a breakup. On the other hand, they have many advantages such as, increased market share, lower cost of production, and higher competitiveness. Most mergers can be highly risky but with the presence of knowledge and intuition they can be successful.
Question 6 a. Nero’s management has a substantial ownership interest in the company, but not enough to block a merger. If Nero’s managers want to keep the firm independent, what are some actions they could take to discourage potential suitors? Answer: Nero’s management may consider to employ staggered board, Supermajority voting provision for merger, Golden parachute and Fair price amendments etc. as defence strategies’ pre-offer.
For the purposes of this consideration an enterprise value of $2 billion will be used to correct for a possible overestimation of Six Flags enterprise value. When a company is going to losing value, as Six Flags is, investors will want to hold the safest securities they can to avoid all their value being eroded. In this case, neither common nor preferred stocks are going to receive any recovery. This is intuitive as creditors will not approve a reorganization that gives money to equity holders, as they want that cash to recover more of their losses. Ideally, H Partners would hold the most senior, unsecured debt that is available, in this case SFO bonds.
Aaron Salomon was successful leather merchant that specializes in the manufacture of leather shoes, for many years ran his job as a trader and sole. At the time, it was a legal requirement for inclusion at least seven people participate as members, partners of the company. Mr. Salomon, CEO himself. Mr. Solomon owned 20,001 of the 20,007 shares of the company - with the participation of the remaining six individually among six shareholders (wife, daughter and four sons).
Introduction The company selected for this research is McDonald’s Australia Holdings, a patented public company in Australia. The company specializes in food and beverage products such as burgers, coffee, sandwiches, McCafe beverages, and soft drinks, among others. The primary activity of the company, which generates most of its revenues from food and beverage services, entails establishing and operating a chain of family restaurants that offer quick services throughout Australia. While the company owns and runs a smaller number of the McDonald’s Australia Holdings’ restaurants, a larger number of the restaurants is owned and ran by franchisees, who shell out the company’s service fees and rent (Buchan, 2012). The 2013 annual revenue of the
LinkedIn Acquisition 1. What in your assessment are the most significant reasons driving Microsoft's purchase of LinkedIn? (250 words max) Ans 1) 1. Focus on enterprise software space: Microsoft has many in this regard ranging from Windows, Office 365, and Office Suite. Microsoft has utilized assets such as their surface tablets and Skype Communications into professional use-cases like Hololens.
INTRODUCTION The latter decade of the 20th century brought a number of major innovations to the pharmaceutical industry, most notably a remarkable wave of successful joint ventures and mergers between big and medium players in the market. In this case study we analyzed the Rorer and Rhône-Poulenc (RP) merger in July 31, 1990 that created a major multinational company: the Rhône-Poulenc Rorer, Inc. (RPR), where the RP became the majority shareholder, owning 68 percent of the RPR’s shares. Prior to the merger, Rorer lacked the resources to access the European market, and the firm presented relatively low cash balance and rising debt which, according to financial analysts, appeared to be handicapping its strategy of growth by acquisitions.