It is due Tomorrow...

I want to use the Porter's 5 forces to analyze the position of the particular industry the acquirer RSE and target FVC are in, and use SWOT to analyze the target company FVC.

1. Using the case and the supplementary data in Appendix TN1, how do you see FVC?s situation? What are the strengths and weaknesses of FVC and RSE? Why should the two companies want to negotiate?

Porter Five Forces. -Industry.

• buyer power: mainly government

• supplier power

• Industry Rivalry

• Threat of new entrants

• Threat of substitutes

Single customer of government. -> diversity of clients. More depend on market clients.

Strengths:

Weaknesses:

Why:

1 Bill Flinder?old

2 Scale economy

3 Overdependence on government ->diversify buyer

4 salary increase from option-based incentive bonus

more competitive industry.

PP&E: getting old For the exclusive use of Y. Guo, 2016. UV1062 Nov. 17, 2008 FLINDER VALVES AND CONTROLS INC. In early May 2008, W. B. \"Bill\" Flinder, president of Flinder Valves and Controls Inc. (FVC), and Tom Eliot, chairman and chief executive officer of RSE International Corporation (RSE), were planning to negotiate a possible acquisition of FVC by RSE. Serious discussions for combining the two companies had started in March of that year, following casual conversations that dated back to late 2007. Those initial talks focused on the broad motives for each side to do a deal, and on the management issues, including compensation, in the new firm. What still remained was to negotiate a final term sheet on which the definitive agreement would be drafted and signed. In the background, the past 12 months had been associated with mounting difficulty for the U.S. economy. The industries within which RSE and FVC operated were not immune from these effects. A recent analyst report summarized the market view for industrial manufacturing. Tighter borrowing standards and a severely weakened housing sector are weighing on the domestic economy, prompting consumers to cut back on spending and industrial manufacturers to reduce production. A similar situation now seems to be taking hold in western Europe.1 Both corporate leaders were concerned about the opportunities and risks of doing a deal in this increasingly challenging environment. Flinder Valves and Controls Inc. Flinder Valves and Controls, located in Southern California, manufactured specialty valves and heat exchangers. FVC maintained many standard items, but nearly 40% of its volume and 50% of its profits were derived from special applications for the defense and aerospace industries. Such products required extensive engineering experience of a kind only a few firms were capable of providing. FVC had a reputation for engineering excellence in the most complex phases of the business and, as a result, often did prime contract work on highly technical devices for the government. 1 Value Line Investment Survey, April 25, 2008. This case was written as a basis for class discussion. The companies and characters featured are fictional. Copyright 2008 by the University of Virginia Darden School Foundation, Charlottesville, VA. All rights reserved. To order copies, send an e-mail to sales@dardenbusinesspublishing.com. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any meanselectronic, mechanical, photocopying, recording, or otherwisewithout the permission of the Darden School Foundation. This document is authorized for use only by Yixi Guo in Mergers and Acquisitions taught by Edward Harding, Johns Hopkins University from January 2016 to April 2016. For the exclusive use of Y. Guo, 2016. -2- UV1062 FVC was an outgrowth of a small company organized in 1980 for engineering and developmental work on an experimental heat-exchanger product. In 1987, as soon as the product was brought to the commercial stage, Flinder Valves and Controls Inc. was organized to acquire the properties, both owned and leased, of the engineering corporation. The president of the predecessor company, Bill Flinder, continued as the president of FVC. Eventually, the company acquired the patents it had licensed. The raw materials used by the company were obtainable in ample supply from a number of competitive suppliers. Marketing arrangements presented no problems. Sales to machinery manufacturers were made directly by a staff of skilled sales engineers. The Auden Company, a large firm in a related field, was an important foreign distribution channel under a nonexclusive distributor arrangement. About 15% of FVC's sales came from Auden. Foreign sales through Auden and directly through FVC's own staff accounted for 30% of sales. Half the foreign sales originated in emerging economies, mainly Brazil, Korea, and Mexico. The other half originated in the United Kingdom, Italy, and Germany. Although competitive erosion in the mid-2000s had temporarily interrupted FVC's sales growth, better economic conditions in the markets of developed countries, together with FVC's recent introduction of new products for the aerospace and defense industries, offered the company excellent prospects for improved performance. Sales in the first quarter of 2008 grew 23% over the corresponding period in 2007, at a time when many of FVC's competitors experienced limited growth prospects. Exhibits 1 and 2 show the most recent financial statements for FVC. FVC's plants, all of modern construction, were organized for efficient handling of small production orders. The main plant was served by switch tracks in a 15-car dock area of a leading railroad and also by a truck area for the company's own fleet of trucks. From 2005 to 2007, net additions to property totaled $7.6 million. Bill Flinder, an outstanding researcher in his own right, had always stressed the research and development involved in improved products, with patent protection, although the company's leadership was believed to be based on its head start in the field and its practical experience. FVC's success had brought numerous overtures from companies looking for diversification, plant capacity, management efficiency, financial resources, or an offset to cyclical business. For instance, when Flinder Valves was taken public in 1996, Auden Company, which later became a holder of 20% of FVC common stock, advanced a merger proposal. Rumors of possible antitrust action by the U.S. Department of Justice had circulated after the news of the proposed merger became public, and Auden withdrew from the discussions. FVC received various proposals from 1998 on, but none reached the stage of working out an agreement until the advances of RSE International Corporation. FVC had come to RSE's attention with the FVC's disclosure of a U.S. government contract. FVC was to develop an advanced hydraulic-controls system, code-named \"widening gyre,\" for use This document is authorized for use only by Yixi Guo in Mergers and Acquisitions taught by Edward Harding, Johns Hopkins University from January 2016 to April 2016. For the exclusive use of Y. Guo, 2016. -3- UV1062 in numerous military applications. The technology was still in research and development, but was expected to have broad commercial value if the results were found to be economically successful. RSE International Corporation Tom Eliot had founded RSE International in 1970, grown it, taken it public, and firmly rooted it as a Russell 1000 company. In response to what he perceived to be the firm's growth challenges for the next decade, Eliot had persuaded RSE's board that the company should follow a policy of focused diversification, which would be achieved by an aggressive growth-by-acquisition program designed to create opportunities and entries into more dynamic markets than the ones RSE then served. In 2008, RSE manufactured a broad range of products including advanced industrial components as well as chains, cables, nuts and bolts, castings and forgings, and other similar products. RSE then sold them (mostly indirectly) to various industrial users. One division produced parts for aerospace propulsion and control systems with a broad line of intermediate products. A second division produced a wide range of nautical navigation assemblies and allied products. The third division manufactured a line of components for missile and fire-control systems. These products were all well regarded by RSE's customers, and each was a significant factor in its respective market. Exhibit 3 shows the RSE balance sheets for 2007; Exhibit 4 presents the income statements from 2003 to 2007. The company's raw material supply (sheets, plates, and coils) of various metals came from various producers. RSE International's plants were ample, modern, well-equipped with substantially newer machinery, and adequately served by railroad sidings. The firm was considered a low-cost producer that possessed unusual production knowledge. It was also known as a tough competitor. Eliot and his management team had initiated several changes to help increase RSE's profit margins. Chief among them, in late 2006, had been the implementation of Project CORE, a business wide initiative to improve and unify the corporate wide information systems. This project had already identified numerous opportunities for improving profits and sales. As a result, RSE's latest sales and earnings forecasts projected a steady increase over the next five years. The current plan (excluding merger growth) called for sales to hit $3 billion within five years (Exhibit 5). Despite Eliot's confidence and optimism for the future of the company, he believed that the stock market still undervalued his firm's shares. This document is authorized for use only by Yixi Guo in Mergers and Acquisitions taught by Edward Harding, Johns Hopkins University from January 2016 to April 2016. For the exclusive use of Y. Guo, 2016. -4- UV1062 The Situation During the early part of 2008, a series of group meetings had taken place between Tom Eliot and Bill Flinder and their respective advisers. It seemed clear to both parties that both FVC and RSE could profit from the merger. By early May, a broad outline of the merger seemed to be developing. Flinder Valves was to become a subsidiary of RSE Internationalthe deal would be structured in such a way as to preserve FVC's identity. The two sides had explored some of the governance and compensation issues in the merger. Flinder would be retained along with his top management team and all other employees. No layoffs were contemplated. This reflected RSE's intention to invest in and grow the FVC operation. FVC's solid management team was one of the factors that had attracted RSE in the first place, and Eliot wanted to keep the same management in place after the merger. Flinder would receive a generous option-based incentive bonus that could result in a salary increase of between $50,000 and $200,000 per year. Because Flinder was 62 years old and nearing retirement, the compensation package was meant to retain him in the coming years as he trained a new chief executive. The price of the deal was less clear. FVC's shares traded on the NASDAQ, whereas RSE's traded on the American Stock Exchange. The market capitalizations for FVC and RSE were approximately $100 million and $1.4 billion, respectively. Both companies had experienced recent rapid rises in share price due to strong performance despite the weak economic environment. Exhibit 6 shows recent share prices for Flinder Valves and RSE.2 The financial advisors had collected a variety of relevant capital-market data. Exhibit 7 provides valuation information on exchange-listed comparables for Flinder Valves and RSE. Exhibit 8 presents information on recent related acquisitions. Exhibit 9 presents historical moneymarket and stock-return data through May 2008. RSE's debt was currently rated Baa. Flinder had shared FVC's current corporate-financial-statement forecast with Eliot but had emphasized that it did not include any benefits of the merger or the benefits of promising new technologies, such as the widening gyre (Exhibit 10). The reluctance to include the widening gyre project stemmed from the substantial uncertainty remaining regarding its potential economic benefits. The companies had yet to settle on the form of consideration, either cash or RSE stock, that would best serve the parties to the deal. Eliot expected that RSE had the financial capacity to borrow the entire amount through its existing credit facilities. Roughly 70% of the Flinder Valves stock was held by its board of directors and their families, including the 20% owned by the Auden Company and 40% owned by Bill Flinder. The Auden Company did not object to the merger, but it had given notice that it would sell any RSE shares received in the deal. The Auden Company was about to undertake a new expansion of its own, and its executives were not disposed to keeping tag ends of minority interests in a company such as RSE. They saw no reason, however, for not maintaining 2 RSE International's stock had a beta of 1.25; the beta for FVC was 1.00, based on the most recent year's trading prices. Both companies faced a marginal tax rate of approximately 40%. This document is authorized for use only by Yixi Guo in Mergers and Acquisitions taught by Edward Harding, Johns Hopkins University from January 2016 to April 2016. For the exclusive use of Y. Guo, 2016. -5- UV1062 their satisfactory business relationships with the Flinder Valves enterprise if it became a division of RSE International. This document is authorized for use only by Yixi Guo in Mergers and Acquisitions taught by Edward Harding, Johns Hopkins University from January 2016 to April 2016. For the exclusive use of Y. Guo, 2016. UV1062 -6Exhibit 1 FLINDER VALVES AND CONTROLS INC. Consolidated Balance Sheet as of December 31, 2007 for Flinder Valves and Controls (dollars in thousands) Assets Cash U.S. Treasury tax notes and other Treasury obligations Due from U.S. government Accounts receivable net Inventories, at lower of cost or market Other current assets Total current assets Investments Land Buildings Equipment Less: allowance for depreciation Total plant, property, and equipmentgross Construction in process Total plant, property, and equipmentnet* Patents Cash value of life insurance Deferred assets Total assets Liabilities and Stockholders' Equity Accounts payable Wages and salaries accrued Employees' pension cost accrued Tax accrued Dividends payable Provision for federal income tax Total current liabilities Deferred federal income tax Common stock at par (shares authorized and outstanding 2,440,000 shares) Capital surplus Earned surplus Total equity Total liabilities and stockholders' equity $1,884 9,328 868 2,316 6,888 116 $21,400 1,768 92 6,240 18,904 7,056 18,180 88 18,268 156 376 156 42,124 2,016 504 208 72 560 1,200 4,560 800 1,220 7,180 28,364 36,764 42,124 * Equivalent land in the area had a market value of $320,000, and the building had an estimated market worth of $16,800,000. Equipment had a replacement cost of approximately $24,000,000 but a market value of about $16,000,000 in an orderly liquidation. This document is authorized for use only by Yixi Guo in Mergers and Acquisitions taught by Edward Harding, Johns Hopkins University from January 2016 to April 2016. For the exclusive use of Y. Guo, 2016. UV1062 -7Exhibit 2 FLINDER VALVES AND CONTROLS INC. Summary of Consolidated Earnings and Dividends for Flinder Valves and Control (dollars in thousands) Sales Cost of goods sold Gross profit administrative Other incomenet Income before taxes Taxes Net income Cash dividends Depreciation Capital expenditures Working capital needs Ratio analysis Sales Cost of goods sold Gross profit administrative Other incomenet Income before federal taxes Net income 2003 $36,312 25,924 10,388 2,020 92 8,460 3,276 5,184 2004 $34,984 24,200 10,784 2,100 572 9,256 3,981 5,275 2005 $35,252 24,300 10,952 2,252 108 8,808 3,620 5,188 2006 $45,116 31,580 13,536 2,628 72 10,980 4,721 6,259 2007 $49,364 37,044 12,320 2,936 228 9,612 4,037 5,575 1,680 784 1,486 1,899 2,008 924 1,826 3,492 2,016 1,088 2,011 -1,200 2,304 1,280 2,213 4,289 2,304 1,508 2,433 4,757 100.0 71.4 28.6 5.6 0.3 23.3 14.3 100.0 69.2 30.8 6.0 1.6 26.5 15.1 100.0 68.9 31.1 6.4 0.3 25.0 14.7 100.0 70.0 30.0 5.8 0.2 24.3 13.9 100.0 75.0 25.0 5.9 0.5 19.5 11.3 (Unaudited) Three months ended 3/30 2007 2008 $11,728 $14,162 8,730 10,190 2,998 3,972 668 896 14 198 2,344 3,274 1,009 1,391 1,335 1,883 576 364 580 1,130 100.0 74.4 25.6 5.7 0.1 20.0 11.4 753 394 640 1,365 100.0 72.0 28.0 6.3 1.4 23.1 13.3 This document is authorized for use only by Yixi Guo in Mergers and Acquisitions taught by Edward Harding, Johns Hopkins University from January 2016 to April 2016. For the exclusive use of Y. Guo, 2016. UV1062 -8Exhibit 3 FLINDER VALVES AND CONTROLS INC. Consolidated Balance Sheet for RSE International as of December 31, 2007 (dollar figures in thousands) Assets Cash U.S. government securities, at cost Trade accounts receivable Inventories, at lower of cost or market Prepaid taxes and insurance Total current assets Investment in wholly-owned Canadian subsidiary Investment in supplier corporation Cash value of life insurance Miscellaneous assets Property, plant, and equipment, at cost: Buildings, machinery, equipment Less: allowances for depreciation and amortization Property, plant, and equipmentnet Land Property, plant, equipment, and landnet Patents, at cost, less amortization Total assets Liabilities and Stockholders' Equity Notes payable to bank Accounts payable and accrued expenses Payrolls and other compensation Taxes other than taxes on income Provision for federal taxes on income refund, estimated Current maturities of long-term debt Total current liabilities $46,480 117,260 241,760 179,601 2,120 587,221 158,080 104,000 3,920 2,160 671,402 260,001 411,402 22,082 433,484 1,120 $1,289,985 $5,795 90,512 38,399 3,052 32,662 30,900 201,320 Note payable to bank1 Deferred federal income taxes 2 % cumulative convertible preferred stock, $20 par, 119,100 29,668 27,783 1,389,160 shares outstanding2 Common stock, $2 par; 96,000,000 shares authorized; 62,694,361 shares issued 125,389 Capital surplus3 Retained earnings Total equity 21,904 764,821 939,897 Total liabilities and stockholders' equity $1,289,985 $150,000,000 note, payable semiannually beginning June 30, 2008; $30,900,000 due within one year, shown in current liabilities. One covenant required the company not to pay cash dividends, except on preferred stock, or to make other distribution on its shares or acquire any stock, after December 31, 1999, in excess of net earnings after that date. 2 Issued in January 2007; convertible at rate of 1.24 common share to one preferred share; redeemable beginning in 2012; sinking fund beginning in 2016. 3 Resulting principally from the excess of par value of 827,800 shares of preferred stock over the pay value of common share issues in conversion in 2007. 1 This document is authorized for use only by Yixi Guo in Mergers and Acquisitions taught by Edward Harding, Johns Hopkins University from January 2016 to April 2016. For the exclusive use of Y. Guo, 2016. UV1062 -9Exhibit 4 FLINDER VALVES AND CONTROLS INC. Summary of Consolidated Earnings and Dividends for RSE International (dollars in thousands) Net sales Cost of products sold Gross profit Selling, general, and administrative Earnings before federal income taxes Tax expense Net earnings Depreciation Cash dividends declared 2003 $1,623,963 1,271,563 352,400 58,463 293,937 126,393 167,544 2004 $1,477,402 1,180,444 296,958 69,438 227,520 95,558 131,962 2005 $1,498,645 1,140,469 358,176 74,932 283,244 116,130 167,114 2006 $1,980,801 1,642,084 338,717 87,155 251,562 101,882 149,679 2007 $2,187,208 1,793,511 393,697 120,296 273,401 109,360 164,041 19,160 85,754 20,000 77,052 21,480 53,116 24,200 77,340 26,800 92,238 This document is authorized for use only by Yixi Guo in Mergers and Acquisitions taught by Edward Harding, Johns Hopkins University from January 2016 to April 2016. For the exclusive use of Y. Guo, 2016. UV1062 -10Exhibit 5 FLINDER VALVES AND CONTROLS INC. Forecast Financial Statements for RSE International for the Years Ended December 31, 2007-12 (dollars in thousands except per-share figures) Actual Projected 2008 2009 2010 2011 2012 2007 $2,187,208 $2,329,373 $2,480,785 $2,642,037 $2,813,769 $2,996,658 1,793,510 1,920,085 2,064,243 2,216,470 2,367,290 2,537,259 393,698 409,288 416,542 425,567 446,479 459,399 120,296 129,786 139,481 151,027 161,315 169,826 273,402 279,502 277,061 274,540 285,164 289,573 109,361 111,801 110,824 109,816 114,066 115,829 167,701 166,237 164,724 171,098 173,744 164,041 Sales Cost of goods sold Gross profit Selling, general, and admin. Income before tax Tax expense Net income Cash dividends 92,238 102,082 108,714 115,779 125,185 133,313 26,800 389,321 422,597 27,950 426,522 447,956 29,770 459,404 486,428 31,700 498,497 528,407 33,170 541,109 574,238 35,960 587,580 624,303 $2.62 $2.60 $2.58 $2.56 $2.66 $2.70 Divs. per share common stock $1.42 $1.58 $1.69 $1.80 $1.94 $2.07 2 $0.40 Depreciation Net PPE Net working capital Earnings per share1 1 Div. per share preferred stock 1 2 62,694,361 common shares in 2007. Thereafter, 64,416,919 shares reflecting conversion of the preferred stock. 1,389,160 preferred shares in 2007. Conversion into 1,722,558 shares of common stock assumed in 2008. This document is authorized for use only by Yixi Guo in Mergers and Acquisitions taught by Edward Harding, Johns Hopkins University from January 2016 to April 2016. For the exclusive use of Y. Guo, 2016. UV1062 -11Exhibit 6 FLINDER VALVES AND CONTROLS INC. Market Prices of Flinder Valves and RSE International Corporation 2003 2004 2005 Flinder Valves and Controls Common Stock High Low Close $16.25 $8.75 $15.00 24.75 14.00 22.63 25.00 20.00 22.25 RSE International Corporation Common Stock Preferred Stock High Low Close High Low $12.31 $10.05 $11.88 14.36 11.77 13.16 12.81 9.27 11.13 2006 Quarter Ended: March 31 June 30 September 30 December 31 24.38 22.75 22.75 24.36 20.75 20.38 20.38 20.13 21.50 21.00 21.50 21.00 14.13 13.69 12.83 12.39 12.83 12.04 10.48 11.26 13.95 11.78 11.26 11.87 2007 Quarter Ended: March 31 June 30 September 30 December 31 23.50 23.63 22.75 30.00 20.00 19.88 20.00 22.25 21.75 22.00 22.50 28.50 11.60 11.60 13.61 17.01 10.20 10.90 11.13 13.30 10.67 10.90 13.61 16.78 13.61 13.15 14.22 17.32 12.21 12.04 12.37 13.77 2008 Quarter Ended: March 31 32.13 26.00 31.50 20.73 15.08 20.69 17.32 13.98 $39.75 $38.90 $39.75 $22.58 $18.30 $21.98 $17.63 $15.35 May 1, 2008 This document is authorized for use only by Yixi Guo in Mergers and Acquisitions taught by Edward Harding, Johns Hopkins University from January 2016 to April 2016. For the exclusive use of Y. Guo, 2016. UV1062 -12Exhibit 7 FLINDER VALVES AND CONTROLS INC. Market Information on Firms in the Industrial Machinery Sector Expected Growth Dividend Rate Yield to 2010 Debt/Capital Price/ Earnings Ratio Cascade Corp. Manufactures loading engagement devices Curtiss-Wright Corporation Manufactures highly engineered, advanced technologies that perform critical functions Flowserve Corp. Makes, designs, and markets fluid handling equipment (pumps, valves, and mechanical seals) Gardner Denver Manufacturers stationary air compressors, vacuum products, and blowers Idex Corp. Manufactures a wide range of pumps and machinery products Roper Inds. Manufacturers energy systems and controls, imaging equipment, and radio frequency products Tecumseh Products Manufactures compressors, condensers, and pumps Watts Industries Manufactures and sells and extensive line of valves for the plumbing and heating and water quality markets Beta 10.5 0.95 1.7% 5.1% 29% 17.2 1.0 0.7 12.3 36% 20.8 1.3 1.0 27.0 30% 10.9 1.3 Nil NMF 19% 16.1 1.05 1.5 10.8 22% 19.7 1.2 0.5 10.8 29% 38.2 1.05 Nil NMF 8% 15 1.3 1.5 8.4 32% NMF = not meaningful figure. Source: Value Line Investment Survey, April 25, 2008. This document is authorized for use only by Yixi Guo in Mergers and Acquisitions taught by Edward Harding, Johns Hopkins University from January 2016 to April 2016. na = not available. Data Source: Thomson Financial's SDC Platinum. Stewart & Stevenson Alstom SA Aviall Inc OYL Industries Bhd JLG Industries Inc SIG Holding AG K&F Industries Holdings Armor Holdings Inc Sequa Corp EDO Corp Stork NV Trane Inc Armor Holdings Inc Bouygues SA Boeing Co Daikin Industries Ltd Oshkosh Truck Corp Rank Group Ltd Meggitt PLC BAE Systems Inc Carlyle Group LLC ITT Corp London Acquisition BV Ingersoll-Rand Co Ltd 1,123 2,467 2,057 1,152 3,252 2,314 1,802 4,328 2,007 1,678 2,347 9,751 726 17,679 1,371 1,581 2,289 1,418 424 2,805 2,181 945 2,153 8,328 65.3 nmf 28.9 27.6 20.5 38.6 20.3 30.5 34.4 86.8 17.1 21.2 Turbine-driven products Power generation equip Vehicle parts Airconditioners Excavators/telehandlers Packaging/plastics machinery Aircraft braking systems Law enforcement equip Aircraft engine component Electn system products Components Airconditioners Business 1.12 1.48 1.53 1.41 1.30 1.56 4.26 1.71 1.25 1.99 0.02 1.39 33.1 77.9 18.7 21.5 11.9 64.8 13.1 17.1 20.6 34.0 na 14.9 23.7 22.5 14.9 16.8 10.7 14.2 10.8 14.3 12.5 23.9 na 11.6 Enterprise Enterprise Value/ Target Enterprise Value/ Target Operating Value/ Target Net Sales Income Cash Flow Stewart & Stevenson Alstom SA Aviall Inc OYL Industries Bhd JLG Industries Inc SIG Holding AG K&F Industries Holdings Armor Holdings Inc Sequa Corp EDO Corp Stork NV Trane Inc Target Equity Value/ Target Net Income Law enforcement equip Construction Aircraft Air conditioning sys Heavy duty trucks Investment holding co Aerospace/defense system Electronic systems Private equity firm Pumps/valves Investment holding co Industrial machinery/equip Business Target Net Sales Transaction Last 12 Months ($mm) Size ($mm) Armor Holdings Inc Bouygues SA Boeing Co Daikin Industries Ltd Oshkosh Truck Corp Rank Group Ltd Meggitt PLC BAE Systems Inc Carlyle Group LLC ITT Corp London Acquisition BV Ingersoll-Rand Co Ltd Acquirer Target Acquirer 5/25/2006 6/26/2006 9/20/2006 11/10/2006 12/8/2006 4/11/2007 6/22/2007 7/31/2007 12/3/2007 12/20/2007 2/6/2008 6/5/2008 Effective Date Information on Selected Recent Mergers FLINDER VALVES AND CONTROLS INC. Exhibit 8 -13- 40.6 -1.2 27.2 19.4 52.3 19.3 13.5 29.3 63.3 40.5 35.2 na Premium 4 Weeks Prior to Announcement Date (%) UV1062 For the exclusive use of Y. Guo, 2016. This document is authorized for use only by Yixi Guo in Mergers and Acquisitions taught by Edward Harding, Johns Hopkins University from January 2016 to April 2016. For the exclusive use of Y. Guo, 2016. UV1062 -14Exhibit 9 FLINDER VALVES AND CONTROLS INC. Capital Market Interest Rates and Stock Price Indexes (averages per year except April 2008, which offers closing values for April 25, 2008) 2006 2007 April 2008 U.S. Treasury Yields 3-month bills 30-year bonds 4.70% 5.00% 4.40% 4.91% 1.28% 4.52% Corporate Bond Yields by Aaa Aa A Baa 5.59% 5.80% 6.06% 6.48% 5.56% 5.90% 6.09% 6.48% 5.58% 5.96% 6.32% 6.98% Stock Market S&P 500 Index Price/earnings ratio 1,418 17.7 1,468 18.3 1,398 17.4 Industrial Machinery Stocks Price/earnings ratio Dividend yield 13.9 1.4% 14.0 1.4% Historical return premium of equity over government debt (1926-2007) Geometric average 5.5% Arithmetic average 7.2% Data Source: Value Line Investment Survey, 25 April 2008; Federal Reserve Bulletin; Compustat. This document is authorized for use only by Yixi Guo in Mergers and Acquisitions taught by Edward Harding, Johns Hopkins University from January 2016 to April 2016. For the exclusive use of Y. Guo, 2016. UV1062 -15Exhibit 10 FLINDER VALVES AND CONTROLS INC. Forecast of Financial Statements for Flinders Control and Valve for Years Ended December 31, 2008-12 (dollars in thousands) Sales Cost of goods sold Gross profit administrative Other income, net Income before taxes Taxes Net income Depreciation Net PPE Net Working capital Actual 2007 $49,364 37,044 12,320 2,936 228 9,612 4,037 $5,575 2008 $59,600 43,816 15,784 3,612 240 12,412 4,965 $7,447 2009 $66,000 48,750 17,250 4,124 264 13,390 5,356 $8,034 $1,508 $1,660 $1,828 $18,268 $16,840 $22,056 $20,331 $24,424 $22,515 Projected 2010 $73,200 54,104 19,096 4,564 288 14,820 5,928 $8,892 2011 $81,200 59,958 21,242 5,052 320 16,510 6,604 $9,906 2012 $90,000 66,200 23,800 5,692 352 18,460 7,384 $11,076 $2,012 $2,212 $2,432 $27,088 $24,971 $30,049 $27,700 $33,306 $30,702 Source: FVC Analysis. This document is authorized for use only by Yixi Guo in Mergers and Acquisitions taught by Edward Harding, Johns Hopkins University from January 2016 to April 2016