Northern Auto Case (Northern)

Northern Auto is a global manufacturer of auto parts specializing in high-quality steering wheels for luxury cars. Headquartered in Toronto, Northern was founded in 1981 by the husband-and-wife team of Joe and Jackie Farrell. Northern manufactures steering wheels in plants located in Brampton, Ontario; Gatineau, Quebec; Louisville, Kentucky, USA; Bremen, Germany; and Torino, Italy. Its customers include most of the best-known makers of luxury cars. It has grown and been profitable since its start-up; 2018 revenues are estimated at Cdn$1.3 billion, with after-tax profits of Cdn$175 million.

Northern is still owned by the Farrells. Joe is an expert designer with a background n engineering; Jackie is an ex-advertising executive who has close connections with Northern clients. They had hoped to pass the company on to their three children, but none of the children are interested in running or owning the family business; they are all following successful professional careers of their own.

The elder Farrells have decided that it is time for them to retire, and are looking for an exit strategy. They believe that Northerns senior management team is strong and could carry on successfully under the leadership of the current senior vice-president of marketing, Wing Chen, and the vice-president of finance Sebastian Howard. A large part of Northerns success has been the Farrells willingness to hire highly-qualified professionals, pay them well, and let them do their jobs.

The Farrells have come to you for advice on a proposal they have received from Purcell International, a U.S. based auto-part manufacturer. Purcell has offered to buy Northern for US$800 million, half in cash and half in common shares of Purcell. Purcell is a relatively young, fast-growing company traded on NASDAQ. Founded in 2010 by Linda Strickland, it has grown mainly through acquisitions of companies like Northern. Ms. Strickland is known as an aggressive negotiator who buys companies, cuts costs ruthlessly, and moves on to her next acquisition.

You are to create a 1-page letter to the Farrells outlining the following:

• What are some options?
• What are the practical and ethical aspects of each option?
• What would you recommend to the Farrells?