You’re a seasoned financial executive who’s recently been hired as the CFO of the Pilaster Corporation. The firm has just finished two years in which its financial performance has been clearly below par. The company isn’t in danger of failing, but it’s clear that earnings and growth could be much better. The market price of Pilaster’s stock reflects this lukewarm performance. It is currently selling for $32, down substantially from its peak of $48 a little over two years ago. (The market has been generally flat in the last two years.)
Several observers have blamed the lackluster performance on the firm’s CEO, Gerald Beanweather, and his top assistants. This team installed some new technological and managerial methods several years ago that haven’t worked out well. Recently, they’ve been talking about returning to the old, time-tested methods that most people feel will bring the firm back to its usual performance levels. In fact, your hiring was part of the turnaround effort. It’s currently seven o’clock on a cold, bleak Monday morning in February. On the previous evening the CEO’s secretary phoned the entire executive team to tell them an emergency meeting was set for this morning. The group is now assembled waiting to hear what’s going on. At 7:01 Gerry walks into the room, obviously upset. He says that yesterday afternoon he received a call from Harvey Highroller, the CEO of Marble Inc., the leading firm in the industry. Marble is interested in acquiring Pilaster and is willing to offer $37 a share for its stock, a premium of more than 15%. Marble has a history of making both friendly and unfriendly acquisitions.
a. What kind of combination is Marble currently proposing?
b. What is likely to happen if Pilaster’s management rejects Marble’s offer?
c. Is Marble likely to be successful over management’s objections?
d. Why is Gerry so personally upset?
e. Should you be personally upset?
f. Is Marble’s offer a good deal for Pilaster’s stockholders?
g. What should Pilaster’s management do to avoid acquisition by Marble?
h. Do you think Marble is likely to be successful in an unfriendly merger attempt over Pilaster’s defenses?
i. If Marble is not successful, what can the Beanweather team do to reduce the chances of a similar attack in the future?