Business expansion has grown dramatically over the last decade, bringing with it major changes in the organization and control of economic activity around the world. A company wants to expand its activity to achieve advantage of exposing the business to a wider audience and to exploit favourable financing opportunities.
The purpose of this report is to identify whether Stetson Group PLC should expand its planned business activities through acquisition and market development and how to finance its expansion and cope up with external issues.
This report provides information obtain through free cash flow methodology, Net present value calculation, sensitivity analysis and hedging option available to the company. All the relative calculation is in the three different appendices.
Table of Contents
Introduction
Executive summery
1.1 Free Cash flow
1.2 Hostile takeover:
1.3 Cash offer and mixed mode finance offer:
2.1 Exchange control
Restricted remittance
2.2 Investment decision
Sensitivity analysis
2.3 Foreign exchange risk
3.1 Credit risk exposure
3.2 Hedging options
Forward contract
Future contract
Option contract
3.3 Development in world financial market
2008 financial crisis
Dark pool trading system
Free movement of capital
Money laundering regulation
Conclusion
Research Objectives and Key Topics
The primary purpose of this report is to analyze the proposed business expansion of Stetson Group PLC into Cambodia, focusing on the acquisition of Fly-up Airways. The study aims to evaluate the financial viability of this investment, determine the optimal financing strategy, and assess the various risks associated with international market entry, including foreign exchange and credit exposure.
- Financial valuation and acquisition strategy for Fly-up Airways.
- Risk management regarding currency exchange and interest rate fluctuations.
- Evaluation of credit risk exposure and debt financing requirements.
- Analysis of broader developments in the world financial market affecting corporate strategy.
Excerpt from the Book
1.2 Hostile takeover:
Stetson Group wants to takeover Fly-up Airways (FA) to achieve trade advantages or synergy. As FA is successful trading company, they may not want to sell the company and may think this as a hostile bidding approach. FA could adopt the following defensive approaches to protect the company from hostile bidding of Stetson Group.
Staggered Board: FA could follow staggered board approach where the directors of the company are divided into three classes. Only one class i.e. one third of the directors is elected each year. In essence, directors are granted three-year terms. Consequently, Stetson Group wishing to obtain control of the board of directors of the company will have to wait two years, even if they hold the majority of the company’s shares.
Poison Pills: FA can make itself an unattractive company by giving the right to existing shareholder to buy the shares at a very low price. However, poison pills have many variants.
Summary of Chapters
Introduction: Provides the context for Stetson Group PLC’s expansion strategy and outlines the methodology used to assess the proposed acquisition.
Executive summery: Outlines the key findings regarding the positive NPV of the Cambodian investment and offers recommendations for financing and risk mitigation.
1.1 Free Cash flow: Details the valuation model used to determine the maximum premium Stetson should pay for Fly-up Airways.
1.2 Hostile takeover:: Discusses various defensive tactics a target company can employ to prevent an unwanted acquisition.
1.3 Cash offer and mixed mode finance offer:: Compares different payment methods for acquisitions and their impact on shareholders and company control.
2.1 Exchange control: Analyzes the restrictive impact of foreign exchange controls in developing markets like Cambodia on corporate operations.
Restricted remittance: Examines the challenges associated with government limitations on transferring earnings back to the parent company.
2.2 Investment decision: Presents the financial evaluation and net present value calculations supporting the investment in Cambodia.
Sensitivity analysis: Evaluates how fluctuations in key variables like sales and fixed costs impact the project's overall profitability.
2.3 Foreign exchange risk: Identifies the types of currency risk Stetson faces and explores management techniques like leading, lagging, and matching.
3.1 Credit risk exposure: Investigates the potential for default on loan repayments and the subsequent impact on the company's credit rating and borrowing costs.
3.2 Hedging options: Compares various derivative instruments—forward contracts, future contracts, and option contracts—to manage interest rate risk.
Forward contract: Explains the use of forward rate agreements as a hedging tool for borrowing requirements.
Future contract: Evaluates the cost-effectiveness and mechanics of using interest rate futures for hedging.
Option contract: Discusses the flexibility and premium costs associated with using options to hedge interest rate exposure.
3.3 Development in world financial market: Contextualizes the company's expansion within broader market trends and regulatory environments.
2008 financial crisis: Reviews the causes of the global financial crisis and its lasting impact on lending and business stability.
Dark pool trading system: Explains the mechanics and implications of alternative, non-public trading platforms for institutional investors.
Free movement of capital: Discusses the regulatory shift towards removing barriers to capital flow between states.
Money laundering regulation: Highlights the increasing compliance burden and necessary risk assessment measures for modern businesses.
Conclusion: Summarizes the overall strategic feasibility of the Stetson Group's expansion plan and the necessity of managing identified financial risks.
Keywords
Advanced Financial Management, Acquisition, Stetson Group PLC, Fly-up Airways, Cambodia, Business Expansion, Net Present Value, Sensitivity Analysis, Hostile Takeover, Foreign Exchange Risk, Hedging, Derivatives, Credit Risk, Dark Pool, Money Laundering Regulation
Frequently Asked Questions
What is the primary focus of this report?
The report focuses on evaluating the financial and strategic implications of Stetson Group PLC's planned acquisition of Fly-up Airways and its subsequent expansion into the Cambodian market.
What are the central themes discussed in the work?
The central themes include acquisition strategies, financial valuation methods, international risk management, interest rate hedging, and the impact of global financial market developments on corporate planning.
What is the primary research goal?
The goal is to determine if the expansion is financially viable, how the company should finance the deal, and how to effectively manage the associated operational and market risks.
Which methodologies are employed for financial assessment?
The author uses free cash flow valuation, net present value (NPV) calculations, and sensitivity analysis to test the robustness of the investment decision.
What topics are covered in the main body?
The body covers defensive strategies against hostile takeovers, methods of financing acquisitions (cash vs. mixed mode), management of exchange and credit risks, and the comparative analysis of various hedging derivatives.
Which keywords best describe this work?
The core keywords include Financial Management, Acquisition, Net Present Value, Hedging, Exchange Risk, and Corporate Expansion Strategy.
How does the author propose to hedge the £20m borrowing requirement?
After comparing forward, future, and option contracts, the author concludes that future contracts are the most suitable choice to minimize payment and manage interest rate risk.
What risk does the Stetson Group face regarding exchange controls in Cambodia?
The group faces risks related to the rationing of foreign exchange, restrictions on types of transactions (such as dividend payments), and the potential for blocked funds due to restricted remittance requirements.
What are the defensive tactics discussed for target companies?
The report outlines several tactics, including staggered boards, poison pills, non-voting shares, litigation, the sale of "crown jewels," and the use of white knights or white squires.
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- Kamrul Islam (Autor), 2015, Proposed acquisition, business expansion and development in the world financial market, Múnich, GRIN Verlag, https://www.grin.com/document/456105
