Simmons Japan Limited should venture in this deal since it would be beneficial to them. When there is a merger between two companies, the competitive advantage of these companies is increased so is the niche to which the companies can sell their product to the public. SJL taking the venture will mean that they will be making themselves a dominant player in the market thus the winning company in the long run. Additionally, there will be a possibility of the company making more deals with other companies a similar environment to see it become a single monopoly in the industry thus avoiding cases of competition thus maximizing on revenues. The deal by Simmons Japan Limited will also increase their scope of market in the entire Asia as they will see an entry in some cities where they never existed before. As a result, revenues will increase and dominance in industry will also increase significantly.
On the other hand, SJL will have the capability of raising extra capital from the public since more investors would be more confident when there is a merger with a reputable firm that has existed in the market for numerous years without any bad history of loss making. The other advantage is that, there will be a gain in cost efficiency by SJL. This is seen as when there is a merger, economies of scale are increased. As output production increases it is possible to say that the overall cost of production reduces thus promoting cost efficiency. When smaller firms operate as single units the overheads become too expensive as compared to when they merge and operate as one large firm.
The value of $29 million can only be negotiated when other costs are calculated. Such costs include; the value of debts, value of creditors and the yearly cash flows just to find the true value of the company. This will help negotiate on the value and the shareholding percentage. However, the deal would still be good at $29 million since the amount would be returned back after a shorter period of time which the company would not have raised without a merger. The cost or valuation would thus not be easy to raise higher that that due to the unsettled overheads that would need to be settled first before a complete merger is done by the Simmons Japan Limited. Negotiations onto the deal will depend on the agreement on the party that would settle the overheads and the possibility of growth of the company in the future without any other issues that would pull it back.
Evaluation of a company would depend on the stakeholders that exist. However, according to the goals set, it would be advantageous if the company negotiated in terms of how it would work to cover some of the unpaid dues before the merger. For example, if there were debts amounting to around $5million, the company would have to settle them first then after which they can merger and settle for a better deal that would see both companies benefit in the long run. The negotiations made should thus be done carefully to avoid messing up with the deal which could be important for both parties.
The concerns about subordinate debt are high and it would be important for them to be settled first and then later covered. Conversely, concerns on whether it would be economical to invest on such a huge debt or not are rising. However, we can find it economical since the company will be able to use the debt as a leeway towards a cheaper deal. The company can negotiate on a better term rather than a high price yet it would later pay it through the debtors’ accounts.
The option to buy back the company after 5 years could be very expensive for the seller. The company will at that time be highly valued and highly profitable. This means that the 10% stage will translate into a very high value for the seller. The seller can alternatively sell 90% of the company and remain with the 10% which can be used later as an investment into buying back the company at the time when the prospects are higher and the venture has moved to several other markets around Asia and in the world. Valuation of companies depend on sellers and it changes from time to time thus there is always a need to keep a safe percentage of a company sold at hand so as there is sufficient funds for growth or start of a new business.
The acquisition of the sellers company will thus be important for an emergence into newer markets around the world where it could not compete due to the harsh conditions set by its competitors. In conclusion, it is seen as an important decision for the acquisition of the company by SJL as it will help them strengthen their ground into fresh Asian markets which were initially dominated by other multinationals.
Beauty rest 35.9%
Headboards, Frames and Night tables 30.7%
Box Spring 14.5%
Open Coil 12.7%
Bed Accessories 6.2%
Totals 100%
The above chart shows the sales of products at Simmons Japan Limited with breakdowns per product. With the beauty rest products leading the sales chart, the company still proves viable and with that much of sales, there is a great influx of profits flowing from the products. This means that if the company was to be liquidated, the company owners and the shareholders would have surplus profits to share.
