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Potential M&A Transaction: Industry Pricing Review




To: Pricing Strategy Team;From: Mark Wilmot, Corporate Development;Subject: Potential M&A Transaction: Industry Pricing Review;Recently, two of the largest vodka distillers merged prompting us to consider the viability;of merging with Golden Barrel, one of the two other players in the vodka segment of the;industry. While Golden Barrel is a relatively new compared to our long tradition of;distilling excellence, they have managed to win enough market share that if our two firms;combined we would control approximately 65% of the market. A merger of our two firms;would leave Jack Steam Distillery as our only competitor with the remaining 35% market;share.;While this potential merger has numerous advantages, we also understand industry;consolidation may alert the anti-trust authorities to take action to block based on the;anticipated price affects. Our problem is that we are unsure as to how to quantify the;overall industry price impact. Industry analysts have reported that the elasticity for;demand of vodka is -1.15 and the average industry cost basis per liter is $14.50, which;our cost accountants have confirmed is accurate.;Because engaging in M&A talks with Golden Barrel is a high risk move from a;competitive intelligence standpoint, not to mention that it bears significant costs in due;diligence and other preparatory work. While we would like to pursue this option we are;hesitant to do so before we have considered the probability that the deal may be blocked;by anti-trust concerns. Could you and your team please analyze and compare the preand;post- merger industry prices you would expect and provide us your recommendation;on whether we should engage in talks with Golden Barrel?;Best


Paper#18149 | Written in 18-Jul-2015

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