Ameripill Assignment

Paul Hackman & Jeff DeBord

Ameripill Assignment

3/4/2015

Ameripill

1. Discuss the possible strategic reactions of the General Managers in the United Kingdom, Germany, and France to the following alternatives:

1. United Kingdom: Expand current manufacturing capacity by acquiring the Worsley plant.

With the possible acquisition of the Worsley plant in the United Kingdom on the table, the U.K. general manager is wondering what a few of the following changes will do to his numbers for the IFPS bonus. If the Worsley plant is acquired and established to further manufacturing in the area, it can be fully functional within the year as GM John Phillips suggests. This brings on problems for the United Kingdom’s performance reports and budgets. As Phillips states “One thing I know, expanding manufacturing to include Smoothkare will not help our earnings, will create more manufacturing problems, and will increase our operating costs - all bad news for us, particularly for our IFPS results.” When looking at the revised 1993 budget including the purchase of the Worsley plant and manufacturing of Smoothkare in the United Kingdom, you can see that EBT% drops from a solid 19.4% to a below average 16.4%. ROA% drops from 11.5% to 11.2%. Responsibility earnings growth sees a boost from 5% to 9.4%. If Barstow wants to make this purchase and put the Worsley plant acquisition into motion, it needs to consider these factors when evaluating the United Kingdom subsidiary during the IFPS reports. This acquisition will hurt the United Kingdom’s numbers, and therefore their bonuses. As the general manager I would want to see a report on what combined sales and manufacturing efforts contribute to Ameripill’s profits. The IFPS is pressuring the U.K. to keep inventory down and improve ROA; this causes many short manufacturing runs keeping unlit costs high. Other suggestions as a general manager I would make are highlighted in John Phillips letter to corporate.

• Vice president Stein could be asked to separate the evaluation of' U.K. production and sales operations - particularly the investment base and the prices of U.K. manu¬factured products.
• If no separate evaluation is possible, U.K. manufactured products could be priced out of our plant at a world wide wholesale price - either as a real transfer price or as a pseudo transfer price set in Bartow.

1. Germany: Acquisition of Koblenz Chemie Company.

Acquiring the Koblenz Chemie Company for roughly $15.5 million (managed assets) is proposed in Germany. As discussed in the information provided, this is a high asking price but, Koblenz Chemie is a solid company with a projected sales of $7.4 million in year one. With Germany expanding into an Eastern German sector as well, the German subsidiary and its general manager Jochim Boch want more product lines so that they can hold a larger market share. Acquiring Koblenz does this as they have an 8% market share in Germany. This strengthens Ameripill’s market position in Germany, particularly in the new and developing Eastern German sector. With news out of corporate being that the Koblenz Chemie purchase is all but a done deal, Boch is afraid this acquisition will affect his financials and the numbers will not be where they normally lie. He is worried about a reaction from corporate during his IFPS review. As stated in the information “The Koblenz acquisition seems to be a sure thing. I hear the accounting records are a mess. That's not surprising given that it was a privately owned firm. We'll have some work to do to get it into Ameripill's reporting and cash management systems.” With this being acknowledged, as the German general manager I want to know, does this mean any leeway will be given on my IFPS evaluation? Were all of these factors that have potential to skew the German numbers taken into account when purchasing Koblenz? A revised budget including the acquisition shows that with the sales increase of $7.4 million, EBT% increased from 21.8% to 22% (minimal). ROA% dropped from 46.4% to 40.5% while responsibility earnings growth increased from 23.7% to 29.6%. Germany’s numbers do not take a significant dive with the new acquisition, they stay solid and above average. As the German general manager, I would look to increase market share, and attempt to get a cost reduction once more on the Smoothkare product, to further boost sales and responsibility earnings in the region.