Southwest Hedging

Viewed from the standpoint of the Monmouth management, the case provides an opportunity for students to evaluate the acquisition of Robertson broadly in terms of the strategic fit of the two companies and more narrowly in terms of the financial value of Robertson as an acquisition. This value can be assessed from a variety of approaches, including (1) a discounted cash flow analysis; (2) the impact of the acquisition on Monmouth’s earnings per share as a function of the price paid for Robertson and the form of the transaction; a (3) market multiples. Fundamental to the valuation is the achievability of the forecasts of Robertson’s future financial and cash flow performance.

The case also requires that students think about how Monmouth management should design and implement a merger offer that will meet the test of the marketplace on the most advantageous terms possible to Monmouth. A satisfactory offer must appeal to a sufficiently broad range of shareholders with divergent interests so that it will prevail over the alternative offers now open to the Robertson’s stockholders and the potential bids that may be made to them. The offer presumably will also have to be sufficiently attractive to the Robertson family and management so that the merger will be supported, or at least, accepted by them.

1. If you were Mr. Vincent, executive Vice President of Monmouth, Inc., would you try to gain control of Robertson Tool in May 2003.

2. What is the maximum price that Monmouth can afford to pay, based on a discounted cash flow valuation? Based on market multiples of EBIAT?

3. Why is Simmons eager to sell its position to Monmouth for $50 per share? What are the concerns of and alternatives for each of the other groups of Robertson shareholders?

4. What offer would you make in an effort to gain support of the Robertson family and the great