Szln and Pem Case

Question 1 What strategic opportunities and risks should SZLN take into account when assessing the acquisition?

Opportunities

- Utilize PEM's production capacity to support SZLN's underutilized smelters;

- Significantly improve the grades of zinc and lead ore for production, which would greatly reduce the costs for SLZN in its production;

- Possible capital gain after acquisition as the market recovers;

- SZLN and PEM could draw advanced mining technologies from each other;

- SZLN could improve its operational and managerial efficiencies by learning relevant skills from PEM;

- Provide a platform to SZLN for future international expansion;

Risks

- Cultural differences between two countries;

- Political risks

 The FIRB may rule the acquisition unfavourable to SZLN as SZLN's intention is to gain control over PEM and the FIRB may find it to be against the national interest of Australia;

 The supervision body SASAC in China may also find that SZLN's acquisition does not amount to efficient use of foreign exchange reserves, even though the overall strategy is to ‘go global';

- Market condition may continue deteriorating and the acquisition may then lead to massive losses to SZLN;

- Risk of overpayment due to shareholders' holdup problem;

Question 2 Determine the value range of PEM based on comparable transactions. Can PEM be valued using acquisition multiples such as the Price/Earnings and Price/Book ratio;

The only comparable transaction here is the failed merger between PEM and CBH.

- Latest market value – assuming that CBH's