Case 4 Brownforman
1) Why is Brown forman considering buying Southern Comfort? In your answer consider the strategic motives of Brown and the arguments in favour of and against the acquisition.
One of the strongest arguments for Brown Forman to acquire a new company is their strong balance sheet. The reason behind a strong balance sheet is because of a continued close attention to asset management. Brown Forman has a low debt/equity ratio, over the past few years the company has placed itself in an outstanding financial position which has led to higher levels of debt which they can use to finance new acquisitions and other investment opportunities.
Similar to Brown Forman’s Jack Daniels brand, Southern Comfort was never sold at a discount by its manufacturer and was considered a very strong brand within t he liquor industry.
A strategic decision behind Southern Comfort could also be the expanded marketing goals Brown Forman has for overseas production. With a larger product-line mix, skillful branding and product positioning, the growth of the company would be more sustainable in the long run.
In many ways, Souther Comfort is very similar to Brown Forman, privately family run business with quality and control over their product line with a positive average growth in shipments. A company like Southern Comfort whom lacked active management was still regarded as well run and efficient which says a lot about the goals and standards of the company. A strong favour against the acquisition was the general retail prices in relation to the consumer price index, during a 10-year period the CPI rose 75% while retail liquor prices only advanced 15% in the last 10 years.
3) discount rate + long term growth rate. long term growth rate – affects the terminal value. ( explain why the conclusion )
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[ 1 ]. Page 2 of the case.
[ 2 ]. Page 4 of the
One of the strongest arguments for Brown Forman to acquire a new company is their strong balance sheet. The reason behind a strong balance sheet is because of a continued close attention to asset management. Brown Forman has a low debt/equity ratio, over the past few years the company has placed itself in an outstanding financial position which has led to higher levels of debt which they can use to finance new acquisitions and other investment opportunities.
Similar to Brown Forman’s Jack Daniels brand, Southern Comfort was never sold at a discount by its manufacturer and was considered a very strong brand within t he liquor industry.
A strategic decision behind Southern Comfort could also be the expanded marketing goals Brown Forman has for overseas production. With a larger product-line mix, skillful branding and product positioning, the growth of the company would be more sustainable in the long run.
In many ways, Souther Comfort is very similar to Brown Forman, privately family run business with quality and control over their product line with a positive average growth in shipments. A company like Southern Comfort whom lacked active management was still regarded as well run and efficient which says a lot about the goals and standards of the company. A strong favour against the acquisition was the general retail prices in relation to the consumer price index, during a 10-year period the CPI rose 75% while retail liquor prices only advanced 15% in the last 10 years.
3) discount rate + long term growth rate. long term growth rate – affects the terminal value. ( explain why the conclusion )
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[ 1 ]. Page 2 of the case.
[ 2 ]. Page 4 of the