Company MK was the third largest professional publishing company in America. Its products included magazines, books, and databases all of which focused on professional and scholarly markets, including medicine, legal, business and taxation. The great grandchildren of the company were losing interest in running the business, which they realistically valued at 1 billion dollars. One reason was that there was excessive turnover of non family senior executives who could not achieve the double digit growth demanded by the family.
Potential acquirers/suitors included three companies:
1) J, was one of the largest consumer media conglomerates (featured in a Tom Hanks, Meryl Streep movie in 2017). By Board approval, the CEO was authorized to acquire this business and expand their management reach and acumen into what they believed was an untapped and under marketed enterprise.
2) FJ, was the largest professional business and scholarly publisher in the world. It was a Dutch publicly traded company out of Utrecht.
3) RFK, was the second largest global publisher in this market segment.
Blind Bidding - each of the three principle interested parties were asked to submit blind bids. Advisors to the publishers included Goldman Sachs, Merrill Lynch, and First Boston.
All first bids were in the 600/700 million dollar range which were rejected by the family. A second round of bidding occurred and bidder #3, RFK, dropped out.
In the second round, bidder #1, J, and bidder #2, FJ, returned bids in the 900 million dollar range. Since both bids were in cash, there was no difference between the bids and a third round was requested.
The CEO of Bidder #1, J, was well known as a dynamic leader in his field and in the media business, senior leaders are not without ego. Bidder #2, FJ, was well aware of this and that bidder #1 critically needed the big win-acquisition to increase the market cap and options.
The CEO at bidder #2, FJ, was totally hands, practical and financially driven.
In the third round bid, both bidders upped their bids to the 1.05-1.0 billion dollar range.
Now comes the fourth round. You are an advisor to bidder number #2, FJ. Anything above 1.1 billion (which is now expected) will put your return on invested capital and ROI beyond what you are comfortable with based on your company’s risk tolerance. But to allow #1 to buy this company would put your US operation at a potentially greater long term sustainability risk. You also know that the bidding with this competitor will not stop at 1.1 billion dollars.
Step 1 - Write a 500 word summary addressing the following points:
Assess the situation.
What are your alternatives?
What choice would you make and why?
Where are you comfortable on the ERM curve?
Step 2 - Write a report to the CEO of FJ which includes the following:
A risk profile/matrix
An explanation of your intended outcome
An analysis of why you have chosen this outcome
An outline of your negotiation strategy going forward to achieve this outcome