“子遥杯”商业精英挑战赛商业案例(GBCpapy)

Board Meeting - Day 1

There are intense discussions on whether or not to acquire AW Superstores (AW), a newly established chain of just 2 years, with 17 small convenient stores located offshore in Hong Kong and 5 other stores operated in Shenzhen, China. Some of the directors are not pleased with the performance of AW in particular profitability. There are other reasons as well such as inconsistency of corporate style and culture between Papy and AW. However, the major concern is having cigarette and alcoholªon sale in AW. Cigarette and alcohol are not the major revenue items in AW though these items are believed to give significant complement sales effect on other regular food items and groceries.

Lucas: If AW is conflicting with our corporate goals and objectives, we may as well renounce the acquisition of such. This is a painful decision, as AW not only establishes its presence in the lucrative Hong Kong market, but also in the fastest growing China market. Since Papy doesn’t have any overseas establishment, and that the growth potential in Europe is limited at present, the acquisition of AW would give Papy an opportunity to expand overseas in order to diversify risk and to sustain growth. I am quite anxious to see what the market may react once Papy has decided to acquire AW Superstores.

Abdul: The attached financial statements are the drafted financial statement of AW for the year ended 31 December, 2010 which I received from the Operation Director of AW. I hope Karen could help to provide some indications as to what valuation is appropriate for board consideration. I expect a five years planning horizon would be appropriate for any investment evaluation.

Karen: The future cash flows of AW Superstores is quite difficult to predict, and that we have to be cautious with our assumptions. On the safe side, however, we can use Papy as a proxy for AW’s financial projection. If cigarettes and alcohol were taken away from the shelves, I expect revenue will be dropped by 10%. However, we can consider health food as replacement. Since having health food and supplements on sale in the convenient stores is very unique in Hong Kong and in China market, who knows if this could be a knockout. All in all, any financial predictions would consider all leading factors such as corporate strategies, economic and market conditions.

Abdul: I’d like to remind all our board members that the current cash flow of Papy unfortunately is just barely enough to disburse our existing obligations. Any new acquisitions will require additional financings. I’ve already arranged a mezzanine loan with HY Bank a facility of €100 million. Interest rate is 10% payable in 5 years. This particular loan will be used to finance all future projects, and any further borrowings may jeopardize our gearing levels resulting a negative impact on our company value and share price.

ª(Note: Smoking and drinking are considered to be hazardous to health)