Monmouth Inc.

Case Questions

• Assess the strategic fit of Robertson Tool Company for Monmouth. If you were Mr. Vincent, the executive Vice President of Monmouth, would you try to gain control of Robertson Tool in May 2003?
• What is the maximum price that Monmouth can pay for Robertson? To answer this question:
  • Do a discounted cash flow analysis using the numbers in the case. Comment on the reasonability of forecast of margin improvements. (Use the excel spreadsheet template for this analysis). What is the WACC?
  • Use multiples valuation to determine the maximum price. Use market multiples using prospective EBIAT.
  • Based on the analysis above, what is the maximum price Monmouth can pay for Robertson?
• Do a sensitivity analysis using your discounted cash flow model. Recalculate the price per share for Robertson for the following scenarios:
  • Annual growth rate of sales is 3% lower than your estimate (if your assumption is 7%, your new assumption for this sensitivity analysis will be 7-3=4%)
  • Cost of goods sold/sales and SG&A/Sales remain at 69% and 22%, respectively (i.e., there are no cost improvements) (no changes to your original assumption of sales growth)
  • Cost of goods sold/sales and SG&A/Sales remain at 69% and 22%, respectively (i.e., there are no cost improvements) AND annual growth rate of sales is 3% lower than your estimate
  • Present the results of your sensitivity analysis in a table
• What price will be necessary to gain the support of the Robertson family, Simmons, and the great majority of the shareholders?
  • What are the interests, concerns, and alternatives of each group?
  • Does Monmouth have a competitive advantage over NDP in the bidding contest? How likely is NDP to increase its offer in response to a bid by Monmouth?