Yeats Valves and Controls Inc

Abstract

Set in May 2000, these cases reflect the separate perspectives of the CEOs as they approach the negotiations of TSE International to acquire Yeats Valves. The task for the student is to complete a valuation analysis of the target and buyer, and to negotiate a price and exchange ratio with the counterparty. Each case contains a financial forecast only for that side; therefore, an important element in the negotiation is to obtain the private information of the other side, analyze it, and successfully negotiate terms of acquisition. The cases are relatively simple, and are offered as a first exercise in the valuation of the firm, and negotiation of an acquisition. They may be taught singly in usual case-discussion fashion, or combined into a joint-negotiation exercise where students are assigned parts to play. Used in a bilateral bargaining exercise, two teams of students are designated, each team representing one side of the negotiation and receiving a case designed for that team. The bargaining exercise provides a particular opportunity for joint teaching among instructors in finance, strategy, human behavior, and negotiation.

Excerpt

UVA-F-1365

Version 2.8

YEATS VALVES AND CONTROLS INC.

On May 2, 2000, W. B. “Bill” Yeats, Chair, CEO, and founder of Yeats Valves and Controls Inc. (YVC), met with Kate Porter, his long-time adviser, investment banker, and a member of the Yeats Valves board of directors. The pair met to prepare for the final negotiations about the proposed acquisition of Yeats Valves by TSE International Corporation. Serious negotiations for combining the two companies had started in March, following casual conversations, which dated back to late 1999. Those initial talks focused on broad motives for each side to reach an agreement, and on the social issues, such as management and compensation in the new firm. The final term sheet on which the definitive agreement would be drafted and signed was still open for negotiation.

Porter and Yeats had worked together to craft the outline of the agreement. So far, the social terms of the merger had been broached, although the specific details remained to be settled. YVC would become a subsidiary of TSE. Bill Yeats would remain as YVC's CEO.

Yeats had never thought seriously about a possible sellout before last November, when he had his 62nd birthday. “I began to wonder what would happen to the company after I retired or died,” he reminded Kate Porter. “I've got a good top-management team here, but they are all specialists. I don't think any one of them could step in and run the show alone. It's a tough business to learn, and I don't think I could find a successor very easily—nor train him quickly. There's stability in the TSE International combination that's worth something personally to me.”

. . .

Keywords: exchange ratio, bargaining and negotiating, valuation