Pan-Euro Foods S. A.Project ManagementGroup PresentationArpit Pandya (08P190) Ashutosh Mishra(08P193) Ravi S. (08P215) Vishal Narayan (08P227)

INTRODUCTION Brussels based multinational food company Specializing in high quality ice cream, yoghurt, bottled water and fruit juices Steady rise of the company from its inception in 1924 Revenue of the company started stagnating in 1990s

There are a large number of strategies that a firm like Pan Europa can implement to prevent a hostile takeover. They are as given in the table below:

STRATEGIES TO PREVENT A HOSTILE TAKEOVER

Poison Pills: A poison pill is a defense strategy in which the target company offers its stockholders preferred stock in the merged firmat a highly attractive rate of exchangeas a mandatory consequence of a successful takeover. The logic in adopting such a provision is to dilute the stock so much that the attacking firm loses money on its investment. Poison Pills may be of two types: Poison Pill with flip over rights: The rights are distributed after a triggering event has occurred, such as when an unwanted suitor acquires a pre-specified percentage of outstanding stock. Flip in poison pills: With flip-in options, stockholders are given the right to acquire additional shares in the target company at a substantially lower price than the current offering.

Corporate Charter Amendment A common defense against a hostile takeover is a corporate charter amendment, which staggers the elections of members to the board of directors of the attacked firm so that all are not elected during the same year. The terms are staggered, so that some members are elected every two years, while others are elected every four. The logic is that a well-established board will be able to fend off an attackers advances. This anti-takeover measure prevents a corporate aggressor from installing a completely new board of sympathetic directors to facilitate the strategic transition in the aftermath of the takeover. Golden Parachutes The Golden Parachute is a provision in a CEO's contract. It states that he will get a large bonus in cash or stock if the company is acquired. This makes the acquisition more expensive, and less attractive. Unfortunately, it also means that a CEO can do a terrible job of running a company, make it very attractive for someone who wants to acquire it, and receive a huge financial reward. Pan Europa may adopt either of these strategies when trying to over come a hostile takeover.

In order to prevent a hostile take over, it would be extremely important for the company to keep an eye on the following categories in their financials: Earnings per share: With a decrease in the earnings per share of a company, the shareholders would become dissatisfied with the firms performance. As given in the case, the EPS for Pan Europa has come down drastically from its value of 0.72 in 1991 to 0.54 in 1992 Shareholders Equity (Book value and Market Value): As per the financials in the case, the market value of the shareholders equity has not only been reducing over the past 3 years, its current value is less than even the book value of the same. The person most suitable to lead the way for Pan Europa is Trudi Lauf, Finance Director. The main reasons for his suitability are: Has been a vocal proponent of reducing leverage on the balance sheet from its current value of 125% which is the immediate requirement at the current time Has also voiced the concerns and frustrations of the stockholders and hence would not take a step like cutting of dividends Did not propose any of the projects under consideration and hence would be able to take an unbiased decision about the project to be selected

PROJECTS

Project 1: Expand Truck Fleet Plan to purchase 100 trucks and sell off 60 old trucks in two years NPV: -1.92, Payback period: 6 Years, IRR:7.8% Type of Project: Efficiency Improvements Project 2: New Plant Plan to setup new plant to overcome capacity restriction in south eastern region NPV: 0.99, Payback period: 6 Years, IRR:11.3% Type of Project: Product or market extension Project 3: Expansion of Plant Plan to expand the current plant by 20% at Nuremberg, Germany NPV: 0.28, Payback Period: 6 years, IRR: 11.2 % Type of Project: Product or market extension

Project 4: Development of artificially sweetened yoghurt and ice cream Plan to capture the growing demand of low calorie products and protecting present market share NPV: 5.21, Payback period: 7 Years, IRR: 17.3% Type of Project: New Product category Project 5: Plant Automation and Conveyor System Plan to improve throughput speed and reduce accidents NPV: -0.87, Payback period: 6 Years, IRR: 8.70% Type of Project: Efficiency Improvements Project 6: Effluent Water Treatment project Fulfillment of requirement of European Community Regulations related to environment Present Cost of project: 4 million ECU Deferred Cost of project: 10 million ECU

Project 7/8: Market Expansion Eastward and Southward Plan to expand to newer markets in the south and east of Europe For Eastward Expansion: NPV: 11.99, Payback period: 5 Years, IRR: 21.4% For Southward Expansion: NPV: 9.00, Payback period: 6 Years, IRR: 18.8% Type of Project: New Product or New Market Project 9: Development and Roll out of Snack Foods Plan to introduce a new product to reach out to health conscious consumers NPV: 8.95, Payback period: 5 Years, IRR: 20.50% Type of Project: New Product or New Market Project 10: Computer based Inventory control system Plan to reduce the delay in ordering and order processing and better control of inventory NPV: 1.16, Payback period: 3 Years, IRR: 16.2% Type of Project: Efficiency Improvements

Project 11: Acquisition of a leading schnapps brand Plan to move beyond the core business of the company NPV: 47.97, Payback period: 5 Years, IRR: 28.70% Type of Project: New Product or New Market Ranking of projects on the basis of NPVRank 1 2 3 4 5 6 7 8 9 10 Project Strategic Acquisition Eastward Expansion Southward Expansion Snack Foods Artificial Sweetener Inventory-Control System New Plant Expanded Plant Automation and Conveyer Systems Expand Truck Fleet NPV at Corp. WACC(10.5%)(in ECU millions) 47.97 11.99 9 8.95 5.21 1.16 0.99 0.28 -0.87 -1.92

LIMITATIONS IN RANKING The ranking that we have derived is only based on the net present value, which gives the expected cash flows from the project It doesnt take into account the nonmonetary factors other than risk Payback period model ignores the cash flows beyond the payback period which might be higher NPV has been estimated by using the cash flows in the initial stages which might change when project starts. Thus the inputs in the initial stages are sensitive to errors

To avoid these limitations we can use : Profitability index which takes into account the size of the investment to determine the project Real Options which calculates the opportunity cost of any investment. The argument given is that a project might have a greater NPV if delayed to the future.

ELEMENTS OF RISK IN A PROJECT Risk is an inherent part of a project and cannot be avoided Level of risk depends upon the degree of error in estimation with higher the error, higher the risk of failure and vice-versa For example a new product development or new market development could be highly risky if the market research is not done properly and may lead to total failure of new product Taking high cost project may leads to engagement of most of the resources in that project and if the project fails by any chance, can lead to huge loss to the company However, a project is said to be less risky when it is undertaken to improve the productivity and efficiency of the operational activities Expansion projects are also said to be less risky as they are undertaken to remove the demand supply gap and their cash flow estimations are more or less on correct line

SCREEN/FACTORS FOR CHOICE OF PROJECT NPV at Corp. WACC Payback period Risk involved with the projects ROR of the projects as compared to decided threshold by the organization Necessity of project (qualitative aspect)

CHOICE OF PROJECTSFormulation of LPP used for selecting projects is as follows: Decision variables: P7, P8, P9, P10, P11 Aim: Maximize: 11.99 P7 + 9 P8 + 8.95 P9 + 1.16 P10 + 47.97 P11 Constraints: i) 20 P7 + 20 P8 + 18 P9 + 15 P10 + 40 P11 80 (in case not selecting P6) or 20 P7 + 20 P8 + 18 P9 + 15 P10 + 40 P11 76 (In case of selecting P6) ii) P7+P8 1 iii) P7, P8, P9, P10, P11 are binary integers

Solver solution with Effluent water treatment project

Solver solution without considering Effluent water treatment project

CHOICE OF PROJECTSSolution of LPP (if Effluent water treatment plant is selected)Effluent water treatment plant Market expansion: Eastward Networked computer based inventory control system for warehouse and files representatives Acquisition of a leading schnapps brand associated facilities. NPV of selected set of projects: EUC 61.12 million

Solution of LPP (if not selecting Effluent water treatment plant ) Market expansion: Eastward Development and Roll out Snack Foods Acquisition of a leading schnapps brand associated facilities. NPV of selected set of projects: EUC 68.91 million Difference in NPV of two sets of projects: EUC 7.79 million

FINAL CHOICE Market expansion: Eastward Development and Roll out Snack Foods Acquisition of a leading schnapps brand associated facilities.

T H A N K

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