In this case study, we will talk about negotiate a possible acquisition of Flinder Valves and Controls. Inc by RSE International Corporation. To know why they gave that decision and how they could do it. We will have an overview of these two companies.

1. Overview of Flinder Valves and Controls. Inc and RSE International Corporation 1.1 Flinder Valves and Controls. Inc
Flinder Valves and Controls. Inc (FVC) was an American company, located in Southern California. FVC was an outgrowth of a small company established in 1980 for engineering and developmental work on an experimental heat-exchanger product. In 1987, Flinder Valves and Controls Inc. was organized to acquire the properties of the engineering corporation. Bill Flinder, the …show more content…

During a merger and acquisition, companies will first estimate the cost that they wish to pay for a target firm. As the entire merger and acquisition process takes a lot of time, the price paid for the target firm may in fact be higher or lower than its market price at the time of completion because of economic fluctuations.
Acquisition Premium is the different between the actual cost for acquiring a target firm versus the estimate made of its value before the acquisition.
Firstly, we will estimate the cost of FVC to find out how much RSE should offer and pay for FVC. There are many methods to estimate enterprise value, such as using comparables, discount cash flow (DCF)… In this case, I chose DCF method, which will show us the future cash flows of the target company are at present, and what additional cash generation should be obtainable post-acquisition under your management.
Because DCF is to use a net present value basis, using the target company’s free cash flow, we should have future free cash flows to the firm of FVC.

| Future Free Cash Flow of FVC (dollars in thousands) |
| |2007 |2008 |2009 |2010 |2011 |2012 |
|EBIT |9,612 |12,412 |13,390 |14,820 |16,510 |18,460 |
|Other income