Bidding for the Legacy Hotel Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

Introduction

This is the case of Legacy hotel. The Legacy hotel was established in 1958 between the arts and business districts of Baltimore, Maryland. Currently,Sheramar Hotelswas operating Legacy hotel. Legacy Hotel had always operated by Private owners. Legacy Hotel currently comprises 105 rooms. Meeting and conference Solutions, Inc. was considering making a bid for the Legacy hotel. MCS was considering the every possible bid amount imaginable and trying to use some standard optimal building strategy.

The main reason for the bidding this hotel was an option MCS held on property about a block from the Legacy for development of a conference center. MCS has never owned hotels before this was the first time for MCS to bid for hotel. The purpose of development of a conference center was that conference center facilitates the MCS in terms of state of the art in video, computing, exercises and discussion room. These facilities was attracting the MCS to making bid for this hotel.

The Hotel currently appraised at $15,112,000. The aging owners of the Legacy had provided the hotel to highest bidder. The bid had to be made as sealed. There had been a qualifying process for the offering the hotel to the bidder. Due diligence would be conducted on the potential bidders’ financial soundness.

Due diligence would also be performed on the plans of the bidders for the Legacy hotel. Another reason would also be considered for the potential bidders that is owners intended to ensure that the potential bidders would be able to continue to contribute to the Baltimore community.

The Bidder was required to bid by 9.00 am on the coming Monday. The potential bidder who bid the higher amount would be able to become the owner of the Legacy hotel. MCS intended to keep Sheramar as the hotel’s operator. MCS had made valuation of the Legacy hotel and considered Legacy hotel’s value as $17,380,000. This amount is higher than appraised value of the Legacy hotel.

Requirement 1

The value of the Legacy Hotel that had been appraised was $15,112,000 and the bid that had been made by MCS was $17,380,000. The appraised value of the Legacy Hotel is a 15% (see Exhibit 1) lower than the amount of bid that MCS had offered. MCS had offered 115% of the appraised value of the Legacy hotel.

Since MCS Had offered more than the appraised value of the Legacy, therefore it would result in reduction of expected profit. $2,268,000 was the difference between Legacy appraised value and the value that had been offered by the MCS. If MCS pays that amount i.e. $17,380,000 then it would reduce its expected profit by $2,268,000. Participating in the auction with the bid of $17,380,000 would definitely reduce the expected profit since this amount is 15% higher than appraised value.

On the other hand, participating in the auction with this bid would increase the chances of winning bidder since this amount is 115% of the appraised value.

The main reason for MCS to paying more than appraise value was that MCS had an option on property about a block from the legacy for development of the conference center. MCS wished to make development of the conference hotel after acquiring this hotel. Conference hotel would provide many facilities to the MCS.

The Conference center would provide facilities in terms of state of the art in video, exercise, computing and discussion room. These facilities would provide the value to MCS since currently MCS has no conference center with these facilities.

MCS needed to balance the desire to win and it is not life or death that MCS own this one said by Jergensen. Another option that MCS has is that it can still make a contract of block at legacy without acquiring legacy hotel. MCS could save $22,680,000 if they bid as much as appraised value but it would reduce the chances of becoming winning bidder.

Requirement 2

Currently, MCS bid stands at $17,380,000. If MCS bids slightly lower than $17,380,000 then impact would be on probability in terms of reduction. The slightly bid offer was assumed as $16,500,000. If MCS offers $16,500,000 then the probability of wining would reduce by 0.1333 (see exhibit 2).

The probability of winning with original bid was almost 1.15 and the probability of wining with this amount $16,500,000 was 0.8 (see Exhibit 2). The probability of winning would reduce by 14% (see Exhibit 2). The chances of winning with this amount $16,500,000 would reduce in comparison with original bid.........................

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