Carrier and Tyler Refrigeration: An Acquisition for Growth Harvard Case Solution & Analysis

INTRODUCTION

This case focuses on the growth strategy through acquisitions which is adopted by most of the companies. In this case one of the divisions of multi business United Technologies Corporation (UTC), named as Carrier is looking forward to enter into a new industry. This industry is the refrigeration industry. To serve this purpose the management of the company is looking forward to purchase the Tyler Corporation. Tyler Corporation is one of the main leading players in the refrigeration industry. This company is a major player in the display-case market. This case has focused on many different segments of this market such as the cooling and heating markets. A detailed analysis of these industries has been performed in the case to show the attractiveness of these cases to Carrier. The case has provided with the detailed cash flow information so that the value of Tyler could be estimated and calculated. All the important variable information such as those used in the calculation of weighted average cost of capital are also given in the exhibits.

CURRENT ENTERPRISE VALUE

Based on the free cash flow method, the current enterprise value of the company is around, $ 235854 in thousands. This valuation is the current valuation of the company till the year 2002. Within these cash flows, the effects of the synergies that would be created after the acquisition have not been incorporated. All these cash flows have been discounted back to calculate the present value for each year. The terminal value has also been calculated based on a discount rate of around 10% and the terminal growth rate for infinity of 3%. The calculations are shown in the table below:

ENTERPRISE VALUE WITH SYNERGY

The cash flows for the company have been calculated for the time period ranging from 1999 to 2008. These all cash flows are projected and the impacts of the synergy that would be created from the acquisitions have been incorporated here in this exhibit. The same process as above has been applied. All the cash flows have been discounted on the calculated discount rate and the terminal value has been again calculated with the terminal growth rate of around 3%. Based on these values, the enterprise value of the company with the synergies incorporated is around $ 359651 in thousands. This is much higher than the current value of the company. Please refer to the table below for calculations:

ENTERPRISE VALUE AFTER DEDUCTING LOST VALUE

Finally the enterprise value has been calculated for the company based on the projected cash flows. The difference here is that the enterprise value lost by worker’s compensation and the ARDCO’s impact has been deducted from the enterprise value to calculate the true enterprise value for the company and also the right value of the synergy created. The sales loss of 19 million for the ARDCO unit has been calculated in the terms of perpetuity based on the average profit margin. This average profit margin has been calculated by taking the average of the high and low profit margins of comparable firms. In this way the terminal value for the lost sales has been calculated which is $ 20025 in thousands. The enterprise value after deducting this loss is $ 339626. The synergy created after the acquisition is found to be around $ 103772 in thousands. Please refer to the calculation in the table below:

CONCLUSION

The company’s investment into the refrigeration sector seems to be a good future prospect for the company. The enterprise value would increase by $ 103772 in thousands if the company acquires Tyler Corporation. When both the companies will work together, they would create a 2+2= 5 effect and this would enhance the new value of the company.......................

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Carrier, division mulitbusiness United Technologies Corporation (UTC), is looking for ways to grow their business. The carrier is considering expansion in the commercial refrigeration and considers the proposed acquisition of Tyler Corporation - a major player in the display case market. The case provides detailed information on the various segments of the heating and cooling market, and thus allows the analysis of the attractiveness of these segments Carrier. The case also provides detailed forecasts for the students to use in evaluating goals, Tyler. Mechanics of the main estimates are simple. There is, however, a number of opportunities for more accurate analysis.
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by Jeanne M. Liedtka, Robert Harris, Emily Jean Gibbons Source: Darden School of Business 25 pages. Publication Date: October 10, 2000. Prod. #: UV0269-PDF-ENG

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