Q1. Explain the basic background and timeline of events.
Circon Corporation was founded and governed by Richard Auhll who is the acting CEO and CM of the company, Auhll is an open minded person who believes a company can only create value through strong relationships with its customers, employees, suppliers, shareholders and all the direct and indirect stakeholders.
The Era of 1960’s
In the Era of 1960’s Auhll had started to discover himself, already holding a qualification in aerospace engineering along with relevant work experience Ahull moved into the business field and opted to purse MBA qualification. In 1969 after completing his MBA Ahull had initiated working in a technology based company heading a small division called Circon.
The Era of 1970’s
By the mid of 1970’s Ahull had completely changed Circon into a medical instrument based company, high quality standard and innovation was Ahull’s stepping stones by late 70’s Ahull made a bid for Circon with $55,000 of his own equity and remaining through debt the acquisition was completed in $1.1m. Circon was able to achieve monopoly in the market with its remarkable turnaround.
The Era of 1980’s
In the early 80’s Ahull was able to reach sales growth of 800%, but to fund further expansion Ahull decided to reduce his own holding to 40% and was able to receive a private loan of $7million. In this very Era Ahull took the company public giving it a market capitalization of $50m, now with the funding problem solved Ahull diversified Circon and acquired ACMI for $28.5m.
The Era of 1990’s
All the hard work Ahull had put in Circon had started to show results Ahull was awarded Entrepreneurs of the year, Ahull continued with same strategies and acquired Cabot Corporation, which ended up being a very tough decision for Ahull as this transaction had left the company with no cash as Cabot had produced poor financial results, but before Ahull would work on to turn around the situation there were already news coming in of a hostile takeover for Circon.
2) What is your assessment of Circon's financial position?
|
$ Thousands |
88 |
89 |
90 |
91 |
92 |
93 |
94 |
95 |
96 |
97 |
|
GROSS PROFIT MARGIN |
46% |
49% |
50% |
53% |
55% |
53% |
56% |
55% |
56% |
55% |
|
NET PROFIT MARGIN |
-6% |
1% |
3% |
5% |
8% |
3% |
4% |
-3% |
1% |
3% |
|
EPS |
$(0.46) | $ 0.06 | $ 0.34 | $ 0.46 | $ 0.85 | $ 0.31 | $ 0.53 | $ (0.43) | $ 0.16 | $ 0.38 |
The above ratio are calculated through the data provided in the income statement of the company, it clearly reflects that the company has been making strong sales as the gross profit margin are increasing and are holding consistently over 50%, but the net profit margin and the EPS show the company is not doing so well on the operational level meaning the company is facing troubles overcoming overheads.
|
$ Thousands |
88 |
89 |
90 |
91 |
92 |
93 |
94 |
95 |
96 |
97 |
| CURRENT RATIO |
2.25 |
2.11 |
3.16 |
6.20 |
7.05 |
6.85 |
4.84 |
2.56 |
4.12 |
5.12 |
| QUICK RATIO |
0.90 |
0.88 |
1.41 |
4.39 |
4.65 |
4.78 |
3.25 |
1.67 |
2.33 |
2.80 |
| DEBT TO EQUITY |
74% |
69% |
77% |
0% |
0.39% |
0% |
84% |
65% |
51% |
47% |
The current and quick ratio shows that the company holds substantial current assets to overcome the current liability that the company has uptake, in the initial years the gearing of the company was on a higher side, making it a very risky investment, but in the recent years it is showing a decreasing trend with 1997 the company old holds 47% gearing which is more on an acceptable level.
The company is growing at a steady pace with sales being on the higher side but control over overheads seems a problem for the company, the company has a moderate risk level with gearing on a decreasing trend where as the company holds substantial assets over current liabilities.
3) Explain the takeover defenses used by Circon - do you think these are in the shareholder's best interests?
The defenses taken by Mr. Ahull to overcome the hostile takeover are, Poison Pill and Silver Parachute.
Poison Pill, under this strategy the board executives take away the takeover negotiation right from the shareholders and cater all the dealing with themselves while using every mean necessary to make the company less attractive for acquisition. The two methods that are used under the Poison pill are Flip-in and Flip-over to make the company less attractive................
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In 1996, the U.S. began a hostile takeover against Surgical Corporation Circon After the company for 20 years, CEO Richard Auhll a defensive position, which includes an invitation to an old friend of HBS (George Cloutier), to join the fight as a director Circon. "Poison pill" and chess boards are the primary defense, resulting in the longest battle of the absorption in the U.S. corporate history. Questions of loyalty to a friend, executive incentives, executive entrenchment, and obligations of shareholders face both Cloutier understands the important enterprise management solutions have to be made. "Hide
by Brian J. Hall, Guhan Subramanian, Christopher Rose Source: Harvard Business School 36 pages. Publication Date: March 19, 2001. Prod. #: 801403-PDF-ENG
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