Szln Acquiring Pem Essay
In late November 2008, Zhang Shuijian, the chief executive officer (CEO) of Shenzhen Zhongjin Lingnan Nonfemet Co. Ltd. (SZLN), and his management team had identified an opportunity to acquire Perilya Limited (PEM),
Before making an offer, the team needed to determine:
* the strategic benefits of this acquisition, * the risks that might be incurred as a result of the purchase and * the maximum price SZLN would be willing to pay.
The prices of lead and zinc in 2007 fluctuated like a roller coaster. In a review of the competitive situation in 2008, SZLN made the following key observations:
According to the data, the total capacity of the top 10 domestic lead zinc companies was less than 50 per …show more content…
Besides the usual risks associated with acquisitions were numerous managerial and cultural issues related to cross-border acquisitions by Chinese companies. Although Chinese companies had completed numerous acquisitions, none had been especially successful.
In mid-November 2008, SZLN received information that PEM was seeking a strategic buyer, leading to a prompt response from Zhang and the management team. Due to the financial turmoil, lead and zinc prices had decreased dramatically, and PEM’s stock price had crashed from AU$2.64 per share at the beginning of 2008 to AU$0.15 per share in mid-November. In addition, the Australian dollar had depreciated by one third relative to the Chinese renminbi compared with six months earlier.
Due to the continuously falling base metal prices and increasing operating costs financial conditions of PEM continued to deteriorate. As lead and zinc prices continued declining, PEM encountered greater operational and financial pressures.
Although PEM had reduced its production and staffing levels, maintaining its operational cash flow