TOO URGENT

All was going well.  As Craig Jelinek reflected upon the  firm’s stock price movement, he was pleased with the company’s performance and the value it had created for shareholders.  He was pleased to report good data for another year to shareholders last fall.   As he turned back to his emails he continued to ponder Costco’s growth.  It was becoming increasingly difficult, and expensive, to sustain the growth shareholders had come to expect.  Before he answered the first mail he decided on a project for the Richards.

Craig asked his assistant to call Richard Chavez and Richard Galanti and to request that they get their best analysts and meet him in his conference room in 15 minutes.

At the meeting Craig discussed his concern about growth in the increasingly competitive retail environment.  U.S. growth was slowing and GDP for 2014 was to be around 2% to 3%; while some were optimistic, no one was confident about projections for 2015 and beyond.  The only bright projections were outside Europe and parts of South America, even the emerging markets were slowing.  Costco had some experience in foreign markets but it was still limited.

He asked the group if Costco should consider an acquisition strategy.  He noted that his old friends at PriceSmart were doing well and wondered if putting the two companies together would be good business.  Craig knew it could be costly given the current M&A environment and given that PriceSmart was doing well.

Richard said they needed some time to consider all the aspects of the strategy, importantly the risks and potential returns, and said they would be back to Craig next Monday.

As Richard Galanti walked out of Craig’s conference room he turned to you, his best analyst, and asked, “Would an acquisition of PriceSmart, Inc. work?  What would be the rationale and risks, and would it create value?  How would the strategy play out? Dive into PriceSmart and let’s see what you come up with by late tomorrow afternoon.”

Merger Paper Exercise