This is an open book exam. use the course materials, photocopied material, any material you wrote or typed yourself, outlines written by you (whether in or not in collaboration with others), and any other material, provided that the use of such materials is not otherwise inconsistent with the Academic Standards of La Trobe University or any other ethical rules that apply to students of La Trobe University (e.g., you may not use your friend’s answer to one of these test questions; you may not use materials prepared by others during the course of this examination).
Dealing with ambiguity or insufficient information. If you perceive an ambiguity, or feel that insufficient information is available to deal with a point (both of which situations are not uncommon in this world), just identify the ambiguity, or state the questions you would ask to develop the necessary information, and articulate the assumptions you have made to answer the question.Click Here To Get More On This Paper!!!!
Question 1
Michael Matson (MM), a 25-year-old entrepreneur from New York, is always looking for a good business deal and he thinks he may have found one.
Last Friday night, at a friend’s cocktail party, he met a Juan Salazar, CEO of Salazar Steel (SS), a Brazilian steel manufacturer located in Sao Paulo. Salazar said that SS could sell Matson 5,000 metric tons of #41 steel ingots, with a warranty for purity (no more than 1.6% carbon), for $10 million. The steel could be loaded onto a ship (operated by Bigman Carriers) in Brazil that would leave port on September 1 and arrive in New York on September 10. SS would have to receive full payment no later than September 8. SS’s bank is the Bank of Sao Paulo. SS would want to structure the transaction so that “nothing could go wrong.”
On Saturday night, at a dinner party at a different friend’s house, Matson met Billy Bashford, CEO of Bilder Bay Shipbuilders (BB), a Canadian shipbuilding company located just outside Halifax. Bashford said that he would buy from Matson 5,000 metric tons of #41 steel ingots, with a warranty for purity (no more than 1.6% carbon), for $11 million. The steel would have to arrive at the port in Halifax no later than September 25 (which means that it would have to leave New York harbor no later than September 20). BB’s preferred carrier is Bigman Carriers. BB could not have cash available for the purchase until September 21. BB’s bank is the Bank of Halifax. BB would want to structure the transaction so that “nothing could go wrong.”
MM thinks that he might be able to act as a middle-man and make nearly a million dollars on the deal, but there are several other considerations. MM has only about $100,000 in capital. The cost of shipping and insurance from Sao Paulo to New York would be about $50,000; from New York to Halifax, the cost would be about $30,000. On September 9, the U.S. Government will decide whether to impose a countervailing duty of up to 50% on Brazilian steel, which would take effect that day. MM’s bank is Citibank. MM wants to structure the deal so that “nothing could go wrong.”
MM has come to you for advice: What are some alternative ways to structure the transaction(s)? What would be the best way to structure the transaction(s)? With respect to each structure, please provide a general description of the set of arrangements you contemplate, the contract(s) involved, and the basic terms of the contract(s).Click Here To Get More On This Paper!!!!
Question 1
Michael Matson (MM), a 25-year-old entrepreneur from New York, is always looking for a good business deal and he thinks he may have found one.
Last Friday night, at a friend’s cocktail party, he met a Juan Salazar, CEO of Salazar Steel (SS), a Brazilian steel manufacturer located in Sao Paulo. Salazar said that SS could sell Matson 5,000 metric tons of #41 steel ingots, with a warranty for purity (no more than 1.6% carbon), for $10 million. The steel could be loaded onto a ship (operated by Bigman Carriers) in Brazil that would leave port on September 1 and arrive in New York on September 10. SS would have to receive full payment no later than September 8. SS’s bank is the Bank of Sao Paulo. SS would want to structure the transaction so that “nothing could go wrong.”
On Saturday night, at a dinner party at a different friend’s house, Matson met Billy Bashford, CEO of Bilder Bay Shipbuilders (BB), a Canadian shipbuilding company located just outside Halifax. Bashford said that he would buy from Matson 5,000 metric tons of #41 steel ingots, with a warranty for purity (no more than 1.6% carbon), for $11 million. The steel would have to arrive at the port in Halifax no later than September 25 (which means that it would have to leave New York harbor no later than September 20). BB’s preferred carrier is Bigman Carriers. BB could not have cash available for the purchase until September 21. BB’s bank is the Bank of Halifax. BB would want to structure the transaction so that “nothing could go wrong.”
MM thinks that he might be able to act as a middle-man and make nearly a million dollars on the deal, but there are several other considerations. MM has only about $100,000 in capital. The cost of shipping and insurance from Sao Paulo to New York would be about $50,000; from New York to Halifax, the cost would be about $30,000. On September 9, the U.S. Government will decide whether to impose a countervailing duty of up to 50% on Brazilian steel, which would take effect that day. MM’s bank is Citibank. MM wants to structure the deal so that “nothing could go wrong.”
MM has come to you for advice: What are some alternative ways to structure the transaction(s)? What would be the best way to structure the transaction(s)? With respect to each structure, please provide a general description of the set of arrangements you contemplate, the contract(s) involved, and the basic terms of the contract(s).Click Here To Get More On This Paper!!!!
Question 2
Your client, KitchenMaid (KM), is one of the largest dishwasher manufacturers in the United States. KM enjoys $3 billion of dishwasher sales worldwide.
For the past seven and a half years, KM has sold its dishwashers in Europe with the help of an Italian agent, Gepetto & Sons (GS). Under the terms of the agency agreement, GS is to be paid a ten percent commission on all sales. In each of the last seven years, GS has doubled the European sales of KM dishwashers, and in 2013 such sales are expected to reach $800 million (which is about 10% of the EU market). The original KM-GS agreement was for a term of only one year, ending December 31, 2006. Since then, the contract has been renewed at each year’s end (by an exchange of letters between the two companies) for an additional one year term.
KM has two main competitors in Europe. The northern European market is dominated by DeutschlandKitchenland (DK), with annual dishwasher sales of approximately $500 million. Southern Europe is dominated by Nouvelle Cuisine de France (NCF), which is 20% owned by the Government of France and enjoys annual dishwasher sales of $300 million. DK and NCF enjoy protection from a 15% EU tariff on dishwashers.Click Here To Get More On This Paper!!!!
In light of the huge market for KM products that now exists in Europe, KM’s large commission payments to GS, and the high EU tariff, KM is considering two alternative plans for Europe. KM management plans to not renew its contract with GS at the end of 2013 and to instead pursue either. . .
Plan No. 1: License Production and Sales to DK and NCF. KM would license the production of its dishwashers to DK and NCF. KM would provide all the technical specifications and intellectual property necessary for such production, except for the function-specific integrated circuits that are the “brain chips” of each appliance. Those chips would continue to be produced by KM and sold to DK and NCF. Some of the brain chips include functionalities that are similar to those used to help maximize the efficiency of military tank motors. KM would exclusively license DK to sell the KM dishwashers produced by DK in the thirteen northern-most EU member states– and only in those countries. And KM would exclusively license NCF to sell the dishwashers produced by NCF in the fifteen southern-most EU member states plus the “Mediterranean countries” (including, inter alia, Egypt, Israel, and Syria)– and only in those countries. KM would establish the wholesale prices to be charged for the dishwashers. The agreements would also prohibit DK and NCF from selling their own respective brand-name dishwashers in the EU or the Mediterranean. KM would be paid 25 percent of gross sales of the dishwashers, plus $25 per chip. During the term of the agreement, any improvement in dishwasher technology by DK or NCF would be assigned exclusively to KM.
Plan No. 2: Acquire DK. KM would acquire DK, stop manufacturing some of DK’s dishwashers and continue producing others, and produce the KM dishwasher product line in the DK factories. The new subsidiary, to be called KitchenMaid Deutschland (KMD), would sell the DK product line under the DK trademarks and sell the KM products under the KM trademarks. The KMD products would be sold in northern EU countries through the well-developed DK distribution channels. In the rest of the EU, in order to help establish a solid market position, the KMD dishwashers would be sold for a few years at a “special introductory price” of about 50% of the prices that KMD will charge in northern Europe. KMD would use intellectual property law to stop the re-sale of these lower priced products in northern Europe and the United States. KMD would purchase all “brain chips” from its parent, paying $500 per chip.
Your client, KitchenMaid (KM), is one of the largest dishwasher manufacturers in the United States. KM enjoys $3 billion of dishwasher sales worldwide.
For the past seven and a half years, KM has sold its dishwashers in Europe with the help of an Italian agent, Gepetto & Sons (GS). Under the terms of the agency agreement, GS is to be paid a ten percent commission on all sales. In each of the last seven years, GS has doubled the European sales of KM dishwashers, and in 2013 such sales are expected to reach $800 million (which is about 10% of the EU market). The original KM-GS agreement was for a term of only one year, ending December 31, 2006. Since then, the contract has been renewed at each year’s end (by an exchange of letters between the two companies) for an additional one year term.
KM has two main competitors in Europe. The northern European market is dominated by DeutschlandKitchenland (DK), with annual dishwasher sales of approximately $500 million. Southern Europe is dominated by Nouvelle Cuisine de France (NCF), which is 20% owned by the Government of France and enjoys annual dishwasher sales of $300 million. DK and NCF enjoy protection from a 15% EU tariff on dishwashers.Click Here To Get More On This Paper!!!!
In light of the huge market for KM products that now exists in Europe, KM’s large commission payments to GS, and the high EU tariff, KM is considering two alternative plans for Europe. KM management plans to not renew its contract with GS at the end of 2013 and to instead pursue either. . .
Plan No. 1: License Production and Sales to DK and NCF. KM would license the production of its dishwashers to DK and NCF. KM would provide all the technical specifications and intellectual property necessary for such production, except for the function-specific integrated circuits that are the “brain chips” of each appliance. Those chips would continue to be produced by KM and sold to DK and NCF. Some of the brain chips include functionalities that are similar to those used to help maximize the efficiency of military tank motors. KM would exclusively license DK to sell the KM dishwashers produced by DK in the thirteen northern-most EU member states– and only in those countries. And KM would exclusively license NCF to sell the dishwashers produced by NCF in the fifteen southern-most EU member states plus the “Mediterranean countries” (including, inter alia, Egypt, Israel, and Syria)– and only in those countries. KM would establish the wholesale prices to be charged for the dishwashers. The agreements would also prohibit DK and NCF from selling their own respective brand-name dishwashers in the EU or the Mediterranean. KM would be paid 25 percent of gross sales of the dishwashers, plus $25 per chip. During the term of the agreement, any improvement in dishwasher technology by DK or NCF would be assigned exclusively to KM.
Plan No. 2: Acquire DK. KM would acquire DK, stop manufacturing some of DK’s dishwashers and continue producing others, and produce the KM dishwasher product line in the DK factories. The new subsidiary, to be called KitchenMaid Deutschland (KMD), would sell the DK product line under the DK trademarks and sell the KM products under the KM trademarks. The KMD products would be sold in northern EU countries through the well-developed DK distribution channels. In the rest of the EU, in order to help establish a solid market position, the KMD dishwashers would be sold for a few years at a “special introductory price” of about 50% of the prices that KMD will charge in northern Europe. KMD would use intellectual property law to stop the re-sale of these lower priced products in northern Europe and the United States. KMD would purchase all “brain chips” from its parent, paying $500 per chip.
Advise KM of any concerns you might have with its plans and suggest ways to improve the plans.
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