Blog: Dave LeggettCompany A takes over Company B that also owns Company C

Dave Leggett | 29 May 2012

Company A takes over Company B that also owns Company C. Company A knows quite a bit about company B, has a cultural connection/affinity, but the smaller Company C is thousands of miles away, with a very different culture and looks a little mysterious, confusing even. Company B didn't mind that too much, largely left it alone, but now Company A wants to know what's been going on and stirs the pot vigorously. The word is quietly out from Company A: if Company C is not a good fit it might actually be best to let it go. But there's a shock when they see how much debt is on Company C's balance sheet and what that might mean the company is really worth. Putting it into administration won't work too well either (Company B and its friendly banks a major creditor). Jeepers, thinks Company A, this might require extensive remedial work ahead of being sold...

Company C clearly has 'value' but it is locked up and there are ongoing financial losses, a pile of debt and not much to show for it, other than a plan for jam tomorrow after spending yet more money, adding to debt. And the politicians in Company C's country of domicile are all over it, too, with grants to manufacture at home; another possible constraint. In short, it's a headache to spend time thinking about over at Company A. And the CEO of Company C has been reported making noises about the takeover that aren't exactly going down well with Company A. Company A embarks on an extensive review of company C and gets outside consultants involved. They're not smiling much at Company A, think the consultants, who have a good sense of which way the prevailing winds are blowing and possible follow-up work.

Company A quickly concludes from its review that it wants a major Company C strategy rethink, spending on new models to be cut back, debt to be drastically reduced. The CEO of Company C is behind the big spending plans, the big growth strategy. He's pretty wedded to his expansion plans and needs to go if the strategy is to be completely reworked. But he's in a powerful position with plenty of support. And he's on a four-year contract that was signed just ahead of the takeover. He won't go quietly and insists that his strategy is the right one. Suddenly, the gloves are off.


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