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was sold off in March of 2002 (www.stadium-electronics.com/investor-relations/corporate-history/). KRP Power Source was acquired in 2006, a key acquisition as KRP specializes in the distribution of power supplies. In 2007, Ferrus Power was acquired, and additionally was a key acquisition due to its specialization in custom power supplies. 2008 of October, Fox Industries Limited was acquired, which produced custom made power supplies and EMC filter products; November was the acquisition of EMS provider Zirkon Limited; 2010 saw the sale of the non-core asset Branded Plastics Business (www.stadium-electronics.com/investor-relations/corporate-history/).
Stadium managed to acquire the distribution and manufacturing units of many of its competitors. Such strategic acquisition from Stadium is a strategic target for a bigger competitor to discover the value in Stadium and acquire the company before they become too large for acquisition. When reviewing the acquisition strategy of Stadium, one must ask whether the company was preparing its balance sheet to be an attractive candidate for a takeover, merger, or acquisition.
Stadium's strategic China manufacturing facilities and stronghold on the market provides tremendous value to a takeover company. Operations in China are expected to grow exponentially, as a function of an increase in GDP for Asian countries, and those that make up BRIC, Brazil, Russia, India, China. The potential for the Yuan to become the world's base currency also is a hedge against potential devaluation of company assets should the currency depreciate against the Yuan. The acquisition of Stadium provides the ability to integrate into the market without risking alienation through direct market penetration.
The financial justification for the takeover of Stadium is a function of incorporating the Weighted Average Cost of Capital into the decision as to whether the acquisition will pay a higher return than the WACC used to finance the deal. The business cash flows are discounted using the WACC to then determine the net present value of a project, such as an acquisition (www.investopedia.com/terms/w/wacc.asp)...
"The value of operations = present value (PV) of free cash flows during planning horizon + PV of free cash flows after planning horizon (continuing value)." (Cooper, 2004)
References
Maximising Shareholder Value -- Achieving clarity in decision-making. Technical Report. Measuring Shareholder Value, the Metrics
Farinella, M.A. 1996, "Mergers and acquisitions drove 1995 corporate changes," Best's Review, vol. 97, no. 2, pp. 65.
Huang, C.T.W. & Kleiner, B.H. 2004, "New Developments Concerning Managing Mergers and Acquisitions: MRN," Management Research Review, vol. 27, no. 4, pp. 54.
"Mergers and Acquisitions: What Has Changed," 2011, Healthcare Financial Management, vol. 65, no. 1, pp. 105.
http://www.valuebasedmanagement.net/articles_cima_maximizing_shareholder_value.pdf
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