Franchise Law Dissecting and Applying Case Study
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It is quite possible that Huston foresees a Quick Lube victory in the suit, but even this would not necessarily give clear insight as to what will be discussed in the meeting. It is possible that Huston will attempt to expand its acquisition, purchasing Quick Lube (and in effect rejoining the companies) and thus becoming a major operator as well as franchisor. It is also possible that Huston simply wants to avoid what it sees as a losing suit and is going to attempt to address any grievances brought up by Hegert and Quick Lube.
Of course, Huston could also predict a win for itself in the suit, and though this might not be as expected Hegert should be prepared to enter a meeting where this attitude is taken. The most useful tool Hegert has at his disposal is information, and it doesn't hurt that this information shows Quick Lube to be a very profitable and actually a highly solvent company, which has very real and very large implications on the potentials for the company with or without the lawsuit. Quick Lube could sell of certain assets in order to discharge its debt to Huston quicker and ultimately sever ties with the company, and if the Quick Lube prevails in a contractual or an anti-trust lawsuit, it could also potentially become a fully independent company operating not as a franchise, but as a wholly owned chain (Grimes 2010). If Hegert is prepared with this information and the data that supports it, he will make a strong showing in the meeting with Huston's board regardless of what their position is.
Much of the strength in Hegert's position is derived from the fact that Quick Lube is a valuable company in its own right and as a revenue generator for...
...Quick Lube makes approximately two million dollars a month in gross sales, seven percent of which -- one-hundred and forty thousand dollars -- goes to the franchisor, now effectively Huston Oil. Any substantial dent in these figures or the threat of the loss of this revenue to Huston Oil would likely be reacted to strongly, and it also provides a compelling incentive for Quick Lube to move towards independence if it does not receive substantial services from the franchisor.
That being said, Quick Lube is not in the strongest of financial positions, with a current ratio under one (just under, but under none the less) despite a healthier overall asset to liability ratio. Huston could potentially squeeze Quick Lube in other ways, such as through the product costs it charges that it requires Quick Lube to abide by as part of the franchise and the debt agreement, and in a variety of other ways depending on the particulars of the franchise contract (FSS 2011). There seems to be a high degree of likelihood that Quick Lube will prevail in a number of lawsuits against Huston Oil, however, which greatly mitigates the debt exposure Quick Lube has and could potentially lead to a separation that would be quite costly for Huston (FSS 2011; FL 2011; Grimes 2010). The significant features of Quick Lube's value as well as the overall implications of this value, then, depend largely on the predicted outcomes of the impending lawsuit and resultant actions.
Without knowledge regarding the specifics of the contractual obligation between Quick Lube and Huston and between Quick Lube and Super Lube, it is impossible to determine the exact merits of any potential lawsuit brought by Quick Lube against Huston in this case. Similarly, it is impossible to form an accurate guess as to the reason Huston has called a meeting with Hegert without knowing the basis or merits of the pending lawsuit. Based on the evidence provided, however, some reasonable assessments of both companies' futures can be made, and as things stand they look more rosy for Quick Lube than Huston as far as this situation is concerned.
Franchising Law. (2011). Accessed 20 March 2011. http://www.franchisinglaw.com/
Franchising Selection Specialists. (2011). Accessed 20 March 2011. http://www.thefranchiseking.com/
Grimes, W. (2010). Franchising -- the vacuum of antitrust leadership. Accessed…
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