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Alta-gas Ltd: Acquisition Of Decker Energy International Case Solution & Answer

Alta-gas Ltd: Acquisition Of Decker Energy International Case Solution

Question 1

The acquisition of DEI might lead to a synergistic effect in the coming future. The management needs to look at these possible synergies, which could provide significant benefits to the Altagas Company in the long term. Taking into consideration the Craven business unit; following points needed to be considered for the immediate and long term aspects.

  • The Craven County Wood Energy does not require any change in the plant availability and its operating capacity.
  • The PPA in Craven County was renewed in the fiscal year 2017.
  • The annual price of the Craven County’s product will increase by 2.5% per megawatt hour by 2031.
  • There has been no change in the eight year maintenance cycle, major requirement in the Craven County Wood Energy.
  • The plant maintains a steady supply of the biomass materials.
  • The Alta-gas management should also consider that no railroad tie agreement was placed by DEI.

Similarly, the Grayling department has the potential to add up the synergies for long term aspects of the Alta-gas Limited. The point which needed to be considered is that Grayling had PPA till the fiscal year 2027, which holds Consumers Energy, i.e. a principal subsidiary of the CMS Energy. Through Consumers Energy; the company joys the right to adjust or shutdown the plant as per the changing demand from the consumers. However, the management should management should consider that the PPA at Gray-ling would be expired till 2020 and it would be renewed successfully.

Question 2

The cash flows for Craven and Grayling have been calculated from 2012-2016. The company would have to bear an acquisition price of $30.9 million after accounting for the finder’s fee and the tax rebates of $0.9 and $4.8 million. The cost of capital of Altagas Company is taken as 8%, which is increased with the additional premium of 1% (for the risks associated with higher debt and regulations). The discount rate of 9% is used to calculate the present value for the cash flows of Craven and Grayling. The total present value from both the units is calculated as $40519251.01, which is greater than the company’s acquisition cost in the fiscal year 2011. The company would be able to generate a positive net present value of $9619251.009. It means that the company should acquire the DEI Company.

Question 3

The project manager – Thomas Campbell should raise the following issues to the Chief Executive Officer. First of all, Campbell should decide that whether the acquisition of DEI would add values in achieving the Alta-gas mission and vision. Campbell should observe whether the DEI acquisition is aligned to the strategic objectives of the Alta-gas Company.

Moreover, it should be kept into consideration that whether the assumption use din forecasting the income statement are valid or not, even after considering the competitive and business environment of the company, i.e. whether the acquisition enable the Altagas Company to develop a more stronger and inimitable competitive edge among the industry peers.

Lastly, the Campbell must present financial metrics in front of the CEO to review the added synergies and overall benefit to the company after the DEI’s acquisition. It should be considered that the acquisition would lead to positive NPV. If the acquisition is providing the desired benefits to the company, then the acquisition should be taken place by Alta-gas Company…………………………..

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