Title: The Last Supper
1The Last Supper
- Ajay Bangalore-Harish
- Marc Grossman
- Jingqing Huang
- Christine Winiarz
- Assisted by Chris Walker
2Introduction
- The Last Supper
- DOD held a dinner to warn the Aerospace
companies the last supper. - DOD is cutting defense budget, foresee fewer
players in the future field - Kent Kresa is the CEO of Northrop needs to
decide what direction to take his company
3What was driving the DOD to make such a radical
suggestion?
4What was driving the DOD to make such a radical
suggestion?
- End of Cold War, accompanied by massive defense
spending cuts - Warn the companies
- Enable self structure rather than all go out of
business - Give the opportunity for companies that are
heavily defense oriented the opportunity to
partner with those that are less defense oriented - The DOD had previously bailed out Lockheed and
now they need to let the aerospace companies know
that bail outs wont happen again. - Ties of friendship they all know each other and
likely wish each other the best. They hope the
companies to be able to split the market and
negotiate rather than all go for the same piece
of pie.
5What are the advantages and disadvantages of this
suggestion for the nation?
6What are the advantages and disadvantages of this
suggestion for the nation?
- Gives fair warning, allows companies to
self-restructure - Maintain a defense industry in the United States
Controlled shrinkage rather than collapse - Forces greater efficiency in both the defense
materials production and corporate structure. - Bidding war for civilian contracts. This warning
will likely raise the value of civilian contracts
in the eyes of the companies, and thus they will
be bid at a lower price. - Layoffs Highly trained individuals in the
defense industry will be forced into other jobs.
The market will place them at the most efficient
location rather than in an artificial, government
created market.
- Drives the market value of companies down.
Shareholders will worry that the companies are
pending death. - Market Confidance
- Unemployment layoffs after mergers and closures.
(11 1.5)
7Given this directive, what choices did Kent have
for his company?
8Given this directive, what choices did Kent have
for his company?
- Eat
- Acquire companies with a significant share of
civilian markets in order to diversify. - Acquire companies that are heavily defense linked
in an effort to dominate the shrinking defense
industry. - Be Eaten
- Its a question of protecting your people and
their shares. Make sure youre well valued during
acquisition. - Close up Shop
- Slowly lay off employees, divest company sectors
and sell assets.
9What are the advantages and disadvantages of
these choices?
10What are the advantages and disadvantages of
these choices?
- Eat
- From the Defense Side
- Concentrate on the DOD business acquire another
large defense player in order to gain product
diversification and negotiation power. - It is unknown as to what extent the defense
industry will cut funding. If they cut it
completely, there will be nothing left and buying
a defense industry company will not look so
clever in hindsight. - DOD spending isnt as affected as civilian
funding during economic downturns and thus in
some sense it is the safe bet. - From the Civilian Side
- DOD spending isnt as affected as civilian
funding during economic downturns. Acquiring a
company that derives a large percentage of their
business from the civilian market is good if the
economy stays strong, but prone to the risks of
an economic downturn. - Not as likely to get large defense contracts.
- Assuming economy keeps up, there will always be
growth
11What are the advantages and disadvantages of
these choices?
- Be Eaten
- Advantages
- Its easier. Laissez-faire type attitude
- He can retire
- Shareholders could do well if he makes a good
sell. - Disadvantages
- Disappointing on a personal level.
- Close up Shop
- Wasteful of potential
12What factors should he consider when making a
decision?
13What factors should he consider when making a
decision?
- Current cash reserves
- If Northrop had cash on hand its a nice time to
buy others. If not then its a good time to be
bought. - DOD is straightforward now, theyre likely to be
the same in future. - Political future of country
- DOD spending is heavily dependent on the
political climate which changes rapidly. - They have good relationships in defense industry,
and dont have many contacts in the civilian
industry yet. - Investigate past and future trends of civilian
aerospace market. - Some parts of the company will be well adapted to
switch from defense contracting to the civilian
markets. Others will not.
14What should Kent do and why? Consider Kents
vision for Northrop and possible competitor
response.
15What should Kent do and why? Consider Kents
vision for Northrop and possible competitor
response.
- Kents vision for the company predicted premiums
on intelligence, long-range strike ability,
precision, and survivability - Northrops skills, resources and relationships
make it an ideal candidate for dominating the new
defense market. - Kent should try to eat another large defense
company and position the merged company to be a
dominant player in the new market - Possible competitor response
- Other companies will be looking to partner with
Northrop because of their unique skill base, or
they will also be trying to obtain larger market
share in the defense market - They will be trying to become a large player in
the civilian market and exit the defense market