Submitted by: Brian L. Ragucos BACNOTAN CONSOLIDATED INDUSTRIES.

Submitted to: Mr. Nobe Langbay

I. SWOT ANALYSIS
Facts of the case S W O T

On May 11, 1957, BCI formally took over the government

owned cement company (CEPOC) through public bidding in

favor of private investors who demonstrated their willingness
and ability to take over the enterprise.

The initial year of BCI saw extensive improvements to increase the

plant production and operating efficiency. Employees’ salaries,

wages and benefits were raised and working conditions improved to
establish a proper labor-management relationship. By 1964, BCI
became a major supplier of cement in the northern Luzon region.

In 1963 the company acquired a galvanized iron sheet plant in

Poro, San Fernando, La Union. Further in 1966, BCI established a

second cement plant and another GI sheet plant in Davao city, both
of which became operational in 1968.

Over 22 year period 1961-1983 it can be seen that total dividends has increased almost three-fold over
the past six years. Which may indicate the following:


1. The total net profit increased

2. A shift in the company’s growth strategy that leads the

company to decide to expend less of its earnings in seeking
growth and expansion, thus leaving a larger share of profits

available to be returned to equity investors in the form of
dividends.

 
The company stocks were used as additional incentives to
company officers in the form of options.

 
The company has accumulated an appropriated earning of
P 52,500,000

Which can be used for Or lead to 10% deduction

investment or expansion from the total improperly
purposes accumulated earnings if not
utilized for reasonable
purposes


There are two cement companies that are performing badly
which implies an acquisition opportunity for BCI
Trading volume of stocks had been erratic. BCI’s stocks have
low volume of trading due to what is observed as “reluctance
of the current shareholders to sellout stocks of a profitable

company”
Submitted by: Brian L. Ragucos BACNOTAN CONSOLIDATED INDUSTRIES.
Submitted to: Mr. Nobe Langbay

II. TIMEFRAME
May 1984 to December 1984
III. VIEWPOINT
Mr. Rufino R. Santos Jr.
Vice-President and treasurer of Bacnotan Consolidated industries

IV. STATEMENT OF THE PROBLEM

How should the company utilize the accumulated earnings of P52,500,000?
V. STATEMENT OF THE OBJECTIVES
 To avoid the payment of 10% tax on improperly accumulated earnings
 To avoid risks of share dilution
 To receive optimal results from the expenditure of the accumulated earnings

VI. AREAS OF CONSIDERATION

 Over 22 year period 1961-1983 it can be seen that total dividends has increased almost three-fold
over the past six years. Which may indicate the following:
1. The total net profit increased
2. A shift in the company’s growth strategy that leads the company to decide
to expend less of its earnings in seeking growth and expansion, thus
leaving a larger share of profits available to be returned to equity investors
in the form of dividends.
 The company stocks were used as additional incentives to company officers in the form
of options.
 The company has accumulated an appropriated earning of P 52,500,000
I. Which can be used for investment or expansion purposes or lead to 10%
deduction from the total improperly accumulated earnings if not utilized
for reasonable purposes
 There are two cement companies that are performing badly which implies an acquisition
opportunity for BCI
 Trading volume of stocks had been erratic. BCI’s stocks have low volume of trading due
to what is observed as “reluctance of the current shareholders to sellout stocks of a
profitable company”

VII. ALTERNATIVE COURSES OF ACTION

A. Using the P 52.5 million to acquire & improve Pacific cement

B. Using the P 52.5 million to fund building and equipment acquisitions for currently held
cement producing plants
C. Using the P 52.5 million to acquire Filipinas cement
Submitted by: Brian L. Ragucos BACNOTAN CONSOLIDATED INDUSTRIES.
Submitted to: Mr. Nobe Langbay

VIII. EVALUATION OF ALTERNATIVES

Qualitative Analysis
Alternatives Advantages Disadvantages
Alternative A:  Achieve economies  Risks of defaulting on creditors
Acquire & improve of scale
Pacific cement

Alternative B:  Improve production  A faster approach to peak of

fund building and quality marginal productivity
equipment  Risk of compromising efficiency
acquisitions for
currently held
cement producing
plants

Alternative C:  Achieve economies  A turbulent integration process:

of scale problems associated with
Using the P 52.5  The company will integrating different workplace
million to acquire become the sole front cultures
Filipinas cement runner of cement  Lost productivity because of
industry in the management power struggles
Philippines  Accounting issues that weaken
 Elimination of the the takeover company's financial
biggest competitor position, including restructuring
charges and goodwill

IX. RECOMMENDATION
I recommend Alternative C: Using the P 52.5 million to acquire Filipinas cement
Acquisitions is a great company's growth strategy because it is more beneficial to acquire
other cement-producing firm's operations than it is to expand the company. Because the
company might become too bureaucratic or it run into physical or logistical resource constraints,
and eventually the company’s marginal productivity peaks. To find higher growth and new
profits, the firm should acquire promising cement-producing companies (such as the
aforementioned Filipinas cement) to incorporate into its revenue stream.
The purchased business already have its own personnel (both labor and management), a
brand name, and other intangible assets, which helps to ensure that the company will start off
with a solid customer base and to achieve economies of scale, greater market share, increased
synergy and cost reductions.
It will be best for the company to serially acquire good companies as a growth strategy
Submitted by: Brian L. Ragucos BACNOTAN CONSOLIDATED INDUSTRIES.
Submitted to: Mr. Nobe Langbay

X. PLAN OF ACTIONS

Specific Action Person responsible Timeframe Budget

Prepare proposal and

presentation Mr. Rufino R. Santos Jr. 1st week of P 1000
Vice-President and May Miscellaneous
Present the proposal treasurer

Assuming that the board approves the proposal

Hire a professional
Investment Banking P 200,000
Firm to ease the process Secretarial department 2nd to 3rd week
of acquisition with the guidance of the of May Professional fees
BOD &
Prepare non-disclosure Commission
agreement (NDA)
document

Assuming that there are no disputes with the NDA negotiations between the middlemen
the related documents will be signed by both parties within the 2nd to 3rd week of May.
Filipina cement will send its financial statements and related summary-level documents
concerning its historical and forecasted results to the company.

Proceed with the

purchase offer via 4th week of
documents in a letter of May
intent (LOI) or term
sheet P 299,000

Proceed with the due Secretarial department June up to the Professional fees,
diligence process via with the guidance of the 2nd week of Commission,
Investment Banking BOD July &
Firm Miscellaneous
Send first draft of a expenses
purchase agreement 3rd week of
Terms: July
70% of the Filipina’s
equity (approx... P 25
million) for P 50 million
(2 times the value)

Assuming there are no unsatisfactory terms with regards to the purchase agreement, the
acquisition will proceed and P50 million would be transferred to majority stock holders
and the remaining 2 million would be used as commissions.
Submitted by: Brian L. Ragucos BACNOTAN CONSOLIDATED INDUSTRIES.
Submitted to: Mr. Nobe Langbay