Dollar Tree Finnacial Strategy & Acquisition

The purpose of this paper is to discuss Dollar Tree DT financial strategy, capital management, and marketing aspects. Dollar Tree experienced large capital gains in 2014, the smaller $3.29 billion market cap company, purchased the larger $6.9 billion market cap Family Dollar (Dollar Tree, 2015). Family Dollar owners agreed to the sale at $74.50 per share $59.60 in cash and $14.90 in value of stock for each share (Dollar Tree, 2015). The company under the direction of CEO Bob Sasser plans to optimize its combined real estate, and dollar price point strategy to create synergy in expanding North America, Canada Provinces, medium and low income markets (Dollar Tree, 2015). Dollar Tree strategic financing and cost The Dollar Tree plans to finance the acquisition with it cash on hand, bank debt by J.P. Morgan Securities LLC, and bonds (Dollar Tree, 2015). In addition to its loans DT announced a private offering $2,500 million in senior notes due 2023, and $750 million due 2020 (Business Wire, 2015). The 2023 notes carry a 5.75% interest rate per annum (Business Wire, 2015). Secondly the company plans to raise $4,950 million in two facility loans A $3,950 million and B $1,000 (Business Wire, 2015). The company plans to secure two facility loans, Loan A Facility of LIBOR plus 2.25% interest rate, Facility Loan B LIBOR subject to.75%, plus 3.5% interests rate (Business Wire, 2015). LIBOR is an adjustable mortgage benchmark rate lenders use as an investment tool (Weston & Brigham, 1981). Financial decisions for Dollar Tree Dollar Tree finance is calculated with compound interest in a time value of money model. The time value of money is formulated by compounded interest that does not factor in risk nor uncertainty. However the equation is key to understanding several contingent disciplines in financial theory including, security valuation techniques, bond refunding operations, and lease versus purchase decisions (Weston & Brigham, 1981). The computation of time value of money is equivalent to the principle amount plus the compound interest rate for a period (Weston & Brigham, 1981). (The Facility Loans A & B) will carry a separate compound adjustable interest rate, then finance accrued from sold stocks. Dollar Tree acquisition of Family Dollar synergy will improve market efficiency providing low price points on a larger scale (Crimson, Gomes, McGinn, and North 2004). Further observation of the opportunity presented to DT in the takeover of FD reveals the company ability to maximize profit of brand sales. The company will now have access to 8,100 stores previously owned by FD, to implement its $1 or less brand items sales technique in the expanding dollar market (Dollar Tree, 2015). The market have been tested with a successful history of low price- point sales activity according to Family Dollar records, then industry second largest sector (IBIS World, 2015). Risk Management Theory The solvency of Dollar Tree debt on the time value of money is included in the theory of risk management (Fehle, F., & Tsyplakov, S., 2005). DT ability to execute capital sustainability and growth over the loans life cycle, weights on probability outcomes of business decisions made by the company Chief Managers (Fehle, F., & Tsyplakov, S., 2005). The mix of bonds, stocks, and capital used by Dollar Tree creates debt ratio concerns (Bujaki & Durocher, 2012). The acquisition gives industry sector equilibrium between Dollar General & Dollar Tree each equivocally $8 billion market cap size (IBIS World, 2015). The solvency concern for DT is in its debt ratio of liability over assets (Dollar Tree, 2015). The acquisition of Family Dollar raised the company liability just over $10 billion plus interest in facility loans & stocks (Business Wire, 2015). Financial analyst argue debt leverage is a key indicator to company take overs, and acquisitions in a competitive industry (Sapozhnikov, 2006). Risk management theorist attribute excess debt as a motive to poor decisions amongst CFO’s and company leaders (Fehle, F., & Tsyplakov, S., 2005). Review of ratio models To reduce risk the company will be forced to employ probability models to maximize profitability in its facilities securities exchange Crimson, Gomes, McGinn, et al. (2004). The models focus on facility management cost, cost of goods sold, and market volatile reaction rate. The dollar market is $68 billion sector of the U.S. economy that shares a strong relationship with the unemployment rate, and leisure time (IBIS World, 2015). Management of the firm’s assets demands employment of information technology sensitive data systems allowing response in a set time to market indicators (Fehle, F., & Tsyplakov, S., 2005). The Pro of the liquidity ratio The liquidity ratio can effectively show Dollar Tree ability to satisfy maturing debt. The liquid assets minus immediate liability results the company ability to satisfy financial obligations, for an observatory period (Weston & Brigham, 1979). Dollar Tree potential shareholders will use the liquidity test, as a deciding factor for investing. The upcoming years will reveal the company ability to support its growing liability with increased revenue measured as current assets, against current liability. The Con of the liquidity ratio The liquidity ratio will predict sale or forecast activity, but focus on the firm’s liquidity as the stability factor (Weston & Brigham, 1979). The DT is a thriving company in a high volume sale driven industry the liquidity ratio, the liquidity should be accurate. The ratio does not have the capability to compute spike or seasonal sales during bulk or lean inventory times. Leverage ratio The leverage ratio is one that investors will closely watch to determine the success of the acquisition. Dollar Tree used debt in the form of stocks, bonds to secure funding. The debt to asset ratio is commonly referred to as debt ratio. The leverage ratio, results in a percentage of the company, financed through debt. Analyst use company debt percentile as a point of comparison, against industry standards. The higher debt ratio companies risk, poor decision making, from lack of owner’s stake. The simple formula to debt ratio can be reached by total debt over, divided by total assets, see below. Debt ratio = Total debt = Percentage % Total assets The Pro of leverage ratio The leverage ratio tool reveals the control, and leverage of a firm, according to its ownership of finances (Weston & Brigham, 1979). A high debt ratio, and slim margins, could be definite sign of going out of business. The tool can also be used to explore leverage opportunities, including, e.g. acquisitions, liquidation, and company buy outs. Family Dollar high debt ratio was an indicator to shareholders to sale the business after fifty-seven years of operation (Business Wire, 2015). The con of leverage ratio The debt ratio has is limited in sight, to future productivity and sales. By itself the debt ratio has limited forecast ability, but in probability instrument becomes a reliable forecast tool. Again debt leverage does not compute the business ability to make good on all its debt, and regain ownership of its finances. Some firms have good ideas, but are high risk, preventing them from receiving efficient funding. This paper is to discussed Dollar Tree DT financial strategy, capital management, and marketing aspects. The large gains Dollar Tree experienced will be at the center of speculation and inquires on large acquisitions & take overs. Family Dollar owners agreed to the sale at $74 per share refusing a higher offer from Dollar General (Dollar Tree, 2015). Dollar Tree CEO Bob Sasser promises FD owners he will optimize the combined real estate, and dollar price point strategy to create synergy in expanding its operations (Dollar Tree, 2015). Reference Bujaki, M., & Durocher, S. (2012, December). Industry Identification through Ratio Analysis. Accounting Perspective, 11(4), 315-322. doi:10.1111/1911-3838.12003 Business Wire, (2015). Senior notes and allocation of $4,950 million in new term loan credit facilities. Business Wire. Retrieved from www.businesswire.com Crimson, R, T., Gomes, A., McGinn, K, L., North., (2004). Mergers and acquisitions: An experimental analysis of synergies externalities and dynamics [Abstract]. Review of Finance, 8, 4, 481-514. Doi: 10.1093/rof/8.4.481 Dollar Tree Inc. (2015). Fourth Quarter Highlights. Retrieved from http:files.shareholder.com Fehle, F., & Tsyplakov, S. (2005, October ). Dynamic risk management: Theory and evidence . Journal of financial economics , 78(1), 3-47. doi:10.1016/j.jfineco.2004.06.013 Sapozhnikov, M. (2006). Mergers and Government policy . Boston College Dissertations & Thesis. Retrieved from http://www.bc.edu

Qualitative literature review of Harnischfeger by Scholes & Black theory

Harnischfeger was a major manufacturer of cranes then based in Oaks Creek, Wisconsin (Tjahjana & Seifoddini, 1999). In 1981, Harnischfeger used massive batch production to manufacture its parts in order to reduce the cost. The company's excessive inventory resulted in a loss due to an unexpected drop in demand. A trail era began in 1980 for the one- hundred and four –year- old company. The demand for new cranes would decline due to the economic recession and Harnischfeger situation would worsen with an inventory that could not move (Palepu & Healy, 2008). Purpose of the study The theory of risk management has made strides in predicting company bankruptcies, acquisitions, and mergers (Fehle, F., & Tsyplakov, S., 2005). Harnischfeger massive lift in sales from 1973- 1980 had its factory in Escanaba, Michigan producing cranes continually, taking toll on the equipment (Palepu & Healy, 2008). Harnischfeger equipment usage from 1979- 1980 brought about the desire to replace parts and machinery (Denis & McKeon, 2012 ). Faced with the dilemma of replacing warn equipment, and repaying loans and compound interest rates requires probability models that will produce financial value (Fehle, F., & Tsyplakov, S., 2005). The purpose of the study is to reduce risk investments with firms on the verge of bankruptcies, acquisitions, and mergers (Weston & Brigham, 1979). Significance of the study Harnischfeger faced financial trouble in 1983 from its liability of compounded interest rate plus inventory surplus (Palepu & Healy, 2008). The interesting component of the relationship between investors and Harnischfeger was the halo effect the company had on investors. After a residual low liquidity ratio and $75 million reported capital loss in 1984 the company was still able to raise $150 million from investors (Palepu & Healy, 2008). The company admitted to its shareholders operations would need only minimum liquidity (Palepu & Healy, 2008). With $150 million raised from stock issuance and $80 million in discounted cash borrowed from both American and Canadian banks the investors believed Harnischfeger would turn it sales performance around (Palepu & Healy, 2008). The study purpose is to take an explicit view of the relationship of the ratio analysis and company bankruptcy, and acquisitions. Other studies have viewed liquidity ratio and substantial debt from a firm’s position to address operational needs as oppose to equity pay outs (Denis, McKeon 2012). Its quality equipment once set industry standards such as its use of welds oppose to rivets. Harnischfeger inability to respond to change in the qualitative demand presented obstacles for the company's progressive business model. Unfortunately for the crane industry giant its focus on quality and lack of attention to industry trends would allow a competitor to take over its equipment operation. Closing the doors to its plant in Escanaba, Michigan Harnischfeger contracted with global competitor Kobe Steel Ltd to produce its trucks and cranes (Palepu & Healy, 2008). In 1973, US lifted the oil embargo that is said to have triggered Harnischfeger boost in revenue (US Department of State, 2014). During the period of 1973 through 1980, the company grew its revenue by sixty-six percent and continued to dominate market share in the mining equipment industry (Palepu & Healy). Nature of the study The study will use a qualitative literature review approach used to evaluate the face value of company stock. The qualitative literature will be used to advocate the purpose of using models such as Scholes & Black theory suggested the current value of the stock minus the price of a pure discount bond that expires on the same day is an accurate account of its true worth, at face value equal to the discount bond itself (Scholes & Black, 1973). Hypothesis The company liquidity & debt ratio were indicators of the trouble that it was facing (Palepu & Healy, 2008). The company rigid business model contributed to its insurmountable debt (Palepu & Healy, 2008). The crane manufacturer batch productions efforts could not keep up with the volatile demand of the correlated oil industry (Palepu & Healy, 2008). The competitive effects of globalization made it hard for the company to compete in 1984. Harnischfeger was a major manufacturer of construction equipment error in business was due to its lack of risk management (Tjahjana & Seifoddini, 1999). The company lacked in its detail of attention to accrued liability and discounted cash flow. The high debt ratio brought about poor decision making from the management team to liquidate the company capital and increase long term liability. Harnischfeger failed to practice the disciplines in risk management and address its financial liabilities properly (Palepu & Healy, 2008). Reference Denis, D.J., & McKeon, S.B. (2012 , March ). Debt financing and financing flexibility evidence from proactive leverage increases. The Review of Financial Studies , 25(6 ), 1897-1929 . doi;10. 1093/ rfs/hhs005 Fersen, W., Heusen, A., & Su, T. (2005, October ). Weak-Form and Semi-Strong-Form Stock Return Predictability Revisited. Management Science , 51(10), 1582-1592. Retrieved from www.proquest.com National Mining Hall of Fame to honor five during 22nd ceremony. (2009, August ). Mining Engineering , 61(8), 24-27. Retrieved from www.proquest.com Palepu, K., & Healy, P. (2008). Business Analysis & Valuation. Using Financial Statements (4th ed.). Retrieved from The University of Phoenix eBook Collection database. Scholes, M., & Black, F. (1973, June ). The pricing of options and corporate liabilities. Chicago Journal , 81(3), 637-654. Retrieved from http://www.jstor.org/stable/1831029 Tjahjana, B., & Seifoddini, H. (1999, September). Part-family formation for cellular manufacturing: a case study at Harnischfeger. International Journal of Production Research, 37(14), 3263-3273. Retrieved from www.taylorandfrancis.com/JNLS/prs.htm Weston, F.J., & Brigham, E.F. (1979). Essentials of managerial finance (5th ed.). Hinsdale, Illinois: The Dryden Press.