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Pan-Euro Foods S. A.

Project Management

Group Presentation

Arpit Pandya (08P190)

Ashutosh Mishra(08P193)
Ravi S. (08P215)
Vishal Narayan (08P227)
• Brussels based multinational food company
• Specializing in high quality ice cream, yoghurt, bottled water and
fruit juices
• Steady rise of the company from its inception in 1924
• Revenue of the company started stagnating in 1990s
There are a large number of strategies that a firm like Pan Europa
can implement to prevent a hostile takeover. They are as given in
the table below:
Poison Pills:

A poison pill is a defense strategy in which the target company offers

its stockholders preferred stock in the merged firm—at a highly
attractive rate of exchange—as a mandatory consequence of a
successful takeover. The logic in adopting such a provision is to
dilute the stock so much that the attacking firm loses money on its

Poison Pills may be of two types:

• Poison Pill with flip over rights: The rights are distributed after
a triggering event has occurred, such as when an unwanted suitor
acquires a pre-specified percentage of outstanding stock.

• Flip – in poison pills: With flip-in options, stockholders are given

the right to acquire additional shares in the target company at a
substantially lower price than the current
Corporate Charter Amendment
A common defense against a hostile takeover is a corporate
charter amendment, which staggers the elections of members to
the board of directors of the attacked firm so that all are not
elected during the same year. The terms are staggered, so that
some members are elected every two years, while others are
elected every four. The logic is that a well-established board will
be able to fend off an attacker’s advances. This anti-takeover
measure prevents a corporate aggressor from installing a
completely new board of sympathetic directors to facilitate the
strategic transition in the aftermath of the takeover.

Golden Parachutes
The Golden Parachute is a provision in a CEO's contract. It
states that he will get a large bonus in cash or stock if the
company is acquired. This makes the acquisition more expensive,
and less attractive. Unfortunately, it also means that a CEO can
do a terrible job of running a company, make it very attractive for
someone who wants to acquire it, and receive a huge financial

Pan Europa may adopt either of these strategies when trying to

over come a hostile takeover.
In order to prevent a hostile take over, it would be extremely important
for the company to keep an eye on the following categories in their

• Earnings per share: With a decrease in the earnings per share of a

company, the shareholders would become dissatisfied with the firms
performance. As given in the case, the EPS for Pan Europa has come
down drastically from its value of 0.72 in 1991 to 0.54 in 1992

• Shareholders’ Equity (Book value and Market Value): As per

the financials in the case, the market value of the shareholders’ equity
has not only been reducing over the past 3 years, its current value is
less than even the book value of the same.

The person most suitable to lead the way for Pan Europa is Trudi Lauf,
Finance Director. The main reasons for his suitability are:

• Has been a vocal proponent of reducing leverage on the balance

sheet from its current value of 125% which is the immediate
requirement at the current time
• Has also voiced the concerns and frustrations of the stockholders and
hence would not take a step like cutting of dividends
• Did not propose any of the projects under consideration and hence
would be able to take an unbiased decision about the project to be
Project 1: Expand Truck Fleet

Plan to purchase 100 trucks and sell off 60 old trucks in two years
NPV: -1.92, Payback period: 6 Years, IRR:7.8%
Type of Project: Efficiency Improvements

Project 2: New Plant

Plan to setup new plant to overcome capacity restriction in south
eastern region
NPV: 0.99, Payback period: 6 Years, IRR:11.3%
Type of Project: Product or market extension

Project 3: Expansion of Plant

Plan to expand the current plant by 20% at Nuremberg, Germany

NPV: 0.28, Payback Period: 6 years, IRR: 11.2 %
Type of Project: Product or market extension
Project 4: Development of artificially sweetened yoghurt and ice
Plan to capture the growing demand of low calorie products and
protecting present market share
NPV: 5.21, Payback period: 7 Years, IRR: 17.3%
Type of Project: New Product category
Project 5: Plant Automation and Conveyor System
Plan to improve throughput speed and reduce accidents
NPV: -0.87, Payback period: 6 Years, IRR: 8.70%
Type of Project: Efficiency Improvements

Project 6: Effluent Water Treatment project

Fulfillment of requirement of European Community Regulations

related to environment
Present Cost of project: 4 million ECU
Deferred Cost of project: 10 million ECU
Project 7/8: Market Expansion Eastward and Southward
Plan to expand to newer markets in the south and east of Europe
For Eastward Expansion: NPV: 11.99, Payback period: 5 Years, IRR:
For Southward Expansion: NPV: 9.00, Payback period: 6 Years, IRR:
Type of Project: New Product or New Market
Project 9: Development and Roll out of Snack Foods
Plan to introduce a new product to reach out to health conscious
NPV: 8.95, Payback period: 5 Years, IRR: 20.50%
Type of Project: New Product or New Market

Project 10: Computer based Inventory control system

Plan to reduce the delay in ordering and order processing and

better control of inventory
NPV: 1.16, Payback period: 3 Years, IRR: 16.2%
Type of Project: Efficiency Improvements
Project 11: Acquisition of a leading schnapps brand

Plan to move beyond the core business of the company

NPV: 47.97, Payback period: 5 Years, IRR: 28.70%
Type of Project: New Product or New Market

Ranking of projects on the basis of NPV

Rank Project NPV at Corp. WACC(10.5%)(in ECU millions)

1 Strategic Acquisition 47.97
2 Eastward Expansion 11.99
3 Southward Expansion 9
4 Snack Foods 8.95
5 Artificial Sweetener 5.21
6 Inventory-Control System 1.16
7 New Plant 0.99
8 Expanded Plant 0.28
9 Automation and Conveyer Systems -0.87
10 Expand Truck Fleet -1.92
• The ranking that we have derived is only based on the net present
value, which gives the expected cash flows from the project
• It doesn’t take into account the nonmonetary factors other than risk
• Payback period model ignores the cash flows beyond the payback period which
might be higher
• NPV has been estimated by using the cash flows in the initial stages which might
change when project starts. Thus the inputs in the initial stages are sensitive to

To avoid these limitations we can use :

• Profitability index which takes into account the size of the investment to determine
the project
• Real Options which calculates the opportunity cost of any investment. The
argument given is that a project might have a greater NPV if delayed to the future.
• Risk is an inherent part of a project and cannot be avoided
• Level of risk depends upon the degree of error in estimation with higher the
error, higher the risk of failure and vice-versa
• For example a new product development or new market development could be
highly risky if the market research is not done properly and may lead to total
failure of new product
• Taking high cost project may leads to engagement of most of the resources in
that project and if the project fails by any chance, can lead to huge loss to the
• However, a project is said to be less risky when it is undertaken to improve the
productivity and efficiency of the operational activities
• Expansion projects are also said to be less risky as they are undertaken to
remove the demand supply gap and their cash flow estimations are more or less
on correct line

• NPV at Corp. WACC

• Payback period

• Risk involved with the projects

• ROR of the projects as compared to decided threshold by the


• Necessity of project (qualitative aspect)


Formulation of LPP used for selecting projects is as follows:

Decision variables:
P7, P8, P9, P10, P11

Maximize: 11.99 P7 + 9 P8 + 8.95 P9 + 1.16 P10 + 47.97 P11

i) 20 P7 + 20 P8 + 18 P9 + 15 P10 + 40 P11≤ 80 (in case not
selecting P6)
20 P7 + 20 P8 + 18 P9 + 15 P10 + 40 P11≤ 76 (In case of selecting

ii) P7+P8 ≤ 1
iii) P7, P8, P9, P10, P11 are binary integers
Solver solution with Effluent water
treatment project

Solver solution without considering

Effluent water treatment project
Solution of LPP (if Effluent water treatment plant is
– Effluent water treatment plant
– Market expansion: Eastward
– Networked computer based inventory control system for
warehouse and files representatives
– Acquisition of a leading schnapps brand associated facilities.
NPV of selected set of projects: EUC 61.12 million

Solution of LPP (if not selecting Effluent water

treatment plant )
– Market expansion: Eastward
– Development and Roll out Snack Foods
– Acquisition of a leading schnapps brand associated facilities.
NPV of selected set of projects: EUC 68.91 million

Difference in NPV of two sets of projects: EUC 7.79 million


– Market expansion: Eastward

– Development and Roll out Snack Foods
– Acquisition of a leading schnapps brand associated