Euroland Foods SA Case Analysis

I. IntroductionEuroland Foods fellowship was a publicly traded attach to since 1979. Theo Verdin founded the keep phoner in 1924 as a result in developing his dairy business. Euroland Foods Company saw itself as a multinational producer. The four products were high-quality ice cream, yogurt, bottled water, and harvest-time juices. Each product accounted for 60%, 20%, 10%, and 10% of the companys revenue respectively. The companys headquarters was in Brussels, Belgium. Since the day the company was founded, it has experienced steadily development.II. Background of FirmThe notice of directors of Euroland Foods Company had 12members. Three of them were the Verdin family, four of them were from the management, and the left five members came from outside. The combined Verdin family, the combined company executive, Venus Asset Management, and Banque du Bruges et des Pays Bas were the four biggest stock-takingholders. Each had 20%, 10%, 12%, and 9% of the companys shares outstanding respectively. Senior Management Committee was responsible for the jacket crown budgeting and presenting it to the bill of fare of directors every year. sevener members, including five managing directors, one PDG, and one finance director, were on the committee.III. Statement of SituationEuroland Foods Company had two study problems comparing with its peers. One was the high debt-to-equity ratio, another one was the low price-to-earnings ratio. The debt-to-equity ratio was 125%, which made the Banque du Bruges, Eurolands bank, could not keep silence. Banque du Bruges strongly pushed a debt reduction program to Euroland. No hear could be financed if the leverage level was beyond the current debt-to-equity ratio.The lower the price-to-earnings ratio, the lower the stock price was. In this case, the Eurolands stock price was lower than average of peers. At the current ratio 14, Eurolands trade value was to a lower place its book value. Euroland Foods Company failed in the trying of new product introduction. Its sales had been stopped since 1998. The creditor, Banque du Bruges, was worrying close the Eurolands ability to pay its debt back. The one of the biggest stockholder, Venus Asset Management, was worrying about cutting get through the dividends.IV. Constraints on SolutionDue to the high debt-to-equity ratio, the board of directors decided to limit capital spending to EUR great hundred million. There were eleven devises on the table, and up to list EUR 316 million. There was estimated minimum pleasing IRR and maximum acceptable payback years. (Table 1)V. Possible SolutionsIn order to increase the sales, Euroland Company has to choose projects wisely under the EUR one hundred twenty million budget limitation, minimum IRR limitation, and maximum payback period limitation. Net present value, internal set out of return, and payback period are the main measures Euroland Company used to analyze each project. According to express 3, project 1 replacem ent and expansion of the truck fleet, project 2 a new plant, project 3 expansion of a plant, project 4 development and roll-out of snack foods, and project 5plant automation and transporter systems are eliminated for the over maximum acceptable payback period.The left projects are all considerable. The special project in this case is the effluent-water treatment at four plants. Because it belongs to the safety or environments category, there is no standard yet. Euroland Company could see it as a future expenditure, and if Leyden was right, we can spend EUR 6 million instantly instead of EUR 15 million four year later. This project will save Euroland a spread in the future. (the saving amount equals to the net present value of EUR 15 million minus EUR 6 million) The project is going to be mandatory four year later.VI. Recommended SolutionIf I was on the board of directors, I would approve project 11, Acquisition of a leading schnapps brand and associated facilities, which is anal yzed as project 10 on the Exhibit 3 project 7, Market expansion southward, which is analyzed as project 6 on the exhibit 3 and project 9, Development and introduction of new unnaturally sweetened yogurt and ice cream, which is analyzed as project 8 on the exhibit 3. The capital budget for the three projects are EUR 60 million, EUR 30 million, and EUR 27 million respectively, which give us the total EUR 117 million. We still have EUR 3 million can use, and I will propose to use it in the effluent-water treatment at four plants project.Although the project estimated cost is EUR 6 million, companies barely pay such a huge amount in one day. We can negotiate with the seller to come up a hire plan in addition we need to make a deal which the first payment is not greater than EUR 3 million. Project 7 market expansions southward and project 8 market expansions eastward are similar, but I decided to approve project market expansions southward instead. at any rate the higher net present va lue and internal of rate of return, the purchasing power is stronger and competition is slight intense.