Landmark Case Background and Problems

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This could be a trouble for the combined business as the incoming corporation will make the business triple of the present value and management of Broadway might not have the required knowledge of handling such a large business. Their concern was also regarding the ability to effectively implement the proposed cost cutting measures in the combined venture because of the large size of it.

- Declining operating margin for Landmark

The operating margins for Landmark Facility Solutions has been continuously declining for the last few years. The main reason for this was the steady increase in its operating costs. This has resulted in decrease in operating margin from the value of 3% in 2010 to less than 1% in 2014. Its cash balance was thus expected to decline to the value of 400,000 dollars by the end of fiscal year 2014. This value has been lowest in last 5 years. This has resulted in reducing Landmarks position in the industry.

Despite these figures, Broadway was interested in acquiring this organization mainly because its management was known for their operational efficiency and hence they were confident that they will be able to increase the operating margin again to the level of 3% by reducing managerial complacency and cost mismanagement. However, not everyone was convinced that they will be successful in implementing this cost cutting measures.

- New pricing strategy and service model

Board members of Broadway raised their concerns over the new pricing strategy and the service model. Under the new pricing strategy, the company would charge a premium price for the service they will provide in return for the value proposition of bundles services. However due to this new pricing strategy, the revenue will fall by 10% in first two years before growing up again from the third year. This was under an optimistic situation. In case the markets didn’t respond as per the expectations, it was estimated that the sales might fall even by a whopping 15% for the first two years due to this premium price.

Although the company was confident of profits even though there will be reduction in the revenue due to the increased operating margins for the Landmark company. This should have reduced the effects of decreased sales. Also as the value of sales again start increasing from third year, it was considered to be a beneficial solution in the future.

- Financing the acquisition

The price quoted by Landmark Facilities Solution was 112 million dollars. Broadway didn’t have the funds to settle the transaction through internal funding. The two options available with them include 100% financing through debt and 50% debt-50% equity financing. Getting high amount debt will increase in cash outflows in term of interest payments while equity financing leads to dilution of shares. Hence there was no clear decision in this regard. Harris had to finally come up with a plan to finance the transaction in the most efficient way.