1. What is the situation that this company faces?Yeats Valves and Controls, Inc.

is currently considering a merger with TSE International corporation. The founder, who is Chair and CEO, W.B. Bill Yeats, is about to reach his 62ndbirthday and does not have a succession plan. He is concerned with the future of his company as none of the other executives can take his place because they are all specialists. Bill Yeats believes that TSE can provide stability to Yeats as he is reaching retirement, and TSE is a larger company with better marketing and global distribution channels. TSE needed to become diversified and to develop a pipeline of breakthrough products that would allow TSE to remain competitive in its market. TSE needed this type of change to keep up with its competition. Their plan of action to achieve this was to acquire various companies in various different markets that would allow them to enter many new markets with many new opportunities 2. What are the strengths and weaknesses of Yeats and its counterparty, TSE? Unlike TSE, which is more global-oriented with indirect distribution channels, Yeats has a stronger national and direct distribution channel. TSE has a larger mass market production system (high volume) while Yeats has a more customized market production (lower volume). In addition, Yeats has a strong R&D, having many patents for multiple applications, particularly with its latest development of the Widening Gyre Program that has a high-profile government contract. This might not be reflected in the stock of the company as a growth opportunity. 3. 3. Why should Yeats and TSE want to negotiate a merger deal? , Bill Yeats is concerned about losing voting control from a merger with TSE. He also wants to ensure that Yeats employees are kept after the merger and its stockholders gain value from the merger. He wants TSE to continue the R&D and commercialization of the Widening Gyre Program; and for him to stay on as head of Yeats until TSE can fully operate Yeats by offering him a reasonable bonus plan. Yeats is considering this merger deal because it would offer a succession plan for the company as TSE is a much larger company that can offer Yeats financial stability without having Yeats to identify new capital (debt and equity) on its own to fund the Widening Gyre Program (an advanced hydraulic-controls system) TSE wants to follow a policy of focused diversification, which will be achieved by an aggressive growth-by-acquisition program designed to create opportunities and entries into more dynamic markets than the ones TSE presently serves.Yeats needs additional funding in order to continue the R&D of the Widening Gyre Program. Also, TSE has the expertise of mass manufacturing that Yeats need for widening its reach in commercialized distribution. In order to maintain a competitive edge, Yeats need both the finance and manufacturing capabilities of TSE as other competitors in the same industry have been consolidating more and more.

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