Kudler Strategy
Kudler Strategy
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Kudler Strategy
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Introduction
Kudler Fine Foods is one of the gourmet food shops which built in 1998 and the owner is
Kathy Kudler. The company products include beverages and gourmet food at its three locations
in CA. Kudler is trying to expand its services as well as to improve its day to day operations by
efficiency (Kudler, 2007). They are trying increasing their consumer purchase cycle by
increasing loyalty and satisfaction among its consumers. For expanding purposes, Kudler needs
to get large amount of capital by going public. Therefore they can issue shares and preferred
stocks. This paper will explain Kudler’s three options to expand its operations: 1. Going public
through an IPO 2. Acquire another company in the same industry 3. Merge with another
organization.
Going Public through an IPO
Going public means Kudler has to be converted into Public Limited Company because
private companies are not allowed to go for public. There are some opportunities, Threats and
strengths for going public.
Strengths
“The strength of an IPO is that the founders of the company feel that they have more
wealth when they use an IPO. The reason is that they can sell their own shares and liquidate their
holdings. Strength of IPO is greater prestige and esteem for companies that go public” (Gomez,
et. al., 2005). An important strength is that the IPO provides greater liquidity to the shareholders.
Once shares start trading on the stock exchange they have a market value and can be sold and
resold. An IPO simply means that there is greater capital for the company.
Opportunities
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By going public, Kudler can get huge amount of capital and can expand their industrial
units to produce more quanta of finished goods and increase their sales. With increase of sales
they can increase their profit and can become market leader. Kudler would have the opportunity
to have freedom and flexibility to spend their capital which will increase the company’s growth
rate. The company can have solid financial base and high liquidity. If the Kudler goes public ,
they can get tax deduction and concessions.
Threats
“The threat of an IPO is that the company may be taken over by other companies, further
falling stock prices may lead to a loss of confidence in the stocks. This can cause low evaluation
of the company leading to withdrawal of credit and withdrawal of credit sales by suppliers.
Another threat will be a review of the company by SEC. The decision of management may be
affected by the stock prices. Most importantly, if a company wants an IPO it must comply with
SEC requirements that are cost, time consuming and extensive” (Gomez, et. al. 2005).
Acquiring another organization in the same industry
Strengths
The strengths are that the company gets greater power in the market; Further, the
company is able to expand its sales in the market because of combination of distribution
channels; In addition, the organization is able to improve its bargaining power with suppliers;
The organization is able to enjoy economies of scale and has the ability to keep out new entrants
into the industry. The company is able to pay for the acquisition with its shares and so does not
have liquidity problems. There are synergies between the companies.
Opportunities
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By acquiring another company, Kudler can eliminate competition risk in the market and can
become market leaders.
Threats
There could be some threats because of the acquisition. “For example the resulting
company can report financial loss in the same year in which acquisition took place. Acquiring
another business in the same industry” (Gomez et. al., 2005). The threats are that there will be
conflicts of culture between the acquired organization and the acquiring organization. Further,
the threat is that there will be duplication of efforts and departments. If the duplication is
removed then a large number of layoffs take place leading to fall in the morale of all employees.
In some cases the acquired company competes with the acquiring company. Most importantly,
the acquiring company has to pay a disproportionately high price for acquisition in the same
industry.
Merging with another company
Strengths
The strength of this form is that it costs little and is legally simple; in addition, the there
is no need to transfer title to individual assets of the merged firm. “The merger increases the
market share, bargaining power with distributors and customers, and bargaining power with
suppliers” (Gomez, et.al., 2005). In addition, larger financial resources mean more money
available for larger investments. Merger allows restructuring as well as improving the culture of
the organization. The firm can improve its profitability through economies of scale (Gatty,
2007).
Opportunities
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Both companies can get benefit from this merger because of large production resulting
high profitability and growth rate.
Threats
“The threats are that the company can become too large and may suffer from
diseconomies of scale; The Company can attract anti-trust laws if it enjoys monopoly power;.
There is usually a conflict between the personnel of two companies and there is a tussle for
power. Often the shareholders of both the companies do not vote for a merger” (Gatty, 2007).
This cooperation is difficult. Moreover, there might be clash of objective for different part of the
merged company. Staff dissatisfaction will be remaining and the top personnel may leave the
company.
Kudler Strategy
References
Gatty, B. (May 2007). Mighty special. Progressive Grocer, 86, 88-91. Retrieved January 21,
2010 from EBSCOHost Research Databases.
Gomez-Mejia, L., & Balkin, D. (2005). Management (8th ed.). New York: McGraw-Hill
Kudler. (2007). Retrieved on January 21, 2010 from Virtual Organization Portal: Kudler Fine
Foods
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