W.B. “Bill” Flinder, the president of Flinder Valves and Controls Inc. (FVC), and Tom Eliot, the Chairman and CEO of RSE International are currently in the midst of negotiating a merger of FVC and RSE. Both companies are aware of the benefits, but also remain apprehensive due to the risks of completing an acquisition in the struggling economy. Prior to 2008, the U.S. manufacturing industry had experience a decrease in consumer demand because of tighter borrowing standards and a weak housing sector in the past year, according to a recent analyst. However, before May 2008, the U.S. began to experience better economic conditions, which provided FVC a better environment to introduce its new, hydraulic-controls system called the “widening gyre,” which can be used in the military industry. With this expensive program still under development, Bill Flinder realized the importance of merging with another company that was financially stable. Other factors contributed the negotiation. In addition to nearing retirement, Flinder also believe a merger with RSE would help the transition years for his employees.
FVC and RSE should follow-through and complete the negotiation because one company’s strengths make up for the other’s weaknesses. Tom Eliot had recently proposed to the board of RSE to focus on diversification. FVC would help diversify RSE; they had the reputation of opening up opportunities for companies looking to diversify, plant capacity, management efficiency, financial resources, or to even counter the effect of a cyclical business. Also, FVC is in a position that would require financial stability. In addition to the required funds for the “widening gyre” program, the increase in the consolidation trend posed as potential problem for FVC because it would give away the company’s competitive advantage. FVC is a small company and could be pushed out of the