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Weakness of IPO
An IPO contains many disadvantages. Once Kudler Fine Foods offers an IPO and the stock is on
the market, Kudlers will be required to file financial information with the Securities and
Exchange Commission (SEC). An enormous amount of paperwork must be submitted
periodically to the SEC. Investopedia.com also reports that the cost of complying with the SEC
is very expensive. This would also include the time lost by management and the process
associated with the IPO process. Information also may be revealed to the competition. New
wealth acquired by the company is shared with the public investors. Kudlers may also lose
control of the company to the outsiders whom own stock in the company depending on the
amount of stock the holders own. Kudlers owner would not be able to walk away from the
company for a specified period, so an IPO would not allow her to retire immediately if that were
her plan. An IPO involves many legal issues that could lead to a lawsuit against Kudlers owner
if all the company facts are not presented in the IPO process.
Opportunities of an IPO
The opportunities of taking Kudler Fine Foods public presents many challenges organizationally,
having to not only plan out the financial side but also the marketing end as well. Going public
presents Kudler Fine Foods to the entire marketplace, not just restricted to their local areas in
which they now occupy. They are going to be drawing the attention of traders as well as
investors which opens up entirely different avenues to venture down.
Going public allows Kudler many opportunities for growth and expansion supported by the
public marketplace, and provides them many ways by recapitalizing themselves through the
issuance of further stock, but also allows them more freedom to grow and expand; positioning
themselves into the global marketplace should they choose.
the company is looking to expand right away and begin business immediately taking over a
company may not be the best approach. Once the company is taken over the financial benefits
may not be positive therefore putting the company in danger of failing.
Merging with another company is another option Kudler Fine Foods has to expand the business.
There are threats associated with this options that the organization must consider. Merging with
another company can cause employees of both businesses to resist the change. If employees are
not excited about the merge this can create difficulties for the company because employee
resistance can have an effect on customer service. Another threat with a merge is that the upper
management may not have the same outlook on the new merged company. Employee layoffs
may be a result of a merger because two or more people may now be holding the same position.
Regardless of the type of expansion Kudler Fine Foods decides to go with there will be threats
that must be considered and looked at carefully.
In brief, we can see that there are strengths and weaknesses in every business venture and all
should be considered carefully before making a decision. By cautiously weighing each advantage
and disadvantage of an IPO, merger or acquisition, Kudler Fine Foods can make an informed
decision on what would be best for the company and all involved. In the case of Kudler Fine
Foods, Team C believes that an initial public offering would be the best strategy for the
company. Kathy Kudler has proven the viability of her idea of a gourmet food store with the
opening of two new stores in just 5 years. By going public the company could possibly generate
enough capital to go statewide within the next ten years and statewide in twenty.
increase in the value of stock or share price because Riordan Manufacturings been in business
since 1993, has plants in Georgia, Michigan, California, and China, and has earnings of $50
million in 2005 (Apollo Group, 2006). The weaknesses of going public through an IPO are the
costs associated with the Securities and Exchange Commission (SEC) regulatory requirements.
For example, audit fees, printing fees, investor relations (IR), and additional accounting
personnel. The costs of hiring a Stock Firm to market the IPO through one of the Capital
Markets. The opportunities of going public include raising capital for research and development
projects (R&D) or pay off existing debt, and generating publicity to a new market. One threat
that Riordan will experience is competitors will have immediate access to future business plans,
financial data, and their competitive strategy. Publicly held companies must disclose these plans
and data to all prospective and current stockholders.
According to Riordan Manufacturings economic overview, they forecast positive economic
conditions, which indicates low interest rates on new investments and increase productivity.
Although no one knows which way the economy or the stock market may go, Riordan
Manufacturings focus is to maintain its profitability whether private or public. Although
Riordan Manufacturing is profitable and successful in the private sector, changes will occur in
the public sector because there is less control, more costs, and obvious disclosures.
Acquiring Another Organization in the Same Industry
Procuring additional corporations is a common movement for some businesses that desire to
enlarge their own operations, lessen the probability of competition and assume new abilities or
assets that the company would not have. Conversely, there are downsides to acquisitions,
particularly when viewing the price and the cost of joining two comparable companies. Riordan
Manufacturing, which has acquired other companies in the past and is considering this option of
acquisition again.
A prime advantage that Riordan Manufacturing has in acquiring a business, is the increased
income that the company can assume after acquisition. Especially, when Riordan purchases
another company that markets or produces a distinctly diverse service or product different from
the products that Riordan markets or produces. The newly acquired business can continue
operations and direct income in the direction of the new parent corporation, permitting for larger
Gross and Net income report totals. Gross and Net Income may also increase by the sale of
resources of the attained firm.
If Riordan acquires another company it also acquires the proficiencies and skills of the new firm,
which permit the company to profit from the acquired companys core skills. This move will
also help to reduce competition, and the company naturally obtains the share of the market that
the acquired firm had, which will automatically increase Riordans share of the market. This is
the advantage of purchasing a rival company, not an entirely different firm that markets or
produces other types of products.
The costs Riordan would pay to acquire another company can be high, particularly if it becomes
a tough acquisition, or if they need to work deals out with the board of directors, or to hire
accountants and other key personnel to value the acquisition. The new firm and its stock value
may have value at one price at acquisition but drop after because of the acquisition itself, after
IPO. Costs may also increase to keep key employees who may want to leave because of the
acquisition. Additional costs may include lawyers, marketing firms, advertising firms and,
accountants.