The Merger And Acquisition Of Boyd Coffee Company By Farmers Brothers

1. What was the length of discussions between buyer and seller?
2. Describe other bidders (if any).
3. Describe defensive measures employed by seller either before or after the deal announcement.

1. Initial impact of deal on buyer’s financial statements (e.g., changes in debt/capital ratio; EPS accretion or dilution).

1. How did the economy and industry perform subsequent to the subject acquisition?
2. How did the buyer perform subsequent to the acquisition? (Include impact on firm’s financial health, organization structure, market position and reputation.
3. How do you think the firm would have performed absent the acquisition?

Background and Announcement of the Acquisition

Noteworthy, Farmer Brothers Company made a decision to acquire the Boyd Coffee Company on August 22 2017 with an aim of boosting its production efficiency, expand operation and strengthen its position in the market and boost its synergies among other benefits (Farmers Bros Inc.).Individually, both Farmers Brothers and Boyd Coffee company, before the merger where successful and reputable companies. However, the need to boost its market presence drove Farmer Brothers to consider the acquisition with Boyd s Coffee Company based in Portland (CT Press). Notably, Boyd Coffee Company was a privately owned enterprise prior to the merger whereas the Farmers Bros Company was a public company before the acquisition exercise. The announcement to acquire the Boyd’s Coffee company asset was made in August and the agreement entered into in October 2017 (CT Press) .The duration taken in the merger and acquisition process was approximately three months. Specifically, in October 2017, the merger and acquisition deal between Farmers Bros and Boyd Coffee Company was concluded (Globe Newswire). Specifically, Farmer Brothers Company acquired the Boyd s coffee at $58.5 Million inclusive of preferred stock shares (Stevens)

During my research on possible investors for the Boyd’s Acquisition deal, there was only talk of the Farmer Brothers company as the only interested party thus there was no research on other possible bidders for the merger and acquisition investment deal.

Typically, buyers and sellers undertake to cushion themselves against loss and fraud and seek to protect themselves against loss. Such can be said for Farmers Brothers and the Boyd Coffee Company. For purposes of providing legality and authority for their transaction, Boyd Coffee company contracted the services of a law firm to work out the details of the acquisition agreement so as to protect its interests .Equally, the parties opted for a  written agreement which was signed by representatives of the both Farmer Brothers coffee company and Boyd Coffee company (Law Insider).Usually, written and signed documents are considered authoritative and legally binding which makes it easier for both contracting parties to enforce their rights under the agreement. Both contracting parties had their acquisition intentions made public which provides public record and in another way makes the acquiring firm more valuable and raises it reputation in the market.

Owing to its acquisition of the Boyd Coffee Company. Farmers Brothers coffee company has expanded its operations and distribution capacities to Initial impact of deal on buyer’s financial statements (e.g., changes in debt/capital ratio; EPS accretion or dilution). According to the merger and acquisition deal proposed ,Farmers Brothers were to purchase the Boyd coffee company at $42m and also acquire 21000 worth of preferred stock .Essentially, this means Farmers Bros had to part with the above sums of money and shares from its assets to acquire the Portland based company (Boyd).The Boyd coffee company acquisition is meant to increase and strengthen the presence of the farmers Brothers coffee company in the region and to expand its distribution network.it can be said for sure that the acquisition of the Boyd company has extended the Farmers Brothers company presence in Portland (Farmer Bros) .

Legal Procedures and Contractual Agreements

Through this acquisition, the Farmer Brother coffee distribution outlets and facilities have grown which can be said to have greatly contributed to the growth of the company .The penetration of new market, Portland has been achieved through the successful execution of the merger and acquisition contract made between the Boyd s Coffee Company and Farmers Brothers Coffee Company. Following the merger and acquisition announcement by Farmer Brothers of Boyd Coffee, there was a slight increase in the stock values. Usually, the announcement of mergers has this kind of effect on stocks belonging to the acquiring companies (Investopedia).The same can be said for the stock value of Farmer Brothers which shot up by 7% following the acquisition deal announcement to the press. In a way, such public announcement make the companies seem valuable, profitable .Further the reputation of the Farmer Brothers was boosted by the acquisition announcement.

Before the merger and acquisition of the Boyd company, Farmers Brothers company volume of green coffee has increased by 0.9 percent as at the fourth quarter of the year 2017(Global News wire). Equally, there is a substantial increase in the gross production margin by 40 percent. In addition, Farmers Bros has incurred decreased income and operations by a figure of $1.4m. Further, there’s been a decrease in the net income of the Farmers Bros Company to $1.1. Specifically, the net sales for the Farmer Bros company has increased significantly following the merger. Currently, the net sales stood at $131,713,000 which was an increase of $225000 from the previous quarter (Bloomberg). In addition, the Farmers Brothers company s was $1 258000 which was a reduction from $2 505000 from the previous year. This goes to show that the merger and acquisition agreement is working in favor of Farmer Brothers coffee company (Bloomberg).

Moreover, taxation losses decreased from $2 701000 to $ 1 688000 from the previous year thus the assertion that the acquisition of Boyd Coffee company was good for the Farmers Brothers. Equally, net loss reduced significantly as contrasted against the year 2016 (Bloomberg).There was a remarkable net loss reduction by $640000 from the year 2016 which means the company made more profits than losses following the successful merger with Boyd Coffee Company (Bloomberg). In a way, this shows that mergers and acquisitions can be very effective in achieving company goals. As per the acquisition agreement between Farmer Brothers and Boyd s Coffee, the company was to establish its presence in the region, expand its operations and synergies to which the same is to be accomplished under the implementation of the acquisition deal. Through acquisition, a company is able to grow its operations through acquiring assets of the other company.

Financial Implications for Farmers Brothers

How did the economy and industry perform subsequent to the subject acquisition?

Partly, mergers can both be good or bad for the economy. Due to the expansion of operations by acquiring firms, there is the likelihood of dominance of the market or industry which in a way is not good for consumer welfare (Thoma). Due to the consolidation of the coffee industry, there’s the likelihood of consumer prices going high due to the dominance created by expanding firm thus undermining consumer welfare.Presently,it is projected that the United States Of America coffee market is going to increase significantly across the world due to the various mergers undergone by the leading coffee provides such as the Farmer Brothers for the year 2016-2020 (Transparency Research Markets).This goes to show that the actions of the Farmer Brothers directly impacts on the coffee industry and economy of the United States of America. In the long run, consolidation of companies directly impacts on the economy.

Through the Acquisition of the Boyd Coffee Company, there is increased green coffee production owing to the increase in the production and processing capacities. In addition, the Farmers Brothers have penetrated new markets in Portland through the acquisition which means there will be increased revenue for them. Also for the economy, there will be employment benefits following the acquisition to operate in the expanded market which will lead to increased economic livelihoods, income and revenue for all the stakeholders .Undoubtedly, the consolidation of the United states of America Coffee industry through mergers such as those executed by the Farmer Brothers Coffee company has significantly boosted competition in the industry (Research Market).Through consolidating  the coffee industry, dominance of companies might occur leading to high consumer prices which undermines consumer welfare thus the need for government to regulate the mergers and acquisitions.

Usually, through mergers and acquisition, the coffee industry is likely to experience growth (Diankantonis).Owing to the fact that through mergers and acquisition, it is easy for companies to expand their operations thus creating more employment opportunities for employment and investment. In addition, through mergers and acquisition of coffee enterprises, the operation and distribution capacities of the coffee industry increases thus boosting the growth of the coffee industry. For instance, following the merger and acquisition of the Boyd coffee company by Farmers Brothers, its distribution outlets have substantially increased which means more revenue for the Farmers Brothers. Predominantly, mergers are good for business due to the likelihood of increasing the profitability of business. However, the same cannot be said in effecting efficiency (Bronigen and Pierce).

Impact on the Coffee Industry and the Economy

Notably, one of the reasons of the merger for Farmers Brothers with the Boyd coffee company was to  increase efficiency, the same is yet to be fully realized .In a way, mergers and acquisitions are good for the economy in the sense that it maximizes profit margins which are likely to lead to expansion of more businesses. However, the ability to maintain efficiency in production and distribution of goods and services is not always easily achievable by most mergers and acquisitions. For some companies, mergers and acquisitions are a way to promote its efficiency. However the Implementation and success of achieving and maintaining efficiency isn’t always achievable in most mergers and acquisitions arrangement in the world (Transparency market Research). The efficiency of acquisitions is based on individual company management and organizational structure thus the need for acquiring firms to set and adopt efficiency achieving routines and operations to achieve all round operation efficiency.

 Following the acquisition of the Boyd coffee company by Farmers Brothers, there has been various operational and distribution changes. Also, the merger and acquisition process has made various changes to its finances. Specifically, the Farmers Brothers has recorded decreased volume of the sale and processed green coffee by 0. 4 percent. In addition, there was recorded a $2.2m decrease in the gross profit as compared to the fourth quarter fiscal status of the company. Moreover, there is a decrease in the gross margin to 37.2 percent as contrasted with the fourth quarter report of the year 2017 (Farmers Bros) .in a way the results were not promising considering the recent acquisition of the former Portland based company (Farmers Bros).Similarly, there was a reduction in the adjusted EBITDA from the previous quarter of 2017. However, it is projected that there will be increased production by 6m pounds toward the fourth quarter of this year. In a way, it is expected that the merger will prove to be successful in fulfilling the company reasons for the merger .Noteworthy, there has been a remarkable customer service and increased efficiency in the year 2018 (Farmers Bros).

Notably, following the merger and acquisition of the Boyd coffee company. The farmers Brothers Company has experienced various changes. As per the merger and acquisition agreement, Farmer Bros goals were to expand its banking credit facility .Also, the buyer hoped to increase its accretive earnings .Typically, mergers and acquisitions are a way to grow company operations and create value and the same can be said for Farmers Brothers whose acquisition agreement seeks to expand its operations (Stewans-Muller, et al.). Following the conclusion of the merger and acquisition agreement, Farmers Brothers Company is in the process of implementing these changes among others. There has been an expansion of operations following the acquisition of Boyd facilities and operation thus it is safe to say there is increased production and distribution of green coffee by farmers Brothers Company (Schouten).

Efficiency and Organizational Structure

Noteworthy the Farmers brothers have full ownership and access to the former Boyd s operation facilities which is expected to aid in the expansion of its operations (Stewans-Muller, et al.). In a way, this has strengthened the presence of the Farmers Brothers in Portland. In addition, the stock values of the Farmer Bros company went up following the acquisition deal announcement. Usually, mergers and acquisitions are meant to expand the operations of a company (Brown).Similarly, the need to grow the Farmer Brothers coffees business has largely contributed to the execution of this acquisition with the Boyd s Coffee Company. Mergers and acquisitions are strategic way o to grow business operations through penetration newer markets through existing firms. The process of acquisition enables the acquiring firm to tap into the already market.

In addition, the volume of processed coffee recorded a 5.3 per cent increase which is remarkable following the acquisition of the Boyd’s Company (Farmer Bros). The increase in the production and processing volume can be attributed to the expansion of operation facilities which were acquired due to the merger agreement with Boyd Coffee Company (Farmer Bros).Specifically, the gross profit margin increased by 5.3 percent while the gross margin went up by 120 base points to the tune of 39.5per cent. Noteworthy, the performance of Farmer Brothers after acquiring Boyd coffee company has increased).This can be evidenced by the company’s Financial records increase in the total revenue by 0.9 per cent as contrasted with its immediate competitors. Most of Farmer Brother Competitors recorded a revenue contraction percentage of -10 in the third quarter of the year 2017(CSI Market).

The company s financial reports for the fourth quarter of the year 2017,shows that there is significant reduction in net losses and increases in the production and processing of green coffee following the agreement thus proving that the company is better off with the merger and acquisition than without it.

Prior to the Acquisition of Boyd s Coffee Company, things weren’t going so well for Farmer Brothers. In the year 2012,the Farmer Brothers had been experiencing significant revenue losses due to the stiff competition it was receiving from Starbucks (Englander).Equally, the Farmer Brothers weren’t making any profits since the year 2007 thus necessitating the need for the merger and acquisition of Boyd’s Coffee.Noteworthy,the preceding years to the Merger were adverse for Farmer Brothers .In addition to the low profit margins, the company share values have been going down the drain thus the necessitating the acquisition move. Specifically, the share value of the Farmer Brothers company had deflated by fifty five percent from the previous years. In a way, the lack of acquisition would have crippled the company s operations. Consequently, with low profit margins, there is the likely to be low production and processing levels which may in turn trigger the retrenchment of most of its employees to maintain its low profit margins thus triggering the implementation of the Boyd s acquisition.

Conclusion

 In my view the acquisition of Boyd s coffee by Farmer Brothers was successful. This point of view can be supported by the fact that Farmer Brothers coffee company agreed to buy out Boyd’s Coffee Company which is the first step towards a successful merger (Convenience Store).Further the success of the acquisition is evidenced by the existence of an asset purchase agreement which if fully executed will fulfil farmer Brothers company goals for purchasing the Boyd s Coffee company. Single handledly,just by public knowledge that Farmers Brothers have bought the Boyd’s coffee strengthens their presence in the region .Through the acquisition of Boyd s coffee facilities, there has been increased production and processing of coffee by the company which has translated into increased revenue, increased net sales and increased profit margins for the company. Also, recent Farmer Brother company financial reports (unaudited consolidated) reports show there has been an increase in profit margins and loss reductions which is good for business.

Essentially, a good merger or acquisition arrangement has various features. The ability of a merger to help achieve company goals can be very effective in achieving the company goals. Typically, merger goals include expansion of business territory, boosted sales, asset acquisition and entry into newer markets are some of the common goals to be enforced through mergers and acquisition (Aikens). Particularly, the Farmer Brother Company acquisition of the Boyd Coffee Company in many ways encompasses this features. The acquisition is aimed at expanding the Farmer Brother Company operation, enter new markets (Portland) and also access to the assets previously owned by Boyd Coffee Company. Since the acquisition agreement, the Farmer Brother Company has recorded increased sales, increased volumes of produced and processed coffee thus proving successful for the company. Due to the mentioned reasons, I wouldn’t make any contrary decisions to that of the Farmers Brothers company chief executive officer.

Noteworthy, mergers and acquisitions are vital tools in expanding the operations of a company. In addition, mergers and acquisitions are effecting in growing coming operations, boost stock prices and boost efficiency .Owing to the benefits that come with mergers and acquisition such as penetration new markets, company growth, creation of more employment opportunities ,increases in profit margins for the business it is hard to resist going the merger and acquisition route. However, for successful mergers and acquisitions, there is need to exercise caution and factor in the risks of the acquisitions acting in the best interest of the company. Owing to the case study of the Farmer Brothers and the Boyd Coffee company, it is safe to say that mergers and acquisitions has very attractive results from the company if properly thought out and executed. However, mergers and acquisitions also come with risks and inefficiencies in some cases thus making it imperative for companies to be well equipped to handle these challenges

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