Strategy of Continental Company
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The Company was founded in 1904. By the mid 1990s, Continental had owned or still owned companies in a variety of industries including producing auto parts, electrical and power equipment, metal alloys, airplane parts, furniture, chemicals, and consumer products. In the mid-1990s and under the guidance of a new CEO, a fairly cohesive business plan was developed. This plan called for the company to focus its efforts in four specific business sectors: financial service, energy, packaging and forest products. Part of this strategy required Continental to sell companies that were not part of these four business segments or were considered under performing. Continental's CEO determined that the cash received from the sale of these businesses would be re-invested into areas promising profitable long-term growth. The CEO believed that these actions would strengthen the company's balance sheet, improve its credit rating, and increase return on shareholder's investment. In 2004, Continental hired consultants to evaluate the company's holdings in the four business segments. In the financial services business segment, the consultants reported that Continental's holdings were well-invested. The consultants indicated that Continental could expect increases in sales in this division by 15 percent a year, and that this growth could be sustained for the next decade if Continental made the necessary investment in the business. The consultants urged Continental to invest $250 million in
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include the negotiating power of customers in what is now considered to be a commodity business. One of the most serious risks facing Continental is the possibility that customers will demand new forms of packaging necessitating re-tooling or even rebuilding of the firm's manufacturing facilities. However, any new investment in capital equipment would not change the fact that customers consider packaging products to be a commodity meaning there would be ongoing pressure on profit margins.
The consultants hired to examine this division indicated that profitability would decline by about 50 percent over the next ten years and that the packaging division's cash flow would turn from positive to negative within five years. The consultants stated that if this division were sold today that the firm would receive approximately $1.2 billion from the sale. The bad news is that $1.2 billion is only 70 percent of the book value of the assets.
Continental's forest products division is a large producer of bleached folding carton board and bleached paperboard. Continental owns 1.45 million acres of timberland in the Southeast with a book value of $115 million and an estimated market value of at least $600 million. The consultants hired to e
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Approximate Word count = 1796
Approximate Pages = 7 (250 words per page)
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