CS3 – Strategic Case Study Exam 2021

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Memorandum of Understanding between Fouce Oil and Slide

It is proposed that Fouce Oil and Slide will temporarily combine their exploration activities, with Slide taking overall control in recognition of the greater expertise of its professional exploration staff.

This collaboration will work as follows:

1.Slide will take responsibility for the management and operation of all future exploration activities for the two companies, with effect from 1 October 2015.

2.Fouce Oil will second all of its professional oil exploration staff to Slide. Fouce will continue to employ these staff and will pay their salaries.

3.Slide will brief Fouce Oil’s professional oil exploration staff on all operational matters relating to exploration activities for the duration of this arrangement.

4.The provisions of paragraph 3 will apply to any projects in which Slide participates with third parties on a farm-in or other joint venture basis.

5.In recognition of Slide’s greater expertise, Fouce Oil will offer its entire portfolio of existing exploration rights to this venture, without any charge to Slide. Fouce Oil will also pay for

55% of any and all exploration costs, leaving Slide responsible for the remaining 45%.

6.The revenues from all successful discoveries will be shared equally by Slide and Fouce Oil. In the event that either party wishes to sell an oil well, the other will have the option of purchasing the other’s rights for 50% of the well’s agreed valuation.

7.This arrangement will be subject to review at the end of five years and annually thereafter. In the event that either party wishes to discontinue the arrangement, all ongoing exploration projects will be drawn to an orderly conclusion.

Signed

Thomas Yip, Chief Executive Officer, Fouce Oil

Andrew Jones, Chief Executive Officer, Slide

14 May 2015

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Four weeks have passed since your encounter with the Chairman. The directors of both companies were informed of the proposal to merge two weeks ago and the public was informed two days ago.

You have received the following email from Marcus Svenson, Finance Director:

From: Marcus Svenson, Finance Director

To: Senior Finance Manager

Subject: Merger negotiations

Hi,

Please see the attached table and also a comment that I downloaded from a Wodd shareholder’s blog, showing the market capitalisations for Wodd and Darrell both before and after the merger announcement.

If I am reading this correctly, it would appear that we are suffering at the hands of Darrell because the market believes that it is getting more of the benefit from the merger. This is before the terms of the merger have even been announced.

I need you to do two things:

Please draft a formal response to Market Blogger’s post. We will insert this into his blog as a formal response from Wodd’s Board and we will also email it to all shareholders.

Please draft an outline strategy for negotiating with Darrell’s Board. Clearly, I want Wodd’s shareholders to get the best possible deal out of this merger.

Marcus

Reference Material:

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You have received the following email from Marcus Svenson, Finance Director:

From: Marcus Svenson, Finance Director

To: Senior Finance Manager

Subject: News reports

Hi,

I have sent you a link to a news site on the internet. Things are getting complicated in

Bravador.

Every Board member has been asked to attend a brainstorming session this afternoon, before the CEO flies out to Bravador this evening. We will be considering the following four matters:

Is it acceptable for us to develop this forest, given the commitment that we have made with respect to indigenous peoples’ rights? They have been quoted at the end of the news article.

Is it fair for the environmental protestors to complain that our operations are unsustainable?

Would it be unethical to offer to build a village, with a proper school and medical clinic, for the tribe and to offer them work in our forestry operations?

Is it really a good idea for the CEO to fly to Bravador just to appear on the television news in his boots and overalls?

Please email me your thoughts on each of these matters before I leave for the meeting this afternoon.

Marcus