Business Planning and Investment: Different Cases

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Table of Contents

Business Plan For a Car Rental
Risk Factors for Greeprise To Be Disclosed in an IPO
Yahoo Question
Companies and Their Profiles
Jet Blue Airways and British Airways
Investing In Upcoming Technologies
Regent Technologies
References

Business Plan For a Car Rental

The US car rental size is worth more than 50 billion USD and there are more than 5000 companies operating in this segment. Some of the players are well established and have been in this business for more than 50 years. Some large players in the market are companies such as Hertz, Vanguard, Enterprise, U-Haul, Avis Budget Group, Orion, Dollar Thrifty and many others. There are an estimated 1.6 million vehicles currently in the segment. Because of the rise in gas prices and the economic recession, the market is expected to slow down and companies are reducing their fleet size (First Research, 2008).

Car rentals cater to specific market segments such as tour operators, intercity travelers, airports, travel agencies, corporate houses that prefer to hire a car for use than maintain their own fleet and many others. Large organizations prefer to hire car from rental agencies on contract basis for a fixed duration that may be a year, a week or even a single trip. Competition and bidding in this area is very sharp and entry barriers are high since travel agencies, tour operators, organizations prefer to deal with rental agencies with whom they have worked for some time. Some agencies are attached to hotels and resorts and operate in a closed environment where entry of outsiders is prohibited. Types of cars that are available for hire include models such as Dodge, Cadillac DTS, Chevrolet Trailblazer, Buick Lucerne, Chevrolet Aveo and other models. The rates for these cars for a 7 day plan can vary between 201 USD to more than 445 USD. Cars can be rented for one-way journey that is hiring in one city and drop off in another city. Full tank of gas will be paid for at the time of pick up, for convenience, so that the renter does not have to worry about stopping and filling the tank back up when returning the car. There are other charges such as taxes, child safety belt, driver charges and so on. Most of the customers who take car rentals are from the mid to top income group, educated, professional who do not steal or damage the car (RentalCarGroup, 2008).

Regarding the prospects of Greenprise company, there is a market for eco friendly cars such as Toyota Prius and other models. But these automobiles require expert maintenance are expensive and consequently the car rentals would be higher, if the company wants to make profits. Target customers would include large organizations and individuals that care for the environment. The company can also provide these services for outdoor tours such as national parks, beaches and other areas where there is a greater need for such automobiles. The company has to first create suitable advertising campaigns to advertise their services and target the customers using a variety of print and online Ads (First Research, 2008).

Risk Factors for Greeprise To Be Disclosed in an IPO

After five years of operations, it is assumed that Greenprise wants to take up an IPO. The following risk factors need to be mentioned in the offer documents:

Forward Looking Documents

This document contains certain forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995 with respect to Greenprise financial condition, results of operations and business and management’s strategy, plans and objectives for the company. These statements involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. There are a number of factors that could cause actual results and developments to differ materially from those expressed or implied by these forward-looking statements. These factors include, but are not limited to, changes in economic conditions, changes in regulatory policies, competition from other information and financial services providers, technological or other developments affecting the internet, difficulties or delays by Reuters in developing new technology or software products, exposure to fluctuations in currency exchange rates and inability of Reuters to realise the benefits from its business transformation initiatives or from its investments. The risk factors discussed below should be reviewed for additional information regarding these and other risks (Bukh, 2005).

Unfavourable conditions

Unfavorable conditions in financial markets may have a significant adverse effect on Greeprise business. Greenprise business is dependent upon the health of the financial markets and the participants in those markets and the level of activity in the foreign exchange and equity and fixed income markets respectively. A period of sustained economic downturn or volatility and lack of liquidity in financial markets may lead to reduced demand for Greenprise products and can therefore have a significant adverse effect on revenues and results of operations. In addition, the business could be adversely affected by consolidations and rationalisations among clients and other rental operators (Bukh, 2005).

Currency fluctuations

With overseas clients, currency fluctuations may have a negative impact on reported revenue and earnings. Greenprise reports results in USD but may receives revenue and incurs expenses in different currencies and is thereby exposed to the impact of fluctuations in currency rates (Bukh, 2005).

Increased competition

Greenprise faces increased competition from new and existing car rentals and service providers. With increased awareness of the problems of pollution, established companies may quickly start offering the same service and with almost no start up costs (Bukh, 2005).

New Technologies

Greeprise does not make cars but only offers rentals. Consequently when car manufacturers create new models with enhanced technology, Greenprise may not be able to replace their existing fleet since there would be no buy back arrangement (Bukh, 2005).

Yahoo Question

Microsoft has made an open offer to the Yahoo board to buy the company. It has offered 44.6 billion USD offer for the company or 31 USD per share and also has plans to retain the existing staff (Liedtke, 3 may 2008). There unconfirmed reports that MS may increase the offer to 35 USD per share after the Rupert Murdoch’s News Corporation has offered to join MS to support the bid (Sorkin, 10 April 2008). The combination, which would join Yahoo, Microsoft’s MSN and News Corporation’s MySpace, would create a behemoth that would upend the Internet landscape. If Microsoft and Yahoo shake hands on a deal, it will mark a significant step toward uniting two high-tech powerhouses whose online services are used by more than 500 million people worldwide. An amicable transaction also would make it easier to meld the two companies’ disparate technologies and cultures. Should the two sides remain at loggerheads, Microsoft could still try to force a sale by trying to replace Yahoo’s board with 10 directors more inclined to approve a deal. But that risky maneuver, known as a proxy contest, would likely entail several months of mudslinging with no guarantee of success. Even if Microsoft were to prevail in a hostile takeover, it could wind up with buyer’s remorse because the hard feelings provoked by the battle would drive off many of the Yahoo employees needed to make the deal pay off (Sorkin, 10 April 2008).

In my opinion, Yahoo should take up this offer as it represents a lot of funds that the board can use for other ventures. Yahoo is facing strong competition from other sites such as Google, Face Book and others. The company till recently had shown a gross reduction in revenues. If the board lets this offer go, then it will be back where it started. Yahoo said it would begin outsourcing a small portion of its search advertising to Google. The limited test is meant to determine whether the company could extract more revenue if Google ran its search advertising system. The test results might also back Yahoo’s contention that Microsoft’s offer undervalues the company. But such a scheme would be subjected to anti competitive and anti trust laws of US and both Yahoo and Google may be penalized (Liedtke, 3 may 2008).

Companies and Their Profiles

Starbucks

Starbucks Corporation is a transnational coffee and coffeehouse chain company based in the United States. Starbucks is the largest coffeehouse company in the world,[1] with 15,011 stores in 44 countries.[2] Starbucks sells drip brewed coffee, espresso-based hot drinks, other hot and cold drinks, snacks and items such as mugs and coffee beans. Through the Starbucks Entertainment division and Hear Music brand, the company also markets books, music, and film. Many of these products are seasonal or specific to the locality of the store. Starbucks brand ice cream and coffee are also sold at grocery stores. The company is seen a downward movement in the stock market and the 52 week price movement was between 15.39 – 31.90 USD. The stock is currently traded at 16.5 USD and is expected to hold in this range for some time. It is a good time to buy and bad for selling as the price is low. (Starbucks Quotes. 3 May 2008).

General Electric

The General Electric Company, or GE is a multinational American technology and services conglomerate incorporated in the State of New York. The company manufactures and markets products such as Aircraft Jet Engines, Electricity, Entertainment, Finance, Gas Turbine, Generation, Industrial Automation, Lighting, Medical Imaging Equipment, Medical Software, Motors and many more. In terms of market capitalization, GE is the world’s third largest company and also second in the BrandZ ranking. The stock for a 52 week has moved between 31.55 – 42.15 USD and is currently trading at 33.20 and the prices are rising steadily. One can buy the stock since the prices are expected to rise in the near future (GE Quotes, 3 May 2008)

Citigroup

Citigroup Inc. (www.citigroup.com, operating as Citi, is a major American financial services company based in New York City, formed from the merger of Citicorp and Travelers Group on April 7, 1998. According to Forbes Global 2000 in March 2007, it is the largest company in the world with total assets of US $2.2 trillion, as of December 2007. The company employs 358,000 staff around the world, and holds over 200 million customer accounts in more than 100 countries. It is the world’s largest bank by revenues as of 2008. It is a primary dealer in US Treasury securities and its stock has been a component of the Dow Jones Industrial Average since March 17, 1997. The stock is showing a downward trend and is currently at 29.67 USD with the 52 week movement between 20.01 – 31.58. It is a good idea to buy stock (Citigroup Quotes, 3 May 2008).

Wal-Mart

Wal-Mart Stores, Inc. (www.walmart.com) is an American public corporation that runs a chain of large, discount department stores. It is the world’s largest public corporation by revenue, according to the 2008 Fortune Global 500. Founded by Sam Walton in 1962, it was incorporated on October 31, 1969, and listed on the New York Stock Exchange in 1972. It is the largest private employer in the world and the fourth largest utility or commercial employer, trailing the British National Health Service, and the Indian Railways. Wal-Mart is the largest grocery retailer in the United States, with an estimated 20% of the retail grocery and consumables business, as well as the largest toy seller in the U.S. Wal-Mart also owns and operates the North American company of Sam’s Club. The stock is currently trading at 57.43 USD and has and has shown a 52 week price range of 42.09 – 59.09 USD. With recession in US, departmental stores can be expected to make substantial losses since customers are reluctant to buy extra material and only would want to buy food items. It is not recommended to buy stock (Wal-Mart Quotes. 3 May 2008).

Google

Google Inc. (www.google.com) is an American public corporation, earning revenue from online and mobile advertising related to its Internet search, web-based e-mail, online mapping, office productivity, social networking, and video sharing as well as selling advertising-free versions of the same technologies. Google’s headquarters, the Googleplex, is located in Mountain View, California, and the company has 19,156 full-time employees. The stock is listed at 582.19 USD and the 52 week movement has been between 412.11 – 747.24. It is suggested that stocks must be bough since Internet technologies are in demand and shares are expected to rise (Google Quotes. 3 May 2008).

Exxon-Mobil

Exxon Mobil Corporation or ExxonMobil (www.exxonmobil.com) is an American oil and gas corporation and a direct descendant of John D. Rockefeller’s Standard Oil company. Formed on November 30, 1999, by the merger of Exxon and Mobil, ExxonMobil is the world’s largest company by revenue, at $404.5 billion for the fiscal year of 2007. It is also the largest publicly held corporation by market capitalization, at $501.17 billion on April 18, 2008. While it is the largest of the six oil super majors with daily production of 4.18 million BOE (barrels of oil equivalent) in 2007, ExxonMobil’s daily production is still surpassed by several of the largest state-owned petroleum companies and it is only 14th in the world when ranked by held oil and gas reserves. The company has been the subject of criticism for its business practices and environmental record. The stock is currently traded at 89.61 and the 52 week movement has been in the range of 77.55 – 95.27. With increase in gas prices, the stock is expected to rise and remain steady and it is a good idea to buy (Exxon-Mobil Quotes, 3 May 2008).

Jet Blue Airways and British Airways

JetBlue Airways is an American low-cost airline owned by JetBlue Airways Corporation. The company is headquartered in the Forest Hills neighborhood of the New York City borough of Queens. Its focus cities are John F. Kennedy International Airport, Logan International Airport, Fort Lauderdale-Hollywood International Airport, Long Beach Airport Oakland International Airport, Orlando International Airport and Washington Dulles International Airport. It has a fleet size of 138 planes and has 54 destinations. JetBlue was one of only a few U.S. airlines that made a profit during the sharp downturn in airline travel following the September 11, 2001 attacks. Since its IPO on the NASDAQ stock exchange in 2002, JetBlue has become one of the most popular airline stocks in history and currently has about two billion dollars in market capitalization. Financial results were strong for the airline throughout the 2002–2004 years, and many analysts and journalists lauded the airline for its success. The airline sector responded to JetBlue’s market presence by starting mini-rival carriers: Delta Air Lines started Song, and United Airlines launched another rival called Ted. Song has since been disbanded and is being reabsorbed by Delta Air Lines, while Ted is still in operation.

British Airways if it wants to buy the company would get an entry on lucrative internal routes of USA. BA would also be able to get access to a low cost carrier that has a strong presence in US. n February 2006, JetBlue announced its first ever quarterly loss. For 4th quarter 2005, the airline lost $42.4 million, enough to make them unprofitable for the entire year of 2005. On July 24, 2007, JetBlue reported that its second-quarter revenue increased to $730 million, compared to $612 in 2006. Second quarter net income grew to $21 million for the quarter, from $14 million the previous year. On November 8, 2007, JetBlue announced the appointment of Ed Barnes as interim CFO, following the resignation of former CFO John Harvey. So the company is turning around and making enough profits to attract buyers. All that is needed for the deal to go through is a good offer from buyers. British Airways if it wants to buy the company has to make a better offer than Lufthansa. Since Lufthansa has already expressed an interest, BA will have a difficult time in getting its financials straight since BA is currently making losses and it should concentrate on making its airlines more profitable (Jet Blue. December 13 2007).

Investing In Upcoming Technologies

Among the three options, the best investment would be in the biotechnology firm that uses gene sequencing to prevent human diseases. This is an upcoming area and has lot of potential for growth and since the technology has been developed by professors from Harvard and MIT, it has better chances of success. The other venture of book stores and wireless technology to laundry mats are not worth investing since they do not hold much promise.

Regent Technologies

Regent technologies is in the field of bio technology and the share prices have appreciated from 1.75 to 10USD. The biotech sector has shown rapid growth in the last 5 years, with global revenues rising from $22.7bn in 2000 to $44.3bn in 2007. This is currently the strongest growth sector in the pharmaceutical market. The industry is expected to show growth in the range of 10 percent for the next 10 years. Although the biotech sector remains a relatively small proportion of the total drug market (8% globally in 2004), approximately 27% of new medicines in active development are now biotech products (Business Insights, November 1, 2007). Since there is growth potential it makes sense to invest in the stock for Regent technologies. However, a large proportion of these are in pre-clinical trials, so there is still a large risk associated with the developments of these compounds. The gap in small molecule drug approvals versus biological approvals is reducing year-on-year. There is a strong risk that the end product may not be approved by the FDA.

References

Bukh Nikolaj Per. 2005. Disclosing of information in intellectual capital in IPO prospectus. Journal of accounting, auditing and accountability. Volume 18. Issue 6. pp: 713-732.

Business Insights. 2007. The Biotechnology Market Outlook: Growth Opportunities And Effective Strategies For Licensing And Collaborations. Business Insights publications, UK.

Citigroup Quotes. 2008. Yahoo Finance, Citigroup stock movement. Web.

Exxon-Mobil Quotes. 2008. Yahoo Finance, Exxon-Mobil stock movement. Web.

First Research, 2008. Automobile Rental and Leasing. Web.

GE Quotes. 2008. Yahoo Finance, GE stock movement. Web.

Jet Blue. 2007. Lufthansa will acquire 19% stake in JetBlue, seek ‘cooperation’. Web.

Liedtke Michael. 2008. Microsoft ups Yahoo offer above $31 in bid for friendly deal. Web.

RentalCarGroup. 2008. United States Auto Rental. Web.

Sorkin. 2008. News Corp. May Join Yahoo Bid With Microsoft. Web.

Starbucks Quotes. 2008. Yahoo Finance, Starbucks stock movement. Web.

Wal-Mart Quotes. 2008. Yahoo Finance, Wal-Mart stock movement. Web.

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