Strategic and Financial Analysis of Auriga Industries A/S

Michal Nielsen & Klaus Thøger Pedersen

Student thesis: Master thesis

Abstract

The general purpose of this thesis is to investigate foundation-owned companies’ ability to maximize shareholder value in highly innovative- and/or consolidation industries. The paper adopts an inductive approach and narrows its focus on the agrochemical industry by applying Auriga Industries A/S as case company with the purpose of conducting an in-depth external- and internal analysis to uncover potential strategic dilemmas and implications influencing to the company’s ability to maximize shareholder value. Auriga divested their operations to FMC in 2014 for a price of DKK 325.00 per outstanding which will be the target to meet to optimize shareholder value. The analysis identifies several strategic dilemmas that the Auriga Industries A/S needs to solve to be able to maximize their strengths and opportunities as well as minimize their threats and weaknesses. The paper sets up three different strategies, that the company can either adopt individually or as a combination. Path #1 mitigates production inefficiencies and result in an expected increase in the share price of DKK 10.13 per outstanding share. Path #2 optimizes the company’s working capital processes which lead to an expected increase in the share price of DKK 30.24. Path #3 strengthens the company’s innovative capabilities and secures a better chance of penetrating the North American market which off-sets in an expected increase in the share price of DKK 20.22 per outstanding share. Because of the human, organizational and financial resources required, a simultaneously implementation of all three strategies are deemed unrealistic. Instead, the paper favors a joint initiation of path #2 and path #3 which would result in an expected increase in the share price of DKK 52.30 equaling a share price of DKK 294.06 per outstanding share. As the expected value of implementing the two favored paths of DKK 294.06 per outstanding share does not exceed the price of DKK 325.00 per outstanding share offered by FMC, it can be concluded that the offered price from FMC optimizes shareholder value, and thus should be accepted. General findings suggest that foundation charters potentially restrict consolidations, and as a possible result the authorities have seemingly adopted a liberal stance towards accepting changes in foundation charters, which have off-set a trend towards less restrictive charters – especially concerning divestments. The same trend is observed with Auriga Industries A/S. Managerial distance between a foundation and its operational company are positively correlated with company performance. AURF and Auriga operate with high managerial distance, and should thus perform well. This has not been the case with Auriga Industries A/S which has not been able to capture their share of a growing market. A potential problem could be too much managerial distance, exemplified by the fact that AURF as majority owner have tried to sell Auriga Industries A/S for the last fifteen years – they did just not succeed until 2014. A possible effect of this unwanted marriage could be underinvestment causing inefficiency and lack of responsiveness, resulting in low growth and thus affecting the ability to create shareholder value. As the internal and external analysis reveals Auriga Industries A/S have developed into a company, being in a highly consolidating industry, where a divestment was the only right option to pursue in optimizing shareholder value.

EducationsMSc in Finance and Accounting, (Graduate Programme) Final ThesisMSc in Accounting, Strategy and Control, (Graduate Programme) Final Thesis
LanguageEnglish
Publication date2016
Number of pages206