Case Study Giganet
Name: Chris RatliffSection #: 13 Instructions: 1. Use this sheet as the cover sheet. 2. Each question must begin on a new page. 3. There is no minimum length, remembering quality over quantity. 4. The analysis must be typed-double spaced. 5. Due date is Monday, March 14th at 3:00 PM and is due electronically (as an email attachment). After reading the case…Imagine that you are CEO of GigaNet and must consider the following in trying to solve this dilemma. Questions: . Describe the current situation surrounding GigaNet? 2. What options are available to you? How does each of these options serve your personal interests, those of investors and those of employees? 3. What do you recommend be done in this situation? What is your rationale for choosing this one? Why weren’t the other ones chosen? Be specific…. 4. In pursuing your recommendation from Q3, what are your expected outcomes? What do you envision success looking like? ) After an uncertain start, Giganet, a networking and switches technology company, is faced with an extremely tough situation that needs to be resolved within a few days. After many failed attempts to get quality investors interested in the company, Giganet finally gets Dell Computers interested in their product. This major breakthrough with a quality investor, leads to a series of successes, including offers from reputable investors like Meryll Lynch and General Electric to name a few.
Initially they set out to raise $30 million in funds only to find that they had offers that reached $43 million. Chief Executive Officer, Neil Ferris, described that one point the situation excelled to a point where they “were actually fighting to keep investors away. ” With investors in line to move forward with the company, Giganet was also prepared to make an initial public offering in the near future that would significantly increase this company’s value. Soon after a company called Emulex contacted Ferris with an offer to buy the company out for $300 million.
Still on an emotional high from success with investors, Ferris was taken back by the offer, later admitting that selling the company was something that he hadn’t thought of up to this point. A purchase of Giganet by Emulex was a good fit because besides the generous offer, manufacturing facilities for both companies were in close proximity to each other in Colorado. In addition to this both of their products were used in storage area networks and could be used to complement each other. As good as that sounded to them, there were still reasons for concern.
Even though the products were complementary, the technologies involved were very different. Additionally, executives with Giganet were concerned with the bargaining power of the buyers with Emulex. They found that 62% of Emulex’s annual revenues come from only four major customers. 2. )As CEO I would have the option either to take the offer from Emulex for $300 million or to deny the offer and continue on with plans to follow through with the investors and continue to grow the company until the eventual IPO that would occur in the near future.
When considering my personal interests as CEO, If I were to go ahead and accept to offer from Emulex it would be satisfying to know that I lead a company worth $300 million, but on the other hand, after considering similar cases, I know that this companies potential is worth much more. Taking this deal would also involve the acceptance of legitimate risks associated with Emulex that would affect stakeholders across the board if something were to go wrong. From the employee perspective, a buyout at this stage would give existing employees of Giganet a minimum 1-year contract with the new venture, along with many healthy stock options.
It is also important to consider that a merger of this magnitude will be very stressful on the employees because through past experiences with other failed corporations, they know that when companies merge, clashes in culture are likely to occur and can change their perspective on how they go to work everyday. As CEO if I were to deny the offer, I would be putting a lot of trust into the potential of the company and how far it could take all of its employees. I would have to trust that the hot streak this company will continue to a point where the value exceeds the offer from Emulex. From the employee erspective I would be happy if the offer was denied, simply because the culture instilled within Giganet is one of mutual benefit and teamwork. Currently the employees know that the harder they work to make Giganet a success, the more wealthy they will get. Knowing that momentum is with them and that an acquisition would only change the dynamic of the job, I assume that employee would be very satisfied with a choice to deny the buyout offer. Even though it means that they will have to work extremely hard for a good amount of time, the potential of where the company will go motivates them. . ) After considering the situation, who the decision affects, and my past experiences as CEO I would deny Giganet’s offer to buy the company out. Although I am extremely interested in a buyout, companies like Tranmeta Corporation and Arrowpoint motivate to move on with initial plans with investor in continuing to build the company until it can eventually go public. Arrowpoint, a company comparable to Giganet at one point, was able to raise $4 billion in their IPO and were able to turn around and sell out to Cisco Systems for $5. 7 billion.
With all this momentum behind the company, an opportunity to achieve the same level of success as Arrowpoint is very appealing to me. I also view the risks involved with taking the deal with Emulex to be far to great considering the position Giganet is in. Not only does Giganet take on additional risks with Emulex, but the system and culture that I have worked hard to create will be forced to change in this acquisition. In my past, often frustrating experiences working with and leading different companies, I believe that I have created a culture in the business that can finally find success and continue to grow.
Also from what I know about Emulex, they will operate very differently. My current employees that must perform day in, day out to keep their jobs will now be subject to contracts that guaruntee their employment. This gives me reason to assume that the modified business model will fail. The current business model in place gives Giganet competitive advantage and I believe it is too risky to give up. I also think that it is important to point out the timing of Emulex’s offer. Since it comes so soon after Giganet finds success, who is to say that other more lucrative offers will come in the near future.
I simply think that it would be foolish to accept the first offer you hear, no matter how good it may sound. 4)Based on my experience with growth oriented companies, and most importantly the momentum that Giganet has within the industry, I have no reason to believe that Giganet won’t continue to find success. I can see Giganet continue its growth all the way through its IPO when they become a public corporation. Although risks are involved with continuing to build the company, the potential of where the company can go is hard to overlook.
Ferris’ admiration for Arrowpoints success and how he views that company as a model for his own business leads me to believe that if an offer were to come from a major corporation after the IPO that Giganet would surely accept the what would be multibillion dollar acquisition. As CEO I would view success as one ability to reach full potential, and given past success stories and where Giganet is headed, if the situation described above were to play out, that could be considered a huge success for the company.
