Finance
Professor: Juan Aitor Lago Moneo
Business Case
MUPPET TOYS
Company background
Muppet Toys was a company created by Jason Lagoon and her wife Susan Whitehood in Austin, Texas in 1985. The business was based on Muppets, very popular toys in the US. TV programmes like Sesame Street and The Muppet Show made these toys really popular among young US Citizens. Parents wanted their children to play with these cute creatures and leave them nice minutes of peace during their childhood.
Sales were incredibly well for 5 years (see exhibit 1). In 1990, the company was very well known in Texas and had presence in other States:
– California
– Arizona
– Nevada
– Alabama
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Exhibit 1: Sales 1985 – 1989
During the 1990s, sales continued growing but a new competitor entered the market. In this case, it was not a toy store but another kind of toy: videogames. Japanese companies created this toy and kids were crazy about them. The Muppet Show and Sesame Street were still important kids TV programmes but not so popular any longer. These changes could be seen in the sales figures (exhibit 2):
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Exhibit 2: Sales 1990 – 1994
Near future
Sales Forecasts were not good at all for the company based on the report from JALM, one of the most important worldwide strategic consultants (exhibit 3):
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Exhibit 3: Expected sales 1995 – 1999
Jason and Susan were quite worried about the near future and above all, the long term survival of their company, since they could not tell if Muppets would any longer be as popular as they were in the 80`s when they created the company. Moreover, their three kids did not want to play any longer with their Muppets but were asking for videogames in their letters to Santa Claus.
The P&L of the Company in 1994 was the following:
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Exhibit 4: P&L 1994
What to do?
January 1st 1995, Susan and Jason are talking about their company:
– What can we do Susan? I do not think we have a big problem but maybe we will in the future. Said Jason
– You know Toys & You! has offered us 2,850,000$ for our company. Do you think we should sell? Replied Susan.
– I cannot tell. It is a low price in this moment, but who knows what may happen in the future. In my opinion, we can do the following things:
o Open more stores in different States: Missouri, Ohio or Kansas.
o Start selling videogames in our current stores.
o Sell the company to Toys & You!
o Open a new channel: there is something called internet that looks like a good alternative but it will cost us money as well
Figures per option
In order to take a decision, you must take into account the following data:
– More stores openings in new States:
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Exhibit 5: Expected Sales
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Exhibit 6: Expected Cost
Inflation rate for all States will be the same as follows:
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– Start selling videogames:
Annual Marketing extra costs of: 212 yearly. You must take into account the inflation rates mentioned above as well in this case.
Expected videogames sales:
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– Sell the Company: 2,850,000$ in 1995 for the whole company
– Selling Muppets through internet:
Expected cost of 300 in 1995. Please take into account inflation for the rest of the year.
Expected sales:
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Hopefully, both Susan and Jason studied an MBA at EAE Business School and were ready to take the best possible decision for them, their family, their company and their employees.
Please answer, the following questions:
Would you like to be Susan or Jason? Why?
What would you do with the Company? Please give an explanation.