1.

Protect Ltd
Protect Ltd is an Australian leisure clothing company. It
imports materials from Asia to produce high quality
clothing used by walkers and joggers. It has a large share
of the domestic market, but in recent years also exported
to Europe. These exports now represent 60% of all sales
revenues.
The research and development department has invented a
new lightweight, breathable waterproof fabric. Initial
primary and secondary market research has shown very
positive results from existing customers and identified
potential applications to a range of sports markets. To
manufacture new garments using this fabric, Protect Ltd
will need new manufacturing equipment. The research
and development department believe that it can improve
the fabric further to provide the strength necessary for
contact sports such as rugby and American football.
The board of directors recently identified three potential
strategic options:
1. As the sports market is highly competitive, sell the
patent for the new fabric to a leading sportswear
manufacturer for $10 million.
2. Purchase machinery at a cost of $2 million to
manufacture the new fabric as outdoor clothing. The
estimated success of this option is 80% with returns of
$20 million. However, the failure of the product in the
market place would result in a loss of $5 million.
3. Conduct further research and development into
improving the fabric for sports use. This would cost $2
million. Failure to produce a suitable fabric would result
in a loss of $5 million. However, it is believed that there
is a 60% chance of success. If a suitable fabric is
produced then the firm would have another choice. They
could either sell the patent for the improved fabric for
$25 million, or choose to manufacture it themselves at a
cost of $2 million. If they choose to manufacture, the
estimated chance of a successful market launch is 50%
with estimated returns of $72 million. However, if the
market launch proves a failure, they would make a loss
of $8 million.
The board of directors are concerned about the economic
conditions in Europe, with the expectation of increases in
inflation and interest rates. Asian currency markets are
also volatile with Asian exchange rates expected to rise.
(a) Prepare a decision tree to show the three options
available to Protect Ltd, the expected values of each,
and identify the most profitable option. [8 marks]
(b) With reference to the external environment and
the decision tree prepared in (a), recommend an
appropriate course of action for Protect Ltd. [10
marks]

2. Fast Eater
Fast Eater, a fast food restaurant company went public in
1975 and until 2000 had always made a profit. From
2000, sales in Europe (the company’s biggest market)
started to decline. The following table gives information
on Fast Eater’s current portfolio:
During the 1990s, Fast Eater opened stores worldwide at
the rate of 250 a year. However, by 2004 Fast Eater was
closing restaurants and concentrating on attracting more
customers into existing outlets. Industry analysts suggest
that the trend towards healthier food is affecting the
popularity of the chain and so Fast Eater is proposing the
introduction of a new product to cater for the market.
Newly established health-food stores are becoming major
competitors. Fast Eater is caught in a marketing war with
aggressive rivals. In addition, economic downturn in its
major markets is affecting demand.
(a) Explain what is meant by the “company went
public in 1975”. [2 marks]
(b) (i) Use the Ansoff Matrix to identify and explain
Fast Eater’s past and current growth strategies, [4
marks]
3. Walgreens–Alliance Boots
Walgreens, a public limited company, is the biggest chain
of drug stores in the United States (US). It has made an
offer for a 45% stake in Alliance Boots, the biggest chain
of drug stores in the United Kingdom (UK). Walgreens
has 8000 stores in the US, Alliance Boots has more than
3000 stores in Europe and beyond. The combined sales
of both companies is US$112 billion. A proposed merger
between the two companies would create the world’s
largest chain of drug stores.
Walgreens’ market share has fallen due to increased
competition from online drug retailers and supermarkets
that can provide similar products at a lower price. There
have also been some concerns over customer service in
Walgreens’ stores. In contrast, Alliance Boots has a
strong brand image, based on its quality own-brand
products and excellent customer service with trained
staff, who can provide medical advice for some illnesses.
The merger would have the following positive outcomes:
• increased internal economies of scale
• a world-leading chain of drug stores would be created
• there would be enough finance for an Alliance Boots
expansion into China and South America
• Alliance Boots would be provided with immediate
access to the US market
• Walgreens would be given access to Alliance Boots’
research and manufacturing expertise
• a strategic move would be provided for both companies
to survive economic problems. The new combined
Walgreens–Alliance Boots may also raise issues over
control, strategic direction and decision making.
Walgreens’ shareholders were not happy about the
proposed merger. Walgreens shares fell by 6%. Analysts
believed that this strategy was not right for Walgreens,
whose sales fell by 10% in the last year. Walgreens
would be merging with a business that is exposed to the
economic downturn in Europe. Alliance Boots’
shareholders were also worried. They feared that its
reputable brand image could be eroded, especially if
stores were created all over the world.
(a) Define the term public limited company. [2 marks]
(b) Describe the method of growth used by the
proposed merger. [2 marks]
(c) Examine the claim that the merger would result in
“increased internal economies of scale”. [6 marks]
(d) Discuss whether the proposed merger of
Walgreens with Alliance Boots will result in the
positive outcomes stated (apart from economies of
scale). [9 marks]