MOCK C

Strategic Case
Strategic level
Case study

May 2023

This examination is structured as follows:

Section Number of tasks Timing of section (minutes)

1 1 60

2 1 60

3 1 60

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TASK 1 (60 Minutes)

Update

You are busy at your workstation when you receive the following email:

Trigger

Email

To: Senior Finance Manager

From: Henrik Gerding, CEO
Subject: Proposed Joint Venture (JV)

Please treat this email as confidential for the time being; I do not want details to be leaked
until we have made a decision on whether to proceed.

I attach a letter I have received from the CEO of Muddocks for your reference. I believe it
should be self-explanatory. The next Board meeting is scheduled for tomorrow afternoon,
and I have added this item as a late addition to the agenda.

You will notice that, despite being asked to contribute the same amount of capital, Daistruk
will only receive 40% of any subsequent profit. Whilst I remain confident that there is much
potential value in this proposal for Daistruk, I am concerned that shareholders may question
the commercial logic.

I need your help in preparing for the meeting on a couple of matters:

Firstly, please evaluate the suitability, acceptability and feasibility of the proposal to enter
into the JV with Muddocks. [sub-task (a) = 65%]

Secondly, recommend, with reasons, whether Daistruk should attempt to justify strategic
decisions to its shareholders when the commercial logic of those decisions is not
immediately obvious. [sub-task (b) = 35%]

Task

Prepare a response to Henrik Gerding’s requests. (Time allowed: 60 minutes)

(Use the reference material overleaf)

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Reference Material - letter from Muddocks CEO

Sam Mittal
CEO
Muddocks Supermarkets
Roundland
Henrik Gerding
CEO
Daistruk
Roundland

Dear Henrik

Proposal: Joint Venture for online grocery deliveries

I am writing today with what I hope will be seen as an exciting opportunity for our two
companies to work even more closely together.

For some time, the Board of Muddocks has been considering entering the home delivery
market for groceries. Some of our larger competitors internationally have been offering such
services to their customers for a number of years, with varying degrees of success. We felt
that Muddocks should wait until the time was right and we had correctly identified the most
suitable approach. That time is now, and we feel that Muddocks and Daistruk can build on
the already successful relationship they enjoy.

Our proposal is to enter a formal Joint Venture agreement (JV). Muddocks would set up and
operate the website that customers would use to order their shopping; Daistruk would
receive details of the order in Muddocks warehouses, prepare the ordered goods for
delivery and then manage the dispatch process. Your company already looks after some of
the operations in our warehouses; this would mean much greater involvement on Daistruk’s
part.

A preliminary financial analysis suggests that both companies would need to invest around
R$500m to make the JV fully operational, with resultant profits being shared 60:40 to
Muddocks and Daistruk respectively. This balance in Muddocks favour is due to the
operations being under the name of Muddocks.

I hope you agree with me that this represents a very exciting opportunity; if you would like
to meet to discuss matters further, please don’t hesitate to contact me.

Yours sincerely
Sam Mittal - CEO, Muddocks Supermarkets

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TASK 2 (60 Minutes)

Update

It is now 1 week later. You receive the following email:

Trigger

Email

To: Senior Finance Manager

From: Rasim Hamid, Chief Finance Officer
Subject: Finance for the Muddocks JV

The Board is still considering whether to enter a joint venture arrangement with Muddocks. I
have been asked to present some thoughts at our next Board meeting about financing
options for the R$ 500 million investment. Also, connected to the subject of financing,
several of the other directors have expressed concerns to me about this attached article that
appeared in our bank’s quarterly newsletter.

Please advise me on the following matters before I present my thoughts to the Board.

First, please explain the key factors that we should consider when raising finance, and
recommend, with reasons, how Daistruk could fund the joint venture investment.
[sub-task (a) = 60%]

Second, please explain how Daistruk can manage the risk of interest rates rising, on its
existing borrowings and any possible future debt finance. [sub-task (b) = 40%]

Task

Prepare a response to Rasim Hamid’s requests. (Time allowed: 60 minutes)

(Refer to the reference material below)

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Reference Material - Extract from Roundland National Bank’s (RNB’s) Business Review

Strap in for a bumpy ride!

The outlook for the global economy over the next couple of years is quite
uncertain.

In response to increasing commodity prices and soaring inflation, most Central

Banks have already started increasing their base interest rates, and more
significant interest rate rises are likely over the next few months.

Companies in Roundland need to take action now to protect themselves from

this turbulence!

If you need advice on how to manage interest rate risks, please contact our
Client Services Department.

******

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TASK 3 (60 Minutes)

Update

It is now 2 months later. Whilst discussions with Muddocks have been progressing, no
formal decision has yet been made over the proposed Joint Venture. You receive the
following email:

Trigger

Email

To: Senior Finance Manager

From: Mabalemi Maleka, Non-Executive Chair
Subject: Governance and risk issues

The latest Board meeting was held this morning; it is clear that there are still a number of
areas that require clarification before we can make a firm decision over whether to enter the
proposed Joint Venture (JV)with Muddocks.

I attach a Board meeting minute, and would welcome your help before I speak again to the
directors:

Firstly, please would you recommend, with reasons, how entering the online grocery sector
should be reflected in the company’s risk register. [sub-task (a) = 50%]

Secondly, discuss the governance challenges the Daistruk Board will face if it decides to
enter the JV with Muddocks . [sub-task (b) = 50%]

Task

Prepare a response to Mabalemi Maleka’s requests. (Time allowed: 60 minutes)

(Use the reference material overleaf)

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Reference Material - extract from Board meeting minute

Khaled Abbas, Independent Non-Executive Director, commented that, in his view, any
agreement with Muddocks would alter the risk profile of Daistruk. As a member of the risk
committee, he wanted to know what the other directors’ opinions were of how any JV
should be reflected in the company’s Register of Principal Risks. Those present agreed that it
is something that should be looked into in more detail.

Henrik Gerding, Chief Executive Officer, pointed out that no mention had been made in
discussions to date over how the new JV might be managed. He stated that the existing
Board already had a full workload, and was concerned that there was very little extra
capacity for Directors to add to their current responsibilities.

Mabalemi Maleka, Non-Executive Chair, agreed that these were both important matters that
needed to be discussed further, and stated that she would have more detail to be able to
respond at the next Board meeting.

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