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there to be a greater risk in the Schlegel UK automotive segment
due to the competitive nature of winning business for new models
and Schlegel UK reliance on Rover and Ford for a majority of its
revenue. Due to this concern, Gooch also chose to apply a
company-specific risk premium of 2 percent to the automotive
division. No such adjustment was made with respect to the
building products division.
For the automotive group, Gooch calculated his projected
synergistic cash-flows from financial forecasts developed by the
managers of Schlegel UK. He made adjustments to these
projections based on his 1998 or 1999 discussions with management
and his overall view of the automotive industry in the United
Kingdom during those years. He also took into consideration the
potential close of the Leeds plant in early 1989. Gooch
concluded that the stand-alone scenario was slightly less
profitable than the synergistic scenario.
With respect to the building products division, Gooch noted
that there had been rapid growth over the mid- to late 1980's in
the housing industry; however, Gooch found that there had been a
drop in house building starts in early 1989 and the likelihood of
reduced sales of other Schlegel UK building products. Thus, he
reduced the building product projections for stand-alone
projects, while adjusting for higher sales under the synergistic
approach for economies achieved from synergies.
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