Victor Yoarian, a reclusive billionaire had acquired a 10 percent stake of a telecommunications company named Teletech Corporation and has demnded two seats on the firm’s board of directors. Headquartered in Dallas, Texas defines itself as a “provider of integrated information movement and management. ”
The firm had two main business segments: Telecommunications Services, which provides long-distance, local and cellular telephone service to business and residential customers, and the Products and Systems segment, which engaged in the manufacture of computing and telecommunications equipment. Margaret Weston, the Chief financial officer (CFO), is tasked to to present to Yossarian if they should close the Products and Systems Segment which is the entry of Teletech into the production of computers.
The firm has already shown a return of Capital of 9. 10% for the year 2004. The Products and systems only hold a 3. 4% from the net assets of $16 Billion of Teletech Corporation as compared to the Telecommunications sector which $11. 4 Billion. Though the company did not do well on the stock market or with industry indexes for telephone, equipment or computer stocks.
Securities Analysts had remarked on the firm’s lackluster earnings growth, pointing especially to increasing competition in telecommunications, as well as disappointing performance in the Products and Systems segment.
What were the appropriate hurdle rates for the two segments?
Teletech as can be seen has two different segments, which are the Products and systems and the Telecom services. The Telecom services which is at low risk will stay to be there as telecommunications is a basic need of the consumer in both personal and the professional area. The Products and Systems segment is at higher risk as it is for new products.
Computers always gets advanced fast and has a lot of competitive players. It would be best to continue with the segment as it has been started at the right time. The consumer nowadays look at a computer as a basic tool for both business or leisure. The risks maybe high, but without these risks there wouldn’t be good returns. Figures also show that the segment is earning money, it had earnings of 11% from the as of 2004. With the trend of markets it surely will go higher with proper strategies.
Was the products and Systems segment underperforming as suggested by Yossarian?
The segment may not be earning as high as the Telecommunications segment, though the market keeps evolving and should be considered by the company. Telecommunications has advanced from simple voice to voice telephony to live video conferencing. This technology is an edge for any telecommunication company, especially partnered with the hardware that is required for the access of such technology will equal to a good package for the end consumer and give Teletech an edge over other Telco providers.
How should Teletech respond to the raider?
Teletech should show the facts that the segment shouldn’t be closed with figures and analyzed projections. These will be accompanied with the trends of the market and how the consumers will purchase the package all together. From the service to the hardware that is involved in the business. Having both would enable the consumer to buy from one source and that would be Teletech.