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Introduction by Attorney Polier

Purchasing control of a company in one's own country is a challenge. Undertaking the same endeavor in a different country is a business, legal, accounting and cross-cultural human relations challenge of significant magnitude.

The Harvard Business School and other MBA programs have for a long time presented to their graduate students a series of "case studies" which present practical, real life situations. 

At a recent seminar organized by the French-American Chamber of Commerce, Attorney Polier and Mr. Nacmias  adapted case method of intellectual investigation to present to a group of French executives and in-house legal and tax advisors (juristes d'entreprise) a relatively complex case based upon a recent acquisition of an American distributor by a French manufacturer.

Set forth below is the "case study" with links to both various supporting documents and Attorney Polier's own analysis of the case study. (Click here for a list of the supporting documents and the analysis.)

Statement of Facts

Emballages France S.A. 

Emballages France S.A. manufactures and sells in Europe, North America and Asia high-end aluminum containers for essential oils and certain other products. (Click here for a copy of Emballages France S.A.'s abbreviated balance sheet and P&L) .

Emballages France S.A. is owned by various members of the Dupont family and the president of the company for the last 12 years has been Mr. Laurent Dupont.

American Packaging, Inc.

American Packaging, Inc., a Delaware corporation was incorporated in 1992. The corporate offices are in Highland, New Jersey, and the corporation has the following shareholders:

• 45% - Mr. George Smith, American Packaging, Inc.'s President;

• 5% - Ms.. Gale Smith-Brown (a daughter of George Smith), a Vice President with sales responsibilities; and

• 50% Emballages France S.A. 

Pursuant to a December 1996 Shareholder Agreement, Mr. George Smith holds the right to designate the President of American Packaging, Inc. so long as he and his children own at least 50% of the outstanding shares.

From the very beginning of its commercial activities in early 1992, American Packaging, Inc became the de facto exclusive distributor of Emballages France products in the United States. Over the next three years, the business relationship progressed and mutual trust was established. Accordingly, in January 1997, the parties entered into an exclusive 10 year arrangement which was memorialized as a Heads of Agreement (Click here for a copy of the Heads of Agreement). Such arrangement will reach its term on December 31, 2006.

In the market segment for high-end aluminum containers, one large German company and one large American company (both publicly traded with a large range of products) respectively have maintained 30% and 50% shares of the North American market. Emballages France S.A.'s products represents the remaining 20%.

30 % of Emballages France S.A. 's sales and 35% of its profits are derived from the sale of its products to American Packaging, Inc. Sales to American Packaging, Inc. have increased by 10% per year for the last three years and are expected to continue to do so.

50 % of American Packaging, Inc.'s sales and 60% of its profits are derived from the resale of products manufactured by Emballages France S.A. (Click here for a copy of American Packaging, Inc.'s:

• Balance Sheet

• Statements of Operations

• Statement of Retained Earnings

• Schedules of Expenses and 

• Independent Auditor's Report with Notes to Financials 

American Packaging, Inc.'s President, Mr. George Smith, is 70 years old and he spends 8 month per year at his Florida home. In 2001, American Packaging, Inc. entered into an Executive Retirement Agreement with Mr. George Smith under which he will be paid $35,000 per annum for 20 years beginning at retirement or termination. (For more detail, click here to review Financial Note 5 to the Balance Sheet.)

Mr. Robert Rabbit has served for the last five years as the Executive Vice President and Chief Operating Officer of American Packaging, Inc. Mr. Rabbit is 60 years old and has expressed a wish to retire within 5 years. The President and COO of American Packaging, Inc., respectively receive salaries of $ 200 k and $150 k, plus generous fringe benefits. Neither executive has an employment contract containing a non-compete obligation in the event of termination of employment

Steel Containers, Inc

Mr. George Smith is also the Chairman of the Board of Steel Containers, Inc., a Delaware corporation owned by Mr. George Smith and his son, Robert Smith. Mr. Robert Smith is the President of such company. Steel Containers, Inc. distributes stainless steel containers. 

Mr. Laurent Dupont knows the identity of most of the customers of American Packaging, Inc. Mr. Dupont believes that the products of the two companies are in part complementary. Indeed, in the past, Mr. George Smith had advised Mr. Dupont that the lines of products are not in competition with each other and they have been jointly marketed to American customers. This arrangement appears to work and Mr. Dupont would be pleased to continue the close marketing relationship.

The Purchase Price

The Presidents of the French and American companies have excellent relations and have discussed a possible acquisition with Emballages France S.A. paying "6 times last years profits before taxes", approximately $ 1.3 million. (Presumably, the Presidents meant 6/2 times last years profits, as Emballages France S.A. already owns 50% of the equity.) It is not clear if an asset or stock acquisition is contemplated. There have been no discussions of tax issues relating to allocation of part of the purchase price to non-compete and consulting agreements.

Legal, tax and accounting advice sought 

The President of Emballages France S.A. has asked for legal, accounting and tax advice as he wishes to sign a purchase and sale agreement within three months and to hold a closing thereafter by 30 June 2006. 

What issues and questions should Emballages France S.A.'s Attorney and CPA consider raising with the President?