Overall, the risk to DeeBilder is substantial. It does not appear than management has many opportunities to beat Home Depot, since DeeBilder competes as a low cost provider but Home Depot can undercut them on any product. DeeBilder will find it a tough adjustment to switch to a different business model, so they are in all likelihood going to lose this battle. Management in this situation needs to realize that the risk is almost entirely on their side. Home Depot has very little risk, the only issue at hand is how they are going to take over the market. For DeeBilder, the choice is whether to capitulate and go quietly, or whether to go down swinging, the latter choice likely to result in a total erosion of shareholder value.
2. It is unlikely that Home Depot is concerned about bad PR if they crush DeeBilder. Their low prices will win over the consumers and the public relations nightmare is unlikely to materialize. Home Depot has very little to lose in this situation, so DeeBilder is in a difficult position.
It is recommended that DeeBilder accept the offer but enter into negotiations to protect its employees. The company is negotiating from a point of weakness. It does not have the internal capabilities to compete as a differentiated provider. Home Depot has swept across the nation at the expense of dozens hardware chains just like DeeBilder. If DeeBilder had competencies that could support competing on a basis other than cost, it would have more flexibility in this negotiation.
A stakeholder approach helps to derive this recommendation. The private shareholders -- 40% of shareholders -- are going to benefit from the Home Depot's offer. The offer is approximately the value of the company. However, the presence of Home Depot in the upper New York State market will reduce the value of the firm considerably, so this offer is likely to be the most value that shareholders will receive, unless somehow the company can fend off Home Depot.
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