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Teletech Corporation

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TELETECH CORPORATION, 1996

Raiders Dials Teletech

Wake-up Call Needed Says Investor

New York (AP)---The reclusive billionaire Victor Yossarian has

acquired a 10 percent stake in Teletech Corporation and has

demanded two seats on the firm’s board of directors. The purchase was

revealed yesterday in a filing with the Securities and Exchange

Commission, and separately in a letter to Teletech’s CEO, Maxwell

Harper. “The firm is misusing its resources and not earning an

adequate return,” the letter said, “The company should abandon its

misguided entry into comput-ers, and sell the Product and

Systems Segment. Management must focus on creating value for

shareholders.” Teletech issued a brief statement emphasizing the

virtues of a link between com-puter technology and

telecommunications.

TELETECH CORPORATION, 1996

Margaret Weston, Teletech’s chief financial officer, learned of

Yossarian’s letter late one eveing in early January 1996. Quickly

she organized a team of lawyers and finance staff to assess

the threat. Maxwell Haper, the firm’s CEO, scheduled a

teleconference meeting of the firm’s board of directors the next

afternoon. Harper and Weston agreed that before the meeting they

needed to fash-ion a response to Yossarian’s assertions about

the firms’s returns.

Ironically, returns had been the sub-ject of debate within

the firm’s circle of senior managers in recent months. A

num-ber of issues had been raised about the hur-dle rate used by

the company in evaluating performance, and in setting the

annual capital budget. Since the company was ex-pected to invest

nearly $2 billion in capital

Wall Street Daily News, January 9, 1996

projects in 1996, gaining closure and consensus on these issues had

become an important priority for Margaret Weston. Now, Yossarian’s

letter lent urgency to the discussion. In the short sun, she needed

to respond to Yossarian. In the long run, she needed to assess the

competing viewpoints, and recommend new policies as necessary. What

should be the hurdle rated for Teletech’s two business segments? Was

the Products and Systems segment really paying its way?

The Company

Teletech Corporation, headquartered in Dallas, Texas, defined itself

as a “provider of integrated information movement and management,”

The firm had two main business segments: Telecommunications Services

and Products and Systems, which manufactured computing and

telecommunications equipment. In 1995, Telecommunications Services

had earned a return on capital(ROC) of 9.8 percent; Products and

Systems had earned 12.0 percent. The firm’s current book value of net

assets was $16 billion, consisting of $11.4 billion allocated to

Telecommunications Services, and $4.6 billion allocated to Products

and Systems. An internal

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