Some of the symptoms of this case are:

1. How to finance the two ships from china (GSI)?

2. Rejected bid for Fjell
3. Should we only buy open stern ships or is there any other market opportunity
available?

The core problems that we have identified are:

1. Price negotiation with KJVG.

2. Lack of equity of Fairstar to fund future buys.
3. Uncertain share price of Fairstar.

In price negotiation table, Adkins was asked to put his best price. In this scenario we have
analyzed different alternatives and future projects for Fairstar and devised a three-fold
“gain, grab and gather” strategy that Fairstar should consider before making price offer.

The Gain Strategy

The 1st fold of the strategy “gain” looks for the best pricing model that Adkins should go for
the suits Fairstar most not only in their current project but also in their future projects. Here
we look for best options for Adkins to make that could gain his company the most. The
alternate options that Fairstar could go for here are:

Alternate option-1:

To be open to price offering under $95,000.

Pros:

1. Most importantly the share price of Fairstar would be in an all time high which
would help us in the future “grab” strategy

2. This will be a gesture of good will as Fairstar will be doing increasingly more business
with KJVB and would be a step towards that goal.
 3. 1.8 million dollars that Fairstar would be losing on this won’t be much if we look at
the bigger scheme of things of potentially losing out the contract.

Cons:

1. KJBV was not looking for the lowest bidding price when they chose for contractors.
There’s a chance that Fairstar is making this price drop unnecessarily when they
don’t really have to.

Alternate option: 2

To make offer price offer of more than $95,000

Pros:

1. The only ships that can replace Fjord who have equal or more deadweight tonnage
than it is the 4 open stern ships of Interex Meglaline, Guangzhou Salvage and
COSCOL (Exhibit 10). But all of them are under construction and so there’s a certain
level of uncertainty about them.
2. Fairstar certainly has the expertise and experience to make this price offer along
with environmentally friendly ships which is very necessary for this project to
happen.

Cons:

1. Further increasing the price from the originally claimed $95,000 would mean there’s
chance that Fairstar could lose the contract altogether which would be disastrous
not only for this project but any future prospect of Fairstar as share price of Fairstar
would drop drastically.
2. Token of good gesture and the trust factor will be damaged as it is surpassing the
initial offer of 95,000 $. Trust will be a valuable factor in hand as they are doing
business for a long exposure of time and would need to co-operate with each other.
Final recommendation for price negotiation

With the drastic decrease of share price, our future recommendation which will be
discussed in the grab strategy will be hampered if this deal does not happen. Even though
the chances of this deal not happening is very low, but Fairstar should do everything in their
power to make it happen. So we are recommending Adkins to begin the price offer with
95,000$. But he can go low as their base price for Fjord, that is $80,000. Because Fairstar
could lose everything here, but the scope of the gain also very high. So we are
recommending Fairstar to go for the gain down to the base price of $80,000.

The Grab Strategy

Our “grab” strategy will look for potential solution of financing the two new ships in China
(GSI) in order to capture the lucrative market of 11 future LNG projects in the upcoming
years.

Fairstar has already an equity of 100 million and the new contract would boost its cash flow
by another 23 million to 31.5 million dollars depending on the amount of time the gorgon
project lasts. So the company needs another 79 million to 70.5 million dollars to finance the
two new ships.

In this ‘’grab” strategy we will try grab the upcoming businesses by beginning construction
of this two new ships immediately by providing 2nd public offering for the company after
ensuring the gorgon contract. After the gorgon contract, the share price of Fairstar will be
higher than ever and it will grab this opportunity by going public for financing this two new
ships. The current share price of Fairstar is around $14 (exhibit-11), and the total number of
shares for the company is around 72 million (exhibit-4). So in order to finance the new
project the company and also to capitalize the good condition of the share price of the
company, Fairstar will release 6 million new shares in the market to create the funding of
the new ships. We are hoping that the the price of the share will be anywhere from 16
dollars to 18 dollars. Assuming that the price of the share will be $17, we will have
additional fund of 102 million taking our total equity to 225 million to 233.5 million dollars
which would enable us to finance the two new ships as well as have some left over money.

We would recommend Fairstar to use Fjell in the business as soon as possible by accepting
the offers that they were declining within the waiting time period for the gorgon project.
This would increase its time utilization rates and further ensure the cash flow of the
company.
The Gather Strategy

The on and off shore module industry has 15 % average growth rate from 2009 (exhibit- 3),
making it the most lucrative market for the any heavy lift vessel company. On the other
hand, there are in total 18 ships which can cater to these high growth rate results (open
stern and non submersible flat deck). After the two new open stern ships, the new fleet of
Fairstar would have 4 of this ships making it a large contender for grabbing this market. But
in order to be one stop solution for the module shipping industry Fairstar need to have
flexible fleet which can cater to the needs of the customer.

So we are recommending that after the gorgon project and the construction of the two
open stern ships finish, Fairstar begin construction on a non-submersible flat deck carrier.
To be absolutely sure of this, Fairstar could employ a market research firm to analyze the
demand of “low cargo capacity module vessels” in the market and after that make the
decision of beginning constructing.

The pro point for this recommendation are:

1. Non-submersible flat deck carrier can only ship “modules and other” of the shipping
industry making it very module centric which can cater to the current need of the
industry and Fairstar.
2. It’s pricing power and cost is relatively low making it lucrative towards one portion of
the module customer who are looking for this kind price along with the expertise of
the Fairstar.
3. By buying this product, Fairstar is basically targeting a large portion of the customer
at various price point and at various Cargo capacity.
4. And open stern vessel is pretty unnecessary if the module is small because it can
carry load of much higher capacity (exhibit-7). So to cater to those need of small
sized cargo load, this kind of vessel is a must.
5. Some of the customer may need expertise and a non-submersible flat deck carrier to
carry their modules, that is low weight cargo up to 14,000 but the most experienced
company Dockwise do not have this kind of ship, and the companies that do are
relatively new and do not have that expertise level of Fairstar (exhibit-8). So this
would be an opportunity for Fairstar to grab this vacuum in the market.

So buying a non-submersible flat deck carrier would mean that Fairstar would take the
market opportunity of low load, high expertise module carrier service which would not be
possible if they had only the open stern vessels. Fairstar would finance this buy by the
additional fund that will be available after the two new open stern operate in the market.
Ultimately Fairstar would gather this two type of ships to cater to this highly lucrative
market.
The Timeline

May 18,2010 - Finalize the Fjord deal with KJBV.

May/June 2010 - 2nd public offering of Fairstar releasing altogether 6 million new shares.

June 2010 – Green-light the project of building two new vessels with (GSI) in china.

July-December 2010- Look for opportunities to employ Fjell in the industry to increase it’s
utilization rate

May 2012- Gorgon project begins

January 2013- Employ a market research firm to analyze the demand of low cargo capacity
module carriers in the market, that is the non submersible flat deck ships.

May/September 2013 - Gorgon project ends.

June 2013- Begin constructing low submersible flat deck carriers after becoming sure of the
prospect.