Minnesota Micromotors, Inc. (MM), based in Minneapolis, was a manufacturer of brushless, direct current (BLDC)1 motors used in orthopedic medical devices. Devices utilizing MM’s motors were typically used by orthopedic surgeons in large bone surgery, reconstructive surgery, trauma surgery, and sports medicine procedures. MM sold approximately 97,000 motors a year and had a 9% share of the $137 million U.S. medical motor market for orthopedic and neurosurgery devices. (See Exhibit 1A.) MM was a division of privately held Fractional Motors Limited, which had revenues of $350 million (just over $12 million, or 3%, generated by MM) and 1,300 employees (45 employed by MM). MM’s revenues had been growing in line with the industry average rate of 5.5% over the prior threeyear period; however, the most recent quarterly financial data showed a decline in revenue. Although senior management was pleased that MM had just turned a modest profit after several years of losses, there was concern about recent potential market share loss. The BLDC motors in which MM specialized offered several advantages over brushed DC motors, including greater efficiency and reliability, less noise, longer lifetime (no brush erosion), and relatively lower electromagnetic interference. Given that a BLDC motor required no airflow for cooling, its internal components could be entirely enclosed and protected from dirt. BLDC motors were better suited to applications needing a wide speed range — for example drill systems, used in orthopedic bone surgery that must perform at 10,000 to 95,000 revolutions per minute. Fractional Motors viewed MM as a strategic division in its corporate portfolio because of the long-term growth potential in high-end medical and orthopedic devices markets. The segment of the motor industry in which MM operated was highly competitive, with over 100 participants.…