Sealed Air Question Guide
FIN 5439 Capital structure and risk management Case study #4: Sealed Air Corporation
The following questions refer to Sealed Air Leveraged Recapitalization (A) case (Harvard case #9‐294‐
122), and they are meant to guide your analysis of this case. Please make sure your case write‐up addresses all of the questions. Your write‐up should be 4‐6 pages, plus exhibits (such as worksheets). It is due at the beginning of class on April 8th, 2014. Suggested readings that may enhance your understanding of this case are:
Chapter 14 on Distributions to Shareholders in Brigham and Ehrhardt, Financial Management: Theory and Practice
Chapter 15 on Capital Structure Decisions in Brigham and Ehrhardt, Financial Management: Theory and
Practice.
“Agency costs of free cash flow, corporate finance and takeovers”, Michael C. Jensen, American
Economic Review, 76, 323‐329, 1986. 1. Why did Sealed Air undertake a leveraged recapitalization? Do you think that it was a good idea?
For whom? 2. How much value was created? Where did it come from? 3. Is pursuing a program of manufacturing excellence such as World Class Manufacturing (WCM) inconsistent with “levering up”? 4. Why did Dermot Dunphy, the CEO, feel it was necessary to change the company’s priorities and incentive structure following the recap? 5. Why did Sealed Air’s investor base turnover completely after the recap? Is this something managers should be concerned about? 6. Was the constraint imposed on capital expenditures under the bank lending agreement good or bad for the company? Do you think managers will be able to successfully renegotiate the covenant? 7. Would such an increase in leverage be good for all companies? Why or why not?
The following questions refer to Sealed Air Leveraged Recapitalization (A) case (Harvard case #9‐294‐
122), and they are meant to guide your analysis of this case. Please make sure your case write‐up addresses all of the questions. Your write‐up should be 4‐6 pages, plus exhibits (such as worksheets). It is due at the beginning of class on April 8th, 2014. Suggested readings that may enhance your understanding of this case are:
Chapter 14 on Distributions to Shareholders in Brigham and Ehrhardt, Financial Management: Theory and Practice
Chapter 15 on Capital Structure Decisions in Brigham and Ehrhardt, Financial Management: Theory and
Practice.
“Agency costs of free cash flow, corporate finance and takeovers”, Michael C. Jensen, American
Economic Review, 76, 323‐329, 1986. 1. Why did Sealed Air undertake a leveraged recapitalization? Do you think that it was a good idea?
For whom? 2. How much value was created? Where did it come from? 3. Is pursuing a program of manufacturing excellence such as World Class Manufacturing (WCM) inconsistent with “levering up”? 4. Why did Dermot Dunphy, the CEO, feel it was necessary to change the company’s priorities and incentive structure following the recap? 5. Why did Sealed Air’s investor base turnover completely after the recap? Is this something managers should be concerned about? 6. Was the constraint imposed on capital expenditures under the bank lending agreement good or bad for the company? Do you think managers will be able to successfully renegotiate the covenant? 7. Would such an increase in leverage be good for all companies? Why or why not?