Florida Atlantic University
Professor: Dr. Hemant Merchant
February 15, 2010
Dr. Juanjai Ajanant, a special advisor to Unicord PLC’s board, has been tasked with deciding the best strategy to take Unicord out of receivership. Unicord, as a relatively young company, was a leading tuna processor and one of the “shining stars” of Thailand. As a top tuna exporter, the company had shown year over year growth since its inception in 1978. It appears that their challenges began soon after the purchase of Bumble Bee in 1991. In four short years, Unicord quickly spiraled downward and seemingly out of control. By 1995, the founder and CEO, Dumri, was challenged by surging debt, plummeting share value, significant losses, creditors demanding repayment and falling per capita consumption; faced with these failures, Dumri committed suicide. Without a CEO and VP of Finance providing direction, Dr. Ajanant must determine the causes for the rapid demise of such a promising company and identify what information he needs to decide if a turn-around strategy is possible. Fundamental Causes
The two primary reasons for Unicord’s demise were the acquisition of Bumble Bee along with its deal structure and the dolphin controversy. A secondary cause was related to their senior leadership. Although, leadership can be an ambiguous cause, there were some senior level decisions and management style that accelerated the downfall. Without the acquisition of Bumble Bee, Unicord could have been a healthier and stronger company today. From a strategic perspective, the acquisition made sense given Unicord’s growth stage and the state of Thailand’s government and economy. The problem began with the purchase price and the structuring of the debt. Unicord was permitted to purchase a company twice its size because Chase Manhattan and Sutro banks were responding to Thailand’s economic momentum. All parties were hedging their bets that the conditions were perfect for continued growth to cover the debt even though the American tuna industry was based upon high volume and low profitability. Thailand demonstrated its willingness to embrace free market ideals, the baht was gaining value and Thailand’s inflation was decreasing. The Thai government wanted global investment and had recently relaxed financial restrictions and deregulated their financial sector. With Thailand’s Board of Investment’s approval, the deal was structured in US dollars. By the middle of 1994, the baht was loosing its strength, forcing creditors to demand a restructure because the debt was quickly becoming un-serviceable. In 1995, Bangkok Bank required repayment of its $113 million by year end. Prior to the Bumble Bee acquisition, Unicord, as a supplier, was sheltered from the tuna-dolphin controversy and boycotts that had existed for years. At the height of the controversy, in 1990, Bumble Bee admitted to lying to and deceiving the public by labeling its cans as “dolphin safe” when their processes were still six months away from actually delivering truly dolphin free tuna. The damage to the brand and the industry resulted in reduced profit margins and a dramatic decline in US consumption, thereby increasing the US rivalry. Bad decisions by Unicord’s senior leadership magnified the problems. To recover from Bumble Bee’s dolphin controversy, Dumri, aggressively cut prices to increase market share. When Unicord’s market share increased, he invested additional money to increase Thai production. Dumri was short sighted in realizing that he was potentially gaining ground in a shrinking market where actual per capita consumption continued to fall. In 1992, Bumble Bee lost $40 million most likely from pricing its products lower than its production cost. By 1993, the debt surged to $200 million. In July, when financial leadership was most needed, Unicord’s VP of...