Sealed Air Corporation’s Leveraged Recapitalization
Was it a good idea to undertake a leveraged recapitalization in the context of its changing environment? Sealed Air had traditionally neglected manufacturing in favour of marketing, they were able to do this because of a lack of competition, however mid-1980s increased competition and expiring patents on products. Sealed Air reacted to this increasing competition by introducing the WCM-World Class Manufacturing program which promoted manufacturing excellence. This increased SA’s cash and debt capacity. Competitors were marketing cheap imitations of SealedAir’s products by inventing around SA’s manufacturing process patents. Sealed Air Corporation’s leveraged recapitilization was a good idea in the context of its changing competitive environment as the company had reached a stage in the mid-1980s where competition was increasing as other competitors started to produce the products that were previously patented by the company such as the air cellular patent which had expired. Competitors were producing the products previously patented by Sealed Air in abundance and were selling them for a cheaper price. The company specifically faced increasing competiton in Europe as prior to the mid-1980s Sealed Air was unable to secure a strong position with patents and distributors that would allow them to take advantage of their innovative products for a much longer period of time. 1989- stock price seemed to be undervalued, it was depressed and did not seem to be improving in the near future. Sealed Air had a problem with managing their cash, Sealed Air had 50 million in cash and short term investments and the cash on hand as stated in the case was expected to double in the next year. Reason stock was undervalued was because Sealed Air had alot of free cash flow which tempted the company to waste money. Excess free cash flow arises when the company has more free cash in excess of that needed to fund the company’s...
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