Sealed Air Corporation's Leveraged Capitalisation

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HBS Case Study No. 9-294-122
Strategic Financial Management. Dividend Policy related

Sealed Air Corporation' s Leveraged Capitalisation (A)
Sealed Air undertook a leveraged recapitalisation in order to provide funds necessary to pay •the special dividend,
refinance certain existing indebtedness,
pay related fees and expenses and
provide working capital
A leveraged recapitalisation by Sealed Air Corp in our opinion was a good idea because the corp. has reached a stage where they have adequate manufacturing capacity to meet the demand for its products during the next several years without significant additional capital expenditure. Moreover they have generated more than sufficient cash flow from the operations to support the growth of their operations and capital expenditure. The recapitalisation of corp. is good for both the organization as well as the investors. By using the leveraged recapitalization the management created a crisis that disrupted the status quo and promoted internal change, which included establishing a new objective, changing compensation systems, and reorganizing manufacturing and capital budgeting processes. It gave the firm and the employees the opportunity to analyze the concept of free cash flow, its effect on stock market prices and firm value, and the disciplinary role of high leverage. For the investors it is good because the special dividend payout would give them the amount which they can invest in some other growth stock and expect a good return which the Sealed Air Corp is not able to give in the present scenario and still be a part of the firm by holding the stocks of the firm. After a leveraged recapitalisation the management’s priority was to put the their customers first and a their cash flow objective was redefined in such a manner that it took care simultaneously to increase sales and margins, have less inventory, less capital expenditure and faster collection. World class Manufacturing would help the...
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