Unicord PLC: The Bumble Bee Decision
A Thai based company established in 1978, Unicord’s main business involved the processing and canning of fresh tuna which were marketed worldwide.
The global tuna industry consisted of tuna fishing as well as canning. Worldwide, the United States was the largest importer of canned tuna.
In order to break into the US market and avoid costly tariffs Unicord acquired US based tuna company Bumble Bee for an amount that stretched the company’s financial solubility thin.
Once Unicord had entered the US market it was faced with external and internal challenges that included controversial fishing techniques, cultural barriers between US and Thai management, aggressive price wars in the US market, the tuna-dolphin controversy and division on major corporate decisions by top Thai management.
Due to Unicord’s inability to steer around these challenges the company fell into receiver ship in 1995.
The following case analysis will attempt to present the most feasible solution to the problem of how to resuscitate Unicord from its present state.
The recommendation includes the purchase and reorganization of Unicord by a private equity investment firm in order to make the necessary changes to allow Unicord to become a profitable company once again.
What feasible ways can be used to resuscitate Unicord. Although few options are still available, first we need to clearly establish what had gone so terribly wrong with Unicord in so short a time. A sophisticated grasp of events will be necessary.
Unicord’s logic underlying the acquisition of Bumble Bee was to successfully counter growing trade protectionism imposed by United States which had its own tuna processors. Barriers to competition existed in various forms: tariffs, import duties, and quotas as well as environmental and food safety standards. The tuna processors in Thailand perceived these barriers to be a significant competitive hurdle that needed to be overcome in the United States.
In evaluating Unicord’s acquisition of Bumble Bee, the logic was very sound strategically. Unicord would gain better access to its largest market (the United States), and secure a buyer for its tuna. Unicord would also be closer to its goal of owning facilities on all five continents. It would be less exposed to market fluctuations and could better secure its future. The Bumble Bee acquisition would make Unicord the world's biggest tuna canner, increasing the prestige of Unicord's owners and decision-makers, and even the Thai people.
Financially, it was pushing the limits of Unicord’s financial solubility. Thailand’s economic boom masked this fact making it feasible for the deal to go through.
After Unicord’s acquisition of Bumble Bee, the focus changed from simply having access to the US market to aggressively increasing market share and making Bumble Bee number one.
Of the factors that lead to Unicord’s demise some were controllable and some were not.
The factors that were uncontrollable by Unicord were:
1. The tuna-dolphin controversy not only had reduced profit margins but also fuelled a noticeable decline in tuna consumption in United States. These outcomes further intensified rivalry in a commodity industry.
2. In 1992, the U.S. per capita consumption of canned tuna continued to fall; it had dropped approximately 15% over the last three years. In a commodity industry, this was a significant drop.
3. In anticipation of price wars, many brokers had bought canned tuna in bulk for redistribution. When tuna prices increased, only the brokers benefited because all profits were essentially redistributed from tuna canners to middlemen.
4. The Bangkok Bank insisted Unicord repay its $113 million debt by the end of 1995. As a result, the company’s shares fell to a low of 5.80 bahts. These events collectively intensified the tremendous...