Case2-Loewen Group-Capital Structure

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REV: MARCH 4, 2002

op yo The Loewen Group, Inc. (Abridged)

In March 1999, John Lacey and the management team at the Loewen Group, Inc., had to decide what course of action to take in light of the company’s imminent financial difficulties. On
January 22, 1999, Lacey, a renowned turnaround specialist, was appointed chairman of Loewen, the second largest death care company in North America. Headquartered in Burnaby, British Columbia,
Loewen owned over 1,100 funeral homes and more than 400 cemeteries in the U.S. and Canada; it also owned 32 funeral homes in the United Kingdom. The company had come a long way since its modest beginnings in Canada, where Ray Loewen, the founder (and, until recently, chairman and
CEO), started out helping his father run the family funeral business in the late 1950s. During the last two decades, Loewen Group had grown explosively, mainly by acquiring small independent funeral homes and cemeteries in densely populated urban markets; in recent years the company had also acquired several large established funeral chains. Over the last five years alone, consolidated revenues had grown by nearly 30 percent a year, on average, from $303 million to over $1.1 billion.

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Despite its impressive growth, the company faced a major financial crisis. It lost $599 million for
1998, compared to earning $43 million the previous year. Loewen’s on-going acquisitions program had been aggressively financed with debt. At year-end 1998, total debt stood at more than $2.3 billion—more than seven times the amount outstanding five years earlier. Loewen’s common stock, which was simultaneously traded on the New York, Toronto, and Montreal stock exchanges, had ended the year at around $8 in New York, down from roughly $40 at the end of 1996.

Do

No

Confronted with the company’s mounting difficulties, in October 1998 the Board of Directors replaced Ray Loewen as CEO; soon thereafter, with the appointment

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