Desert Partners Case Summary
. How should Day respond to Desert Partner's tender offer?
Day has to think in terms of maximizing shareholder value. Day should reject the offer and here is why
USG has been a takeover target in the past driven by its steady cash flow, low operating costs, strong market share and thought to be undervalued by many analysts.
Any take over is possible for the right price if at all rejecting the takeover bid will strengthen USG's negotiation strategy and encourage the tendering company to increase their price. The bid was considered to be unsolicited, coercive and inadequate.
Desert Partners has indicated a willingness to increase their tender offer to $50.00 per share in cash, debt, and stock. This change is not official and we feel that this makes their true intentions uncertain. …show more content…
Day should weigh the value to shareholders under both plans and decide which one will give the best shareholder benefit.
Is the proposed recapitalization the best response?
There are two answers to this question. USG's board debated a number of alternatives. They considered repurchasing additional stock, selling equity to a friendly third party or selling the entire company to a friendly acquirer. In fact, U.K. based BPB industries was a possible White Knight".
However, analysts have also drawn attention to the fact that the proposed recapitalization would burden the company with debt, forcing it to sell profitable business units. USG will go from a company that is virtually debt-free to one overburdened by leverage. This decision will saddle the company with more than $3 billion in debt and high interest payments. Although, we must not forget that the higher debt will also reward USG with a substantial tax shield.
The recapitalization is intended to provide shareholders with a significant distribution of cash and securities and permit them to retain their proportionate long term equity interest in the
Day has to think in terms of maximizing shareholder value. Day should reject the offer and here is why
USG has been a takeover target in the past driven by its steady cash flow, low operating costs, strong market share and thought to be undervalued by many analysts.
Any take over is possible for the right price if at all rejecting the takeover bid will strengthen USG's negotiation strategy and encourage the tendering company to increase their price. The bid was considered to be unsolicited, coercive and inadequate.
Desert Partners has indicated a willingness to increase their tender offer to $50.00 per share in cash, debt, and stock. This change is not official and we feel that this makes their true intentions uncertain. …show more content…
Day should weigh the value to shareholders under both plans and decide which one will give the best shareholder benefit.
Is the proposed recapitalization the best response?
There are two answers to this question. USG's board debated a number of alternatives. They considered repurchasing additional stock, selling equity to a friendly third party or selling the entire company to a friendly acquirer. In fact, U.K. based BPB industries was a possible White Knight".
However, analysts have also drawn attention to the fact that the proposed recapitalization would burden the company with debt, forcing it to sell profitable business units. USG will go from a company that is virtually debt-free to one overburdened by leverage. This decision will saddle the company with more than $3 billion in debt and high interest payments. Although, we must not forget that the higher debt will also reward USG with a substantial tax shield.
The recapitalization is intended to provide shareholders with a significant distribution of cash and securities and permit them to retain their proportionate long term equity interest in the