Loewen/Sci Case

Satisfactory Essays
Topics: Stock, Stock market
The Loewen Group Case
Service Corporation International (SCI) has made an offer to purchase Loewen Group. The offer consists of paying $43 per share in a tax-free transaction. The total number of common shares at year end in 1995 (in thousand) are 48,168. The cost of purchasing Loewen would be $43 x 48,168 (in thousand) = $2,071,224,000. The total amount of equity and debt for Loewen Group is approximately $3B. This includes the total non-current liabilities at approximately $1.15B.

What is the Loewen Group really worth? This will be calculated by the following formula:

Value= Income/ Risk-Growth

The operating expenses of Loewen are approximately $117,000*.

Given that shareholders expect a high return on equity, it would be safe to assume there is a high level of risk with this deal at 20%.

Also, what growth prospects does Lowen have? Based on GDP averages, and the fact that death rates are increasing, a 3% growth rate is reasonable.

Therefore, we can calculate:
Value= $117,000*/20%-3%
Value approximately $500,000*

At this point the return on investment for SCI would be about 5.2%. Although this return is not horrible, SCI shareholders are accustomed to a return on equity of approximately 10%.

The share price of $43 peer share divided by EPS for SCI of $1.70 results in a P/E ratio of 25. Therefore, the share price for SCI would be X/1.70 = 25, which results in a share price of $42.5. The current share price of SCI is at $33.17 therefore the investment would increase shareholder value by $9.93 per share.

Because the company is earning $117,000* and it is costing $3B* to purchase, due to the high risk nature of the deal at 20%, Loewen would be ridiculous to NOT take the deal being offered by SCI.

* (US$000’s)
Strategic Management 8th Edition, A casebook IVEY by Crossan et.

You May Also Find These Documents Helpful

  • Powerful Essays

    Loewen Case

    • 1942 Words
    • 5 Pages

    Loewen Group Over the last two decades Loewen Group, a death care provider, had been growing by acquiring small independent funeral homes and cemeteries in densely populated areas but in recent years the company had also acquired several large established funeral chains. Over the last five years alone, Loewen had embarked on an aggressive growth strategy which accounted for consolidated revenues’ growth of nearly 30% a year on average from $303 billion to over $1.1 billion. This growth through…

    • 1942 Words
    • 5 Pages
    Powerful Essays
  • Better Essays

    Loewen

    • 920 Words
    • 3 Pages

    The Loewen Group Memo To: Ray Loewen From: Dave Bassel cc: Professor Date: Re: SCI offer Dear Ray, Thank you for the opportunity to share my analysis with you regarding this most important topic. After giving careful consideration to the SCI offer and analyzing the bid from the view point of all Loewen stakeholders, I believe a rejection of the SCI offer is clearly warranted. We need to consider the long-term implications this would have on our stakeholders. Would they be better or worse off…

    • 920 Words
    • 3 Pages
    Better Essays
  • Satisfactory Essays

    Loewen

    • 919 Words
    • 3 Pages

    The Loewen Group Inc. (Abridged) Case Summary After decades' dramatically expansion, the Loewen Group Inc, the second largest death care company in North America, went downhill abruptly in 1998. Compared with those in 1997, its net income decreased from $42.7 million to $599 million in deficit, meanwhile, its long-term debt due in one year increased by more than 2000%, from $43.5 million to $874.1 million, and total liabilities exceeded the total assets by $326.8 million (in US dollar). Because…

    • 919 Words
    • 3 Pages
    Satisfactory Essays
  • Powerful Essays

    Loewen Group Case Study

    • 1452 Words
    • 6 Pages

    Executive Summary of Case External Environment Analysis Opportunities Threat of new entrants: The barriers to entry are high due to high fixed costs, lack of history in the local community, zoning regulation, and "not-in-my-back-yard" protests. Power of suppliers: Funeral consolidators such as Loewen group can put a great deal of pressure on suppliers to reduce prices. Power of buyers: The funeral home is usually the buyers first point of contact, therefore the funeral home…

    • 1452 Words
    • 6 Pages
    Powerful Essays
  • Powerful Essays

    Loewen Group

    • 2542 Words
    • 11 Pages

    The Loewen Group Inc. Case Report – Session 3 Group 6 Executive Summary This report provides a qualitative analysis of the Loewen case study, starting from the excessive debt policy used in its expansion and ending with huge debt ratios and bankruptcy. The analysis includes the effect of the company’s policy and the financial distress it caused and results of such a financial condition. Method of Analysis: For the analysis we have used the historical financial data of the company, the…

    • 2542 Words
    • 11 Pages
    Powerful Essays
  • Good Essays

    Case Summary of the Loewen Group Inc Summary: The Loewen Group inc., headquartered in Burnaby, British Columbia, is the second largest funeral service company in North America. Loewen operated and owned over 1100 funeral houses cross every corner of the world and more than 400 cemeteries in U.S. and Canada. By acquisitions in last twenty years, Loewen has been grown explosively. Just before the time the company went to bankruptcy, the company’s consolidated revenue had grown 30 percent per year…

    • 468 Words
    • 2 Pages
    Good Essays
  • Good Essays

    The effects of social class in America James W. Loewen, essay “The Land of Opportunity,” discusses how many times Americans don’t know about social classes and the effects they have on society. Loewen argues that the common American people aren’t given equal opportunity in this day in age. He says that American history books have great influenced what we see about the class system because a great deal of history is often left out. James Loewen begins “The Land of Opportunity” by saying that teenagers…

    • 990 Words
    • 4 Pages
    Good Essays
  • Powerful Essays

    9-201-082 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…

    • 9053 Words
    • 37 Pages
    Powerful Essays
  • Better Essays

    SCI case study

    • 731 Words
    • 3 Pages

    1. Why did Allen’s heart rate and blood pressure fall in this time of emergency (i.e. at a time when you’d expect just the opposite homeostatic response)? Pg. 969 This occurred because Allen’s spinal cord has decreased perfusion due to damage, and a broken vertebral bone. Also, there has been a disruptions of the sympathetic fibers of his autonomic nervous system therefore it can no longer stimulate the heart. Allen likely has spinal shock. 2. Upon admission to the hospital, Allen’s breathing…

    • 731 Words
    • 3 Pages
    Better Essays
  • Powerful Essays

    Financial Report of Loewen Group Inc. The Loewen Group Inc. was founded in 1969. The company has two major headquarters in North America, one in Burnaby, British Colombia and a second in Cincinnati, Ohio. Loewen Group Inc. (L.G.I.) is the largest funeral services enterprise in Canada and is the second largest company in the North American Funeral Services Industry. L.G.I. owns 918 funeral homes and 269 cemeteries and also engages in the pre-need selling of funeral services including cemetery…

    • 3858 Words
    • 16 Pages
    Powerful Essays