The Loewen Group Case
The Loewen Group is the second largest death care company in North America. In 1999, it has owned over 1100 funeral homes and more than 400 cemeteries in the U.S and Canada through aggressively acquiring other small independent companies in densely pullulated urban markets. Loewen’s revenue and profits experienced explosive growth in early 1990s since its synergy strategy succeeded over years. However, its acquisition expansion were heavily financed in debt, bringing huge pressure on payments of interests and matured principals. What is worse, under the low death rate circumstances, Loewen Group’s business performed not as well as expected in 1997 and 1998. As a result, its stock price dropped to $1.93 and bond rate was lowered to B-. Due to aggressive leverage acquisitions, Loewen Group grew quickly through early 1990s. First of all, Loewen’s gross margin and net profit margin did not decrease with hundreds of acquisitions though the whole industry is fragmented. At the same time, Loewen’s revenue and net profit increased annually by 47% and 49% (Exhibt) respectively proving that the synergy strategy had succeeded through controlling the fixed cost and variable cost. It could also make full use of the utilities and gain potential bargain for material from suppliers. Second, the method of financing was the key to acquire companies and got growing. From 1989-1995, Net proceeds from financing increased almost 80% percent annually, giving the company enough funds to acquire and expand. Therefore, with the two reasons explained above, the company grew fast during early 1990s. Although Loewen had a sweet time through crazy acquisition, it left hidden danger. Suddenly, the situation stood opposite and the company met tremendous troubles. First of all, Loewen paid $165 million dollars to settle lawsuits in 1996 resulting a negative net income. Then, with the death rate lower during 1997 and 1998, Loewen’s revenue did not increase as fast as...
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