Preview

finance

Powerful Essays
Open Document
Open Document
5327 Words
Grammar
Grammar
Plagiarism
Plagiarism
Writing
Writing
Score
Score
finance
Harvard Business School

9-297-052
Rev. July 12, 1997

USG Corporation
On May 2, 1988, USG Corporation, the world's largest gypsum producer, announced that the board of directors had approved a recapitalization plan. According to the plan, USG would exchange each outstanding share of common stock for $37.00 in cash, $5.00 in stated face amount of
16% junior subordinated pay-in-kind debentures, and one share in the newly recapitalized company.
Robert Day, USG’s Chairman and CEO, said the plan "is consistent with our commitment to maximize value for the shareholders while at the same time leaving them with an ongoing equity stake."1 On the day of the announcement, the stock price closed at $41.50, up $0.50. Before the board could implement the recapitalization, shareholders would have to approve it at a special meeting on
July 8, 1988.
The recapitalization, however, was not the only option available to shareholders. Desert
Partners, a Texas-based takeover group, had an outstanding tender offer for $42.00 per share in cash due to expire on June 10, 1988. In a publicly disclosed letter to the board, they had indicated a willingness to increase their offer to $50.00 per share in cash, debt, and stock, but had not officially changed their tender offer. Prior to the expiration of the tender offer, shareholders had to decide whether to tender their shares to Desert Partners or wait and vote for the proposed leveraged recapitalization plan in July.

Company History
In 1901, thirty-five gypsum companies consolidated to form the USG Company. The resulting entity controlled 50% of the highly competitive and price-sensitive gypsum market. Due to its size, USG had scale advantages in manufacturing and transportation which kept its costs low and helped it survive the Depression. Since its creation, USG had been a vertically integrated company with a commitment to product diversification. It grew steadily from the 1940s through the 1980s by
expanding

You May Also Find These Documents Helpful

  • Good Essays

    Mat 540 Quiz

    • 649 Words
    • 3 Pages

    | During the year, 10,000 shares of common stock with a stated value of $20 a share were issued for $41 a share.410,000…

    • 649 Words
    • 3 Pages
    Good Essays
  • Powerful Essays

    Padgett

    • 1121 Words
    • 11 Pages

    request for an additional $3.6 million to make the acquisition. Given the short notice, the…

    • 1121 Words
    • 11 Pages
    Powerful Essays
  • Satisfactory Essays

    The preferred stock was issued for land having a fair market value of $296,000.All common stock…

    • 2191 Words
    • 11 Pages
    Satisfactory Essays
  • Satisfactory Essays

    Case 3 Compensation

    • 213 Words
    • 1 Page

    the reduction in the exercise price, Murray also changed the vesting terms, such that the…

    • 213 Words
    • 1 Page
    Satisfactory Essays
  • Good Essays

    4. Why would institutional investors be willing to …nance a leveraged buyout with the capital…

    • 634 Words
    • 3 Pages
    Good Essays
  • Better Essays

    Macys vs Nordstroms

    • 2857 Words
    • 12 Pages

    g. The stock price at the end of the 2010 fiscal year was $22.99(Jan 28, 2011) compared to $15.93 at the beginning of the fiscal year (Jan 29, 2010). Company stock was at a low point at the beginning of the 2010 fiscal year. It reached its peak value of $23-$24 around April-May 2010. The stock reached a low point of $17 around mid-July. By early November it reached $25-26. It was quite stable from November to the…

    • 2857 Words
    • 12 Pages
    Better Essays
  • Powerful Essays

    Owens Corning Fiberglass

    • 1316 Words
    • 6 Pages

    Leveraged recapitalization is the easiest way to change the capital structure of the company if the company can ensure the interest payments of the debts. Although value flows from higher leverage, the firm will be restricted by bond covenants that prohibit the firm from taking certain kind of projects or impose huge penalties if it undertakes certain initiatives. Increasing debt ratio may reduce the cost of capital of the firm overnight but it changes the nature of the firm. Managers who are accustomed to operating in a low stress environment of a predominantly equity financed firm will have to adjust quickly to the cash flow demands of the highly levered firm. It may bring in discipline on the part of management in risk assessment and project selection. But it also brings in decision paralysis for managers who may not want to undertake slightly risky projects at all for the fear of default. The need to make interest and principal payments of the debt will induce managers to undertake projects that have…

    • 1316 Words
    • 6 Pages
    Powerful Essays
  • Good Essays

    Acct 505

    • 743 Words
    • 3 Pages

    Answer – Based on facts given in the case, new internal control requirements that are needed for the company to go public are listed below…

    • 743 Words
    • 3 Pages
    Good Essays
  • Better Essays

    Loewen

    • 920 Words
    • 3 Pages

    to determine that the bid doesn’t offer our shareholders any real premium. SCI’s characterization of its offer as being 49% above where our stock traded 30 days ago is an egregious misrepresentation of the actual substance of the offer. SCI is as aware as anyone that our stock price is only temporarily depressed due to the Mississippi verdict. We could just as easily characterize our stock price as having grown 25% percent over the last month. While the offer is a premium over our current temporarily depressed stock price, the offer amounts to less than a 5% premium over our pre-Mississippi judgment stock price. That valuation was based on the markets analysis of our fundamental ability to grow earnings, and there is no reason to believe our stock price won’t rebound fully…

    • 920 Words
    • 3 Pages
    Better Essays
  • Satisfactory Essays

    After this investment, there will be 10 million shares outstanding, with a price of $0.50 per share, so the post-money valuation is $5 million.…

    • 896 Words
    • 4 Pages
    Satisfactory Essays
  • Satisfactory Essays

    FIN516 W1 Homework

    • 515 Words
    • 3 Pages

    b. If the board instead decided to use the cash to do a one-time share repurchase, in a perfect capital market, what is the price of the shares once the repurchase is complete?…

    • 515 Words
    • 3 Pages
    Satisfactory Essays
  • Good Essays

    research paper

    • 2528 Words
    • 15 Pages

    Declared a $0.10 per share cash dividend on the common stock and declared the preferred dividend.…

    • 2528 Words
    • 15 Pages
    Good Essays
  • Powerful Essays

    Metapath Case Report

    • 931 Words
    • 4 Pages

    RSC and TCV consortium offered to buy $11.75 million of stock at a $76 million pre-money valuation (“Series E Preferred”). The proposed stock instrument was a participating convertible stock (“PCPT”). This instrument functions the same as the convertible preferred stock in the event of a qualified public offering whereas in the event of a sale, RSC and TCV consortium not only receives the face value of the consideration, but also gets the equity participation.…

    • 931 Words
    • 4 Pages
    Powerful Essays
  • Satisfactory Essays

    Jimmy Fu and Moog, Inc

    • 660 Words
    • 3 Pages

    The proceeds of the sale are $89.125 million. This would increase stockholder’s equity and assets by the same amount. The company uses $84.5 million of…

    • 660 Words
    • 3 Pages
    Satisfactory Essays
  • Best Essays

    The Management of IBM

    • 2303 Words
    • 10 Pages

    The company continued to grow through the early half of the 20th century and made it…

    • 2303 Words
    • 10 Pages
    Best Essays

Related Topics