ASSIGNMENT SUBMISSION FORM

This will be the first page of your assignment

Course Name: Corporate Finance 2

Assignment Title: Sealed Air

m
Submitted by: Group 5, Section G

er as
co
(Student name or group name)

eH w
Group Member Name PG ID

o.
Akul Kajaria 61920085
Chaitali Khandekar
rs e 61920786
ou urc
Divya Bhimineni 61920932
Naman Madan 61920517
Prasanna Duvvuri 61920521
o
aC s
vi y re

(Please start writing your assignment below)

ed d
ar stu
is
Th
sh

This study source was downloaded by 100000832616047 from CourseHero.com on 11-30-2021 06:15:20 GMT -06:00

https://www.coursehero.com/file/48347380/01-Sealed-Air-G5docx/
  Case Overview:
The case talks about a company called Sealed Air which was founded in 1960 and was into the
manufacturing of protective systems and materials. The company has progressed well for the first 25
years focusing on the sales force to exploit its products. It faced the real challenge in 1980’s with expiry
of the patents and an increasing competition. Then the case talks about the management’s thought about
implementing a new strategy to avoid a downturn. Management has come up with a new strategy in
manufacturing called WCM (World class manufacturing) which includes implementing very innovative
manufacturing techniques back then. During the downturn the management thinks of many alternatives
such as Leverage buyout, Recapitalization. The Management feels Leverage buyout would not be a good
option for the company, since the company’s condition is not as bad as to leverage this option. The
management then adopts Recapitalization on May 1989. The case then talks about the reaction of the
institutional investors, majority of whom sold their stocks after the Recap and the reasons for doing so.
Finally, there are new investors to the company after Recap who look after the profitability and who look
beyond the leverage. The case ends by management assessing the Recap.
 The Company sold its products under the registered names and trademarks, partly through its distribution

m
er as
network and partly directly to end-users. There was a lot of emphasis given on developing a sales force and
less focus was given towards manufacturing for the first 25 years in operation. Nevertheless, the company

co
eH w
was still able to command high margins to the tune of 45%-50%, because of –
o wonderful products safeguarded by patents as mentioned earlier

o.
o Less competition in the market
rs e
o The pricing model it followed which was derived basis on benefit to the customer and not the
ou urc
cost of making it.

 But over the time, especially when competition started building up in the market and patents were due to
o

expire or had expired already, it became crucial to put more emphasis on areas ignored before such as
aC s

manufacturing. The CEO and the VP of the company together decided to adopt the WCM (World Class
vi y re

Manufacturing) ideals for improving the efficiency in manufacturing division. This led to a significant
progress and the results were visible in the balance sheet as well. A Year Later, Sealed Air had $54 million in
cash and it was expected to increase by more than 100% over the next 18 months. The options Dunphy, CEO
had to make best use of this cash were-
ed d

o Look out for profitable Acquisitions in the market

ar stu

o Invest in a new Capital-intensive growth/expansion Project

o Invest money in securities

The company eventually decided to rather use it for paying one-time special cash dividend to the tune of
is

$40/share resulting in leveraged recapitalization. Sealed Air decided to lever up because of-
Th

o Unattractive profitable acquisitions or expansion projects.

o To inculcate the disciplined working of a highly leveraged organization and provide impetus
towards continuous improvement and sustainable growth.
sh

o Dividends were chosen over open market repurchase, and a tender offer for their own shares.
o LBO was eliminated to avoid the risk of putting company into the gut.
o The CEO had served on the Board of Directors of several LBO companies in the past and had
seen the positive effect of firm on company’s financial performance.
o The money belongs to shareholders so what better way but to pay them pack as dividends.

This study source was downloaded by 100000832616047 from CourseHero.com on 11-30-2021 06:15:20 GMT -06:00

https://www.coursehero.com/file/48347380/01-Sealed-Air-G5docx/
 Hence, Sealed Air executed the recap process, financed by borrowing from the bank and paid one time
special dividend amounting to $329.8 million
 The total value for the shareholders of Sealed Air was ~US$378mm prior to the announcement of the
recapitalization. Post recapitalization, the total wealth of the shareholders (including the $40 per share cash
dividend) increased to ~US$498mm. As such, the recapitalization created a total value to the tune of
US$119mm for the shareholders
 The primary drivers of this value creation can be attributed to higher efficiency in the core operations of
the Company
o As can be seen in the exhibits presented in the subsequent pages, the Company was able to
improve upon its operations across all domains
o In terms of profitability, the Company achieved higher margins (both Gross Profit and EBITDA)
in 1999 as compared to that in 1998
o This can be attributed to the shift in the Company’s focus from increasing EPS to achieving better
margins from the overall operations of the Company in terms of EBITDA margins
o Moreover, by adopting a leaner manufacturing operation, the Company was able to hold less

m
inventory in hand (from 54 days in 1998 to 45 days in 1999)

er as
o Additionally, the Company is collecting monies from its customers at a faster rate and receiving

co
longer credit terms from its supplies – freeing cash tied up in the operations

eH w
o Overall, the Company has improved the efficiency of its asset base as can be seen from a higher

o.
Asset Turnover ratio

rs e
Other drivers of increasing shareholder value can be attributed to the tax shield created by way of taking
ou urc
on more leverage – the leverage also acts as a check on management to maintain fiscal prudence

 The Investors before Recap had goals of investing in stocks with good financial growth and lesser risk.
o

 There was a turnover after Recap due to the following reasons:

aC s

o Managers whose policies included investing in stocks with certain minimum market cap has
vi y re

withdrawn due to a decrease in market cap of the company.

o Some investors such as pension funds which look at the dividends have withdrawn due to no
foreseeable dividend.
o There are also significant investors who have sold due to the leverage of the company.
ed d

o So, after the Recap major investors have withdrawn giving scope to new investors who bet more
ar stu

on the gains in profitability, looking beyond negative equity.

is
Th
sh

This study source was downloaded by 100000832616047 from CourseHero.com on 11-30-2021 06:15:20 GMT -06:00

https://www.coursehero.com/file/48347380/01-Sealed-Air-G5docx/
 m
er as
co
eH w
o.
rs e
ou urc
o
aC s
vi y re
ed d
ar stu

Declaration:
is

This is to declare that each of the undersigned members of Group G5 have contributed on this
assignment. We all discussed the case and reached on a consensus on how to approach the same.
Th

__________________________
sh

Akul Kajaria

_______________________

This study source was downloaded by 100000832616047 from CourseHero.com on 11-30-2021 06:15:20 GMT -06:00

https://www.coursehero.com/file/48347380/01-Sealed-Air-G5docx/
 Chaitali Khandekar

__________________________
Divyasai Bhimineni

Naman Madan

Prasanna Duvvuri

m
er as
co
eH w
o.
rs e
ou urc
o
aC s
vi y re
ed d
ar stu
is
Th
sh

This study source was downloaded by 100000832616047 from CourseHero.com on 11-30-2021 06:15:20 GMT -06:00

https://www.coursehero.com/file/48347380/01-Sealed-Air-G5docx/
Powered by TCPDF (www.tcpdf.org)