Cumberland worldwide corporation Case Solution
EM Questions:
1. What are the principal financial problems confronting the management of CW at the time of the case? Were these problems brought out primarily by bad luck, or did poor decisions play a major role?
The company is in a serious financial crisis because of its poor decisions and strategy. The major financial problems prevailing to the company include:
Financial standings:The Company is in serious need of cash as itis running on loss from several quarters aggregating $300 million. The net worth is going into negative. The company is facing cash requirements for many of its debt requirements and operations. Moreover, the cash that the company can bringin through its main subsidiary is restricted by a contract covenant. In addition,the company is also restricted to get cash by putting its subsidiaries to get debt on their respective holdings because of banks covenants.
There are difficulties faced by the company in the payment of debt obligations. The company has been using debt for financing its acquisitions of companies. The company is primarily a non-operating holding company, and it is majorly dependent on its subsidiaries for cash flows. The company’s cash standing is worst and is continuing to decline. The company has several long and short term debt obligations that need to be satisfied or there will be legal consequences for violation of the debt terms. On the other hand, the company is also in need of finance for its debts payment as well as to finance some of its operations of its subsidiary. The recent debt issue was also declined due to market conditions. This has made the situation worst for the company.The company needs cash for its future plans and operations. The subsidiary, cross river, needs cash for financing its seasonal operating requirements.
Primarily, the problems are arising due to the poor decisions and other combining factors. One factor was that there were problems at the operational structure of the company as well as different departments are in conflicts with the company, therefore this led to the resignations and high turnover on the senior positions, which has a negative effect on the company since new employees were recruited who were not familiar with the company’s situation and by the time they understood the company’s operation, the company had already came to a point of closure.
There was a failure on part of the management of the company to seize the deal for the sale of the company earlier that would have saved the company from certain prevailing situation. The management failed to make arrangements with the preference shareholders and these delays cancelled the transaction.
The company’s acquired subsidiaries were poorly administered mainly because of its lack of better decision making, resulting in high manufacturing costs and reduced sales. All these deficiencies were compensated through cash flows of the major subsidiary. In this way, the company made cash outflow only due to its inefficiencies and currently it is facing financial crisis.................
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