DRESSEN CASE STUDY Harvard Case Solution & Analysis


The main issues of interest in the Profitability conditions including the cost of goods sold and operating profit of the Dressen with regards to its comparable companies are not favourable.

With respect to the comparable companies, Dressen is not very efficient in managing its asset due to its high collection period, high day’s inventory as well as less sales over total asset ratio.  Due to its increased focus on addition of debt in the overall capital structure, the main issue on this side is whether future growth will sustain this operation from Private Equity fund or not.

  1. Why Westinghouse wanted to sell Dressen?

The major reason behind Westinghouse’s intension to sell Dressen is the Westinghouse acquisition of CBS in August 1995 for 5.4$ billion. This large cash acquisition has the financial position of the company therefore, Mr. Michael Jordon, the CEO of Westinghouse is now looking for cash to start paying back this acquisition because the 2$ billion bridge loan was due within 2 months in late February 1996.

In order to run the business smoothly, they are required to earn economic profit and simultaneously mitigate the costs associated with them. Moreover, the other biggest factor for the smooth running of the business is its consistency in earning that highly attracts the shareholders of the business. Therefore, Dressen’s good performance made this company a target for this activity.

By looking at it financially, it can be seen that the company’s major portion of its sales revenue of approximately 90% is consumed by the cost of goods sold, which is not favourable. Moreover, the total asset figure is also decreasing from 1994 to 1995, which also cannot support its future prospect, therefore Westinghouse is interested in selling Dressen.

  1. How and why do you rate John Lynch?

Before the appointment of John Lynch as the vice chairman, the company Dressen was not at all performing well as its going in losses. It was John Lynch whose creative and innovative mind helped the company in changing a dog into a star. With all his support, he made the company profitable, which is also evident from (EBIT from -32$ millions to +65$ millions in 3 years). Moreover, Mr. Lynch also has a growth plan which is important to sustain future growth of company. With all these factors Warburg Pincus is interested in binding its buying proposal to the stay of Mr. Lynch inside the company and this is the reason why he should be rated.

  1. What are Dressen strong points and improvement prospects? And its eventual weaknesses?

The strong points of the company are hidden in its premium products and design and high quality furniture. Moreover, the company has a strong brand identity and strong customer loyalty throughout the history. Among its competitors, it is the only company that provides lifetime warranty for its product. In order to view its improvement prospects, the appointment of Mr. John Lynch as a vice chairman of the company is the key person to look at.

Through all his effort, the company has shown a remarkable growth from dog to star. Moreover, his turnaround program initiatives including the product line management, improved competitive position of its products, focus on sales growth, incentives and the others could prove to be the key success factors for its future growth. The prime weakness of the company is the inclusion of debt in its capital structure which could significantly create negative issues for the future growth of the company...................

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