Saskferco products Inc. Harvard Case Solution & Analysis

Saskferco products Inc. Case Solution 

Introduction

 Saskferco Products Inc. is a leading producer of nitrogen fertilizers of North America; it has its production and storage facility in Belle Plaine, Saskatchewan and in Carman, Manitoba respectively. The company is basically jointly owned. The ownership structure comprises of Mosaic Canada ULC that holds 50 percent ownership in the company, Investment Saskatchewan holds 49 percent and remaining 1 percent is hold by CIBC.

Saskferco is the manufacturer of fertilizer products. Products range from anhydrous ammonia, urea and urea ammonium nitrate UAN which is liquid fertilizer. The company has started its operations in 1992 and at that time the capacity of production is 495000 metric tons. Expansion was made in mid-1996 that makes the company largest urea granulation plant of the continent. From this expansion the capacity increased to 650,000 mt of ammonia, 980000 mt of urea and 230000 mt of UAN per year. The company enjoys many competitive advantages due to its geographical location and operating environment.

Now the stakeholders have been planning to sell a fertilizer plant and have to make certain valuations to make up an estimate for quoting a price. Independent team of advisors has been approached to assist in the valuation and sales process.

 Problem statement

  The sale will not be made until a proper valuation is made, of the fertilizer plant, and until other aspects of sales execution are finalized. CIBC world markets and Royal Bank of Canada are the independent third parties that will assist in the sales process.

Company’s capital structure

 The project of formation of this company was announced in 1990. For total required investment of $435 million, $305 was raised by debt financing guaranteed by the provincial government. The remaining amount is contributed by the CIBC, CCL and Investment Saskatchewan. The debt taken for this investment was then repaid successfully in the year 1995 and 2007. In 2005 US $100 million were issued as senior unsecured notes that would be mature in 2015. The coupon rate is 5.57 percent with principle payment at the start of every year from Sep 28, 2012.

Competitive environment

 Saskferco enjoys a highly competitive position that it inherits from its geographical location and areas developed infrastructure. The fertilizer plant is located in a land-locked market this provides company high distribution advantage since there is no port so less alternative products and less competition from outside. The place where the plant was located has given the company many operational advantages as the main resource that is natural gas for the manufacturing facility is closest to the factory. This saves the cost of supply and timely supply of raw material, natural gas. Moreover the company has made effective strategy and has covered the customers that are located nearer to the plant location. This results in low transportation cost thus another benefit in operations. With new and advanced plant technology the wastage and output ratios is significantly feasible...................

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