USG Corporation Harvard Case Solution & Analysis

Problem Statement

The shareholders of USG Corporation are in a dilemma where they have to decide whether to vote in favor of reconstruction plan or in favor of acceptance of the tender offer from Desert Partners for the purchase of USG Corporation.

usg corporation case solution

usg corporation case solution

Critical Evaluation

USG Corporation has been performing very well since its inception and it had gained a competitive position in the building product market. USG had been an innovative and growing organization and it had acquired several organizations in order to meet its expansion targets. However, USG Corporation became an attractive takeover target, particularly because of its low share prices, which was not reflected its current market value of USG Corporation; hence, the undervalued share price of USG Corporation made it an attractive takeover target. Therefore, in order to come out of this dilemma where the organization is about to be acquired by Desert Partners tender offer the management of USG Corporation has initiated a capital and operational reconstruction program which will not only overcome the financing needs of USG but also it will enable the management to cope with the tender offer received from Desert Partners.

Robert has implemented the restructuring plan initiated by the former CEO of USG Corporation and over the vacant of former CEO Robert Day took the responsibility for implementation of a restructuring plan. However, a restructuring plan was aimed to maintain the decentralized program in the long run at the organizational level, meanwhile; the plan was aimed to encourage subsidiaries for the identification and utilization of opportunities within their respective markets. Robert Day performed very well in this role and he achieved some remarkable goals during the restructuring program such as his implemented a plan saved $23 million annual cost savings during the year 1988. In addition to this the restructuring plan helped the stock price not only outperform the benchmark S&P 500 but also the S&P of building an industry index. Further, the repurchase of 20% stock during the year 1987 showed the company is performing very well and with the efforts of new CEO USG were able to achieve a return on equity percentage of 34% which was doubled than the return on equity earned by comparable building products companies.

Additionally, the dividends had been increased by 87%, which was the result of Day's efforts as a new CEO of USG; meanwhile, the market share of building products was increased by 11% during the period from 1985 to 1987. However, all these achievements show that the new had performed very well in the capacity of new CEO.

The Solomon brothers have had a practice of acquiring a substantial amount of shares in targeted companies and then blackmailing them for acquisition in order to get a high price of their holding in the target company. Similarly, they acquired a substantial amount of holding in USG Corporation and afterward they blackmailed USG for potential acquisition hence USG Corporation had to buy back their share from Solomon Brothers at a price of $45 per share which leads to the fall in its price by $1.87 per share. However, this is not a legal and ethical practice; therefore, there the maximum limit of holding shares in particular organization so that the potential acquirers are identified in advance. Meanwhile, American Appraisal Capital suggested that the leveraged recapitalization would not harm the future position of USG because it has assets in excess of its liability therefore; it can easily pay off its liabilities and interest when they fall due.


USG Corporation has been well performing and it has achieved its growth because of its consistent cash flows, low production cost and a greater market share of the building product’s market share. However, the USG’s stock price is undervalued and do not represent the fair market value of its operations and this is the reason why USG has become an acquisition target therefore, in order to protect the shareholders interest Day should try to maximize the shareholder value. Meanwhile, the prime objective of the investment by the shareholder is gaining the highest return on their investment and if the offer price is good enough and pays the highest possible return on the invested funds of shareholder than the tender price must be accepted in the best interest of shareholders, but, since it does not pay the fair price of USG business operations, therefore, Day should reject the current tender price. This action of Day will empower the bargaining power of USG for the increase in tender price. However, Desert Partners have shown their willingness to increase the price to $50 per share, which would be a more suitable case in comparison to the restructuring plan but still the official tender has not been revised. In addition to this the USG’s board of directors has devised a practical reconstruction plan .................

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