USG Corporation Harvard Case Solution & Analysis

USG Corporation Case Solution

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

Qualitative Analysis of the Issue

The underlying company has been performing well since a lot of time, which are also evident from the historical position of the company. The customers, shareholders as well as other stakeholders are fully satisfied with this brand which could be seen from the strong connection of them with this brand, which is achieved by building strong competitive position. Due to these significant efforts of the management of the company, other potential members in the industry showed significant interest in taking over the company mainly because of its very low market price. In order to resolve the current issue, the company initiated a reconstruction program with the help of former CEO, Mr. Robert with which the issue of financing as well as hostile takeover of Desert Partners could be dissolved.

The company with the help of this initiative succeeded in achieving number of its goals which can be seen from the annual savings of about $23 million in the year 1988.In addition to this, the declining earnings per share performance of the stock also improved in the main market indexes. Moreover, the goal of achieving the required return on equity was also attainable with the help of further repurchasing of stock. With the help of these efforts of the company, it increased the dividends payments as well satisfied the shareholders of the company.

In the glorious period of the company, the issue arose when Solomon brothers acquired a substantial quantity of shares and start torturing the company in order to achieve the required price of their shares. The company is, therefore, required to buy back their outstanding shares at a high price which later on would devalue the current market price of the share which, as a result, would create a strong opportunity for the potential members to do hostile takeover of the USG Corporation. The price offered by Desert Partners for the 72% of the shares of USG Corporation was $ 42 per share which they later on offered to increase to about $50. The other alternative available with the company is the leverage capitalization which according to the American Appraisal Capital would not create any typical issue for the company in the future because of the sufficient liquidity position of the company which would also continue in the future which would help the company to repay its debt obligation. However, it can be seen that the leverage capitalization plan could significantly burden the debt of the company because of the acquiring of debt financing from the bank.

Quantitative Analysis of the Situation

The valuation of the company is performed in order to make any recommendation from the given alternatives available with the company. It can be seen that the main target is the maximization of the worth of shareholders from either alternative. In case if the price offered in the tender notice is high from the actual valuation of the company, then the shareholders should accept the tender offer and reject the recapitalization plan. However, it can be seen that there are significant risks attached to this offer because Dessert Partners has not officially announced increase in its offer price. Moreover, it can also be seen that after the achievement of significant control over the company, DesertPartners would change the entire upper management positions and would run the business according to their own management.....................

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