PENINSULA GASOLINE CORPORATION(Case 4)

Time Context / Period: late quarter of 2007 to 2008

Summary / Abstract

Business world is a survival of the fittest. It is a battlefield where only those strong and

great are expected to remain. However, proving that and doing that is a hard thing to do

as a company has to consider many internal and external possibilities. Company must

cope up to the growing competition, directly and indirectly, and the economic fluctuations

and government policies that could affect their industry. And since the ultimate purpose

of business is to earn profit, it is important that the companies serve its customer by

continuously improving the services it could provide.

Peninsula Gasoline Corporation (PGC) is a corporation which purpose is to operate a

gas stations along the South Super Highway between the boundaries between

Muntinlupa City and San Pedro Laguna. From one gasoline station on its commencement

on 1975, it opened 10 more in 1981. In its desire to expand and have 30 more outlets in

Luzon in 1997, it grabbed the opportunity opened by the Oil Deregulation Act that was

enacted on 1996 and issued 15-year indenture bonds. However, the first 10 months after

the said deregulation, the comoany incurred losses amounting to abot P150,000 per day.

It was also even supported by the problems in the operations and human resources

department of the said company, which cause the company in the turmoil it is facing right

now. And since thr officials of the said company have not yet came up with a solid solution

regarding the aforementioned issue, a case analysis is prepared to provide different

alternative courses of actions, together with its advantages and disadvantages, after

1
considering the strength, weaknesses, opportunities and threats the current corporation

have. This case analysis will also provide the writers recommendation and the plan of

action related to that. Possible problems may arise in connection to the recommendation

provided, but a contingency plans are also stated.

I. STATEMENT OF THE OBJECTIVE

To provide a feasible solution for the Peninsula Gasoline Corporation (PGC)

on how it could address its problems on the matter of its Finances, Operations and

Human Resources and further improve the service quality to maintain its position

in the industry.

II. CENTRAL PROBLEM

How can the PGC provide the periodic payments of interests and principals

to its bondholders, and settle its tax liability to improve the financial condition of the

company and later on address other important issues faced by it?

III. AREAS OF CONSIDERATION

STRENGTHS

1. The company was chosen by Caltron Philippines as the gas dealer of its oil

products.

2. The PGC has 20 units of tanker trucks and engaged in the wholesale of

petroleum products in different areas in Cavite and nearby provinces.

3. Josie Capul, VP for Finance, has been in the company since its operation.

2
4. Cost of goods sold was reduced by 1%

5. An outside marketing specialist was hired to get fresh ideas

6. Alma Borlongan, VP for Human Resource, has 30 years of experience as

an HR practitioner in government and private companies.

7. According to the respondents, front linesprs of PGC are very courteous,

personable and with good communication skills

WEAKNESSES

1. During he first 10 months of deregulation, PGC incurred losses

2. The company's rate of return in 1997 dropped to negative 7.25%

3. PGC's capitalization relied heavily on its creditors

4. Another tax liability issue arose from the alleged deficiency taxes

5. Gas patrons have to wait for about 30 mins before they could be attended

to

6. Over/under supply of spare parts

7. The repair and service boys are sneaking extra fluids and lube oil to their

favorite customers, presumably to gain bigger tips

8. Repair rooms have leaks and some reception areas needed repairs and

renovations

OPPORTUNITIES

1. Opportunity to improve its sales

2. Opportunity to increase its rate of return

3
 3. Opportunity to expand in the near future

4. Opporunity to increase its current ratio an ddecrease its debt to equity ratio

5. A law was passed that will cut the oil tariff to 3% from 10%

6. Congress is proposing the lifting of the P58B worth value-added tax on oil

to address he effect of rising oil prices

THREATS

1. Natural calamities that may arise

2. Government policies and/or law may affect the operation

3. Competition in the marketplace,

4. Technological advances

5. Economic fluctuation that may hinder economic growth

6. Various transportation organizations announced the possibility of staging a

nationwide transportation strike

7. Growth in demand for natural gas nationwide.

IV. ALTERNATIVE COURSES OF ACTION

1. Take Capul's advice, i.e., to split the company into two entities

Advantages

4
 a. This alternative will help the gasoline corporation to earn higher profit from its

operation since one part of the split company does not have to shoulder the

interest expense of the whole company

b. With this ACA, they can establish a profitable company and later on entice future

potential investors and creditors to become part of the company

c. It will pave way for the company to seize the opportunities they currently have and

expand

d. The money that could be derived can be used to address other issues faced by

the company.

Disadvantages

a. Costly on the part of corporation as it has to shoulder all the expenses related to

this

b. Time and effort consuming as further negotiation with government agencies will be

required

c. Current bondholders will grow doubtful with this ACA.

d. With this alternative, more employees will be needed since substantially, two

companies have to be served.

2. Negotiate with its creditors for a loan restructuring

Advantages

5
 a. The corporation can provide payment for the maturing debts including its tax

liability without compromising its operations

b. Compared with the ACA #1, the bondholders and other creditors will be more

confident that their money will be returned

c. Under this alternative, the company can ask for a grace period to be more prepared

for the payment

Disadvantages

a. Not an immediate solution as the effectiveness of this depends on the bondholders

and creditors

b. This ACA means that the corporation accepts its defeat and announces its inability

to uphold their promises to take charge of money of their bondholders, creditors

and investors.

c. Level of uncertainty for the success of this ACA is low as not all bondholders would

agree on this

d. Time, effort and fund consuming for the negotiations

e. This alternative calls for good corporate connection

f. Lost confidence of future potential bondholders and creditors

3. Sell the corporation to interested buyers

Advantages

a. Infusion of more fresh minds to think possible solution

6
 b. Current problems faced by the owners will come to an end

c. Employees' welfare will possibly not be affected as their job will be maintained

d. Relieve of its owners further effect of continuing downfall of the economy and the

business

e. More money to use for further activities since it is expected that the buyer has large

capital

Disadvantages

a. This will need many legal requirements which will cost time and effort to both

parties

b. Lack of expertise of new owners will lead to further distress to the gasoline

corporation

c. Lack of trust and confidence to its new owners by corporation's creditors and

bondholders

d. Credibility of its previous owners and officers will be stained.

e. Hostile takeover is possible

V. STRATEGY FORMULATION

I therefore conclude that the best solution to the problem is alternative course of

action number 1 which is to take the VP for Finances Josie Capul's advice to split the

company into two with one shouldering the interest expense that eat much of the

income it earned for the operation and one freeing it. It is true that splitting the

7
company into two is too risky, since the success of it is not certain as it is purely

dependent on the trust that current bondholders and future potential creditors will cast

on the corporation and the presence of some economic and government opportunities

but it should be noted that the higher risk, the higher return it could have. It will require

more time, effort and money, and will bring more disadvantages but if compared to

the advantages the company could have, it is surely worth it. This decision will benefit

the gasoline corporation as a whole. If the corporation will be split into, the corporation

can accumulate an enough fund to continue the operation and the corporation can

probably address its issues on the Operations and Human Resources section. The

fulfillment will also be there, as they employ something that could help resolve the

current problems they face while still being in line with their objective as a corporation

and without accepting defeat or announcing their inability to uohold their promises to

their bondholders, creditors and investors. Business is a roller coaster ride and

therefore one who rides it must know how to adjust for its speed and height. With this

alternative courses of action, the corporation will be able to manage their flaws and

will be able to use their strengths and maximize the opportunities they have to counter

whatever weaknesses they have and the threats that comes along with it.

VI. PLAN OF ACTION

1. Conduct a board meeting to talk about the chosen alternative course of action.

2. Consult legal experts regarding the matter.

3. Talk to their current bondholders, creditors and investors regarding this bold move.

Give them assurance that their interest will still be guarded.

8
4. Start complying with the necessary requirements the related government agencies

would ask.

5. Once everything is settled, conduct another meeting to appoint new Board of

Directors for the two companies with respect to the capabilities of each member.

6. Hire qualified employees to take charge of the two companies.

7. Fix their issues with regards to its personnel. Properly renumerate its qualified

employees. Recognize honest, credible and well-deserved employees to avoid

them from engaging them on under-the-table transactions.

8. Look for accountants the could properly forecast the sales and demand for the

product as to avoid over and under supply and to entertain customers as soon as

possible

9. Continue maintaining the good brand name by serving its customers properly and

upholding its objectives

VII. POTENTIAL PROBLEMS

1) What if the government would not allow this kind of move?

2) What if the potential investors and creditors would react negatively to the move

made by the corporation?

3) What if the employees continue to sneak company's supply for their own

advantage?

VIII. CONTINGENCY PLANS

9
1. Before employing this alternative course of action, it is understandable that the

company will seek advice from the legal experts. They will be the one who will tell

the company what are the probable loopholes for this one. However, the point of

view of the legal experts and the government may not be always aligned. It is

possible that the agencies will see this as a way of the PGC of running away from

its liabilities and if that will be the case, after the company has seize all the possible

ways for the ACA to be pushed, the comoany may settle for the second alternative

course of action.

2. The company may opt to share to the public their experiences for the past years,

how they had that situation and how they were able to gracefully solve them. With

that, it could earn respect from the public and even trust due to its honesty. This

can be done by conducting a press conference and or publishing the news to the

local newspapers and broadcasting to radio stations.

3. Ordinarily, an employee tries to do those things when they think that a company

does not renumerate them well. Given that fact, it can be hypothesized that the

way for the gasoline corporation to keep its qualified employees is to provide

something the employees are looking for. Provide them better renumeration,

benefits, and other recognitions for them to be more motivated to give the very

best of them and think of good hings for the betterment of the company. However,

it should also be backed up with strict inspection so employees, despite now that

they are well-renumerated, will still not engage on such activities.

10