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Sealed Air Case Study PDF
Sealed Air Case Study PDF
a,
Sealed Air is one of the market leaders in protective packaging material and systems. The
operating processes are from manufacturing till delivery. Often, they sell products by contacting
directly with end users but then distribute the products via distributors or directly delivered to
buyers depend on which kinds of products.
Inventory: looking at the balance sheet statement and I calculated the common size balance
sheet, we may see that the inventory of the company accounts for about 14% of total assets in
1987 and 1988 but then decrease to just 11% in 1989. In about 1987, Sealed Air experienced
increasing competitive power from their rivals and they started to focus on manufacture. The
inefficient factories made them keep too much inventories leading to low inventory turnover and
high days cost of sales in inventory. However, after applying World Class Manufacturing
(WCM) this problem was solved which caused the substantial increase in inventory turnover and
decrease in days cost of sales in inventory in 1989.
1989 1988 1987
Inventory turnover 9.7 6.4 6.4
Days cost of sales in inventory 37.7 57.4 57.3
Capital budgeting: The priority in Sealed Air’s capital budgeting changed over time. For their
first period of company life, they focused on the sales to exploit their strength in revolutionary
products. At this time, the managers had never concern about capital expenditures, no matters
what they needed, they were all satisfied. But from mid 1980s, the changes in market situations
made the company to turn their priority to manufacture including mainly in machinery and
maintenance. The investment in Property, plant and equipment was stable around 33% to 37%
during 1987-1989.
1989 1988 1987
Cash 25.5 11% 28.1 11% 25.9 11%
Short term investment 0% 27 10% 20.7 9%
Receivables 58.8 26% 58.1 23% 48.3 21%
Inventories 25.9 11% 36.2 14% 31.3 14%
Prepaid expenses 2 1% 1.7 1% 1.1 0%
112.2 49% 151.1 59% 127.3 56%
Property, plant, equipment 85.1 37% 83.7 33% 78.5 34%
Patents and rights 7.4 3% 7.6 3% 5.4 2%
Deferred financing costs 12.9 6%
Prior to the recapitalization Sealed Air's stocks were held by institutional investors who were
looking for a steady growth company with solid financials and limited risk.
After the recapitalization many of the institutional investment funds had to, or chose to, sell
because of the rules or guidelines they had in place for their clients, such as: market
capitalization in excess of certain levels, requiring stocks to pay dividends, leverage levels,
deficit net worth
The new investors are more speculative, looking for significant profits. This in turn has created a
situation where the managers may now be looking at the current month or quarter instead of the
long term forecasts for the company's future.
Also, the new policy in employees stock ownership contributes to this change in investor base.
d, The leveraged recapitalization can be considered as a takeover defense because:
- by increasing debt dramatically, companies hope to make the takeovers worried about
repayment debt after acquiring the companies.
- leveraged recapitalization distribute a large amount of cash to shareholders in form of paying
dividends, repurchase stocks or exchange offer. Thus restricting the new outsider ownership.