Case Note: Winfield Refuse Management, Inc.: Raising Debt vs. Equity

casing Winfield fend Management, Inc. Raising Debt vs. Equity I. Case situation Decision induction 1. First part , it was Sheenes responsibility to lead the discussion on how to finance a major acquisition reach a resolution this time. 2. nett part Board Discussion,However, there was decidedly less harmony on the matter of financing 3. The article is or so background and arguments about whether to raising debt or candour. II. Options Funding the acquisition by a fond regard issue or common course? III. Creteria 1. Maximum the interest of shareholders/not hurt the existing shareholders interest. . Stable the post price and run into entrepot value growth. 3. Solidify its competitive military capability in the Midwest and make expansion. IV. Analysis of options 1. Approval of Issuing stock - press down cost than bond paper the important repayments on the bond mean an additional $6. 25 million immediate payment outlay every year and it is over 9% of the bond issue. -Lower risk than bond debt burden go away increase risk and will lead to wild swings in the stock price. 2. Approval of Issuing bond -Issuing stock would hurt shareholders the Winfields shares is now undervalued and issuing more shares would be a disservice to share holders. Weaken the control of Winfield family and a gift to saucy share holders -EPS would go up using debt the EPS would go up to $2. 51, on the other hand, the stock issuing would make EPS decrease to $1. 91. -Other major player(competitors) deposit on long-term debt in the capital structures. V. Other information taradiddle of Winfield Refuse -In 40 years after 1972, the troupe grew with a combination of organic growth and strategic acquisitions. growth history company amalgamation Experienced -During the 1980s, professional focusing had been brought in. Family control -a arranged indemnity of avoiding long-term debt Risk aversion -very tranquillize cash flows and 1991 pubblic stock crack Grow sound and already has stocks in food market Expansion Opportunity -The trouble team had turn out successful in the post-acquisition phase, avoiding undue actively desire a larger acquisition tar get off to solidify its competitive position in the Midwest. Experienced and well-controlled in management As chief financial military officer of Winfield Refuse Management, a vertically integrated, how to finance a major acquisition. CFO get oriented identify problems analysis decision a waste management operator collected the waste and then processed it for recovery, combustion for cogency recovery company provide new energy, environmental protection generated very steady cash flows. take safe with steady cash flow adhered to a consistent policy of avoiding long-term debt capability? How many shares did the company issue in the market? The Winfield family and senior management held 79% of the common stock. The CFO missed the headspring about ratio of family control. 15 million fami ly 80% = $11,850,000 others 20% $22. 5 million family 52% = $11,850,000 others 48% The family control would be weakened and it whitethorn hurt family interest if issuing stocks. Whats more, if one of the family member sold his/her share, the Winfield Refuse Management, Inc would no longer be a family company. The management team had proven successful in the post-acquisition phase The company maybe experienced in integrating new companies into its operations but no experience in big companies. The company now has many branches but all in one industry. had consistently produced 12%-13% operating margins every year for the agone 10 years. This figure did not compare to the average or competitors in this industry. Exhibit 2 operating revenue 2008 371,868 2009 379. 457 The company make through financial crisis. How? Exhibit 3 2011 Total assets $748,681 Total liabilities and stockholders equity $749,681 Debt plus ratio Total Debt/Total Assets =1 High debt to assets ratio request l ow borrowing capacity of a firm, and lower the firms financial flexibility.Exhibit 3 The issued bond is fixed-rate bond or variable bond? What other equity does the company have? (building, trucks, etc. ) Plus Approval of Issuing stock As the article mentioned, The Winfield family and senior management held 79% of the common stock and the fact that the companys stock is undervalued, if the company chose issuing strike, the senior management may own more shares and the change of the stocks price may benefit or hurt them. So issuing strike will motivate senior managers or other employees who own the stocks.