Asset and Builders Square
Kmart Inc. and Builders Square Case
1. What happens if Kmart 's managers decide NOT to accept the Leonard Green offer?
If Kmarts managers decide not to accept the offer they become limited in their options:
● They can continue to wait for a better bid, but they have struggled to get any one interested in their company as it is. If they decide to turn down Green, but end up not securing another buyer, they would be forced to return to Green who could offer a much lower bid because Kmart would now be left out of options.
● It was also projected that Builders Square only had enough cash and working capital to continue its operations for one more year without any other changes. So their other option is to try and restructure themselves again so that they can continue operations and at least make enough money to pay off their leases. We believe this method would be very hard to pull off, since Builders Square has been trying to do this for the last couple years with no success. Although they have tried to fix themselves already, they can’t, which is why they are looking for bidders.
● In dire circumstances, Kmart could just liquidate all of Builders Square assets and use them to pay off debt. Then they could sublease out their empty buildings and use the rent revenue to continue to pay their contracted leases.
2. If Kmart 's managers were to accept the Leonard Green offer, what would they receive as compensation? What would they give up?
● In the merger, Kmarts managers would receive $10 million in cash and warrants that if exercised could give Kmart up to 30% ownership in the new firm.
● Kmart would turn over 162 of its stores to LGP as well as its Builders Square headquarters, but then would receive 25 of the buildings back so that they could use them for other purposes (renting to others, putting in new Kmart stores). LGP would also assume Kmart’s $2 billion in long-term lease obligations, but Kmart would remain liable
1. What happens if Kmart 's managers decide NOT to accept the Leonard Green offer?
If Kmarts managers decide not to accept the offer they become limited in their options:
● They can continue to wait for a better bid, but they have struggled to get any one interested in their company as it is. If they decide to turn down Green, but end up not securing another buyer, they would be forced to return to Green who could offer a much lower bid because Kmart would now be left out of options.
● It was also projected that Builders Square only had enough cash and working capital to continue its operations for one more year without any other changes. So their other option is to try and restructure themselves again so that they can continue operations and at least make enough money to pay off their leases. We believe this method would be very hard to pull off, since Builders Square has been trying to do this for the last couple years with no success. Although they have tried to fix themselves already, they can’t, which is why they are looking for bidders.
● In dire circumstances, Kmart could just liquidate all of Builders Square assets and use them to pay off debt. Then they could sublease out their empty buildings and use the rent revenue to continue to pay their contracted leases.
2. If Kmart 's managers were to accept the Leonard Green offer, what would they receive as compensation? What would they give up?
● In the merger, Kmarts managers would receive $10 million in cash and warrants that if exercised could give Kmart up to 30% ownership in the new firm.
● Kmart would turn over 162 of its stores to LGP as well as its Builders Square headquarters, but then would receive 25 of the buildings back so that they could use them for other purposes (renting to others, putting in new Kmart stores). LGP would also assume Kmart’s $2 billion in long-term lease obligations, but Kmart would remain liable