Case Note: Winfield Refuse Management, Inc.: Raising Debt vs. Equity
Case: Winfield Refuse Management, Inc.: Raising Debt vs. Equity
I. Case situation: Decision Proof: 1. First part: "..., it was Sheene's responsibility to lead the discussion on how to finance a major acquisition...reach a resolution this time." 2. Last part: "Board Discussion","However, there was decidedly less agreement on the matter of financing..." 3. The article is about background and arguments about whether to raising debt or equity.
II. Options: Funding the acquisition through a bond issue or common stock?
III. Creteria: 1. Maximum the interest of shareholders/not hurt the existing shareholders' interest. 2. Stable the stock price and make stock value growth. 3. Solidify its competitive position in the Midwest and make expansion.
IV. Analysis of options: 1. Approval of Issuing stock: -Lower cost than bond: 'the principal repayments on the bond mean an additional $6.25 million cash outlay every year and it is over 9% of the bond issue.'
-'Lower risk than bond: debt burden will increase risk and will lead to wild swings in the stock price.' 2. Approval of Issuing bond: -Issuing stock would hurt shareholders: the Winfield's 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 new 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) rely on long-term debt in the capital structures.
V. Other information:
History of Winfield Refuse: -''In 40 years after 1972, the company grew through a combination of organic growth and strategic acquisitions.'' →growth history: company amalgamation →Experienced -''During the 1980s, professional management had been brought in. '' →Family control -''a consistent policy of avoiding
I. Case situation: Decision Proof: 1. First part: "..., it was Sheene's responsibility to lead the discussion on how to finance a major acquisition...reach a resolution this time." 2. Last part: "Board Discussion","However, there was decidedly less agreement on the matter of financing..." 3. The article is about background and arguments about whether to raising debt or equity.
II. Options: Funding the acquisition through a bond issue or common stock?
III. Creteria: 1. Maximum the interest of shareholders/not hurt the existing shareholders' interest. 2. Stable the stock price and make stock value growth. 3. Solidify its competitive position in the Midwest and make expansion.
IV. Analysis of options: 1. Approval of Issuing stock: -Lower cost than bond: 'the principal repayments on the bond mean an additional $6.25 million cash outlay every year and it is over 9% of the bond issue.'
-'Lower risk than bond: debt burden will increase risk and will lead to wild swings in the stock price.' 2. Approval of Issuing bond: -Issuing stock would hurt shareholders: the Winfield's 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 new 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) rely on long-term debt in the capital structures.
V. Other information:
History of Winfield Refuse: -''In 40 years after 1972, the company grew through a combination of organic growth and strategic acquisitions.'' →growth history: company amalgamation →Experienced -''During the 1980s, professional management had been brought in. '' →Family control -''a consistent policy of avoiding