finance
Harvard Business School
9-297-052
Rev. July 12, 1997
USG Corporation
On May 2, 1988, USG Corporation, the world's largest gypsum producer, announced that the board of directors had approved a recapitalization plan. According to the plan, USG would exchange each outstanding share of common stock for $37.00 in cash, $5.00 in stated face amount of
16% junior subordinated pay-in-kind debentures, and one share in the newly recapitalized company.
Robert Day, USG’s Chairman and CEO, said the plan "is consistent with our commitment to maximize value for the shareholders while at the same time leaving them with an ongoing equity stake."1 On the day of the announcement, the stock price closed at $41.50, up $0.50. Before the board could implement the recapitalization, shareholders would have to approve it at a special meeting on
July 8, 1988.
The recapitalization, however, was not the only option available to shareholders. Desert
Partners, a Texas-based takeover group, had an outstanding tender offer for $42.00 per share in cash due to expire on June 10, 1988. In a publicly disclosed letter to the board, they had indicated a willingness to increase their offer to $50.00 per share in cash, debt, and stock, but had not officially changed their tender offer. Prior to the expiration of the tender offer, shareholders had to decide whether to tender their shares to Desert Partners or wait and vote for the proposed leveraged recapitalization plan in July.
Company History
In 1901, thirty-five gypsum companies consolidated to form the USG Company. The resulting entity controlled 50% of the highly competitive and price-sensitive gypsum market. Due to its size, USG had scale advantages in manufacturing and transportation which kept its costs low and helped it survive the Depression. Since its creation, USG had been a vertically integrated company with a commitment to product diversification. It grew steadily from the 1940s through the 1980s by
expanding
9-297-052
Rev. July 12, 1997
USG Corporation
On May 2, 1988, USG Corporation, the world's largest gypsum producer, announced that the board of directors had approved a recapitalization plan. According to the plan, USG would exchange each outstanding share of common stock for $37.00 in cash, $5.00 in stated face amount of
16% junior subordinated pay-in-kind debentures, and one share in the newly recapitalized company.
Robert Day, USG’s Chairman and CEO, said the plan "is consistent with our commitment to maximize value for the shareholders while at the same time leaving them with an ongoing equity stake."1 On the day of the announcement, the stock price closed at $41.50, up $0.50. Before the board could implement the recapitalization, shareholders would have to approve it at a special meeting on
July 8, 1988.
The recapitalization, however, was not the only option available to shareholders. Desert
Partners, a Texas-based takeover group, had an outstanding tender offer for $42.00 per share in cash due to expire on June 10, 1988. In a publicly disclosed letter to the board, they had indicated a willingness to increase their offer to $50.00 per share in cash, debt, and stock, but had not officially changed their tender offer. Prior to the expiration of the tender offer, shareholders had to decide whether to tender their shares to Desert Partners or wait and vote for the proposed leveraged recapitalization plan in July.
Company History
In 1901, thirty-five gypsum companies consolidated to form the USG Company. The resulting entity controlled 50% of the highly competitive and price-sensitive gypsum market. Due to its size, USG had scale advantages in manufacturing and transportation which kept its costs low and helped it survive the Depression. Since its creation, USG had been a vertically integrated company with a commitment to product diversification. It grew steadily from the 1940s through the 1980s by
expanding