A Tear in the Foundation Restructuring at Scott Paper Company
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Dec 08, 2015
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A Tear in the FoundationRestructuring at Scott Paper Company
Agenda Key IssueBackgroundAnalysis and AlternativesRecommendationConclusion
Key IssueA final restructuring plan is needed to address the following issues:
1. Which assets should be sold2. Which should be grown3. How many employees should be laid off4. Timing of the restructure5. How to “sell” employees on the plan6. What effects will this have on share prices
Key IssueA final restructuring plan is needed to address the following issues:
1. Which assets should be sold2. Which should be grown3. How many employees should be laid off4. Timing of the restructure5. How to “sell” employees on the plan6. What effects will this have on share prices
Critical
Key IssueA final restructuring plan is needed to address the following issues:
1. Which assets should be sold2. Which should be grown3. How many employees should be laid off4. Timing of the restructure5. How to “sell” employees on the plan6. What effects will this have on share prices
Critical
Implementation
Key IssueA final restructuring plan is needed to address the following issues:
1. Which assets should be sold2. Which should be grown3. How many employees should be laid off4. Timing of the restructure5. How to “sell” employees on the plan6. What effects will this have on share prices
Critical
Implementation
Forecast
Background
Early HistoryFounded in 1879Fully integrated paper company in 1920Developed a wide variety of tissue productsAcquired S.D. Warren in 1967
Background
Later LifeGrew to being the 8th largest paper company in the U.S.
Second largest tissue producer in U.S.Largest Worldwide with 15% M.S.
S.D. Warren accounted for 25% of sales
Background
Troubled TimesIn 1993, Scotts posted annual losses of $277 M.Over 3000+ workers had been laid offClose to $1 B in restructuring costsS&P downgraded their public bondsAlbert Dunlap was appointed as the first outside CEO to manage the companies turnaround
Background
Analysis & Alternatives
$131 B commoditized industryExtremely capital intensiveVery cyclical industry, inline with the economyScott’s was 3/4 in tissue and 1/4 in coated printing paper
Paper IndustryAnalysis & Alternatives
Restructuring costs of $490 M were announcedScott’s stock price had remained at $38Steadily deteriorating earnings since 1988Sales had dropped to their lowest in 4 years, where the industry had been growing
FinancialsAnalysis & Alternatives
Net cash flows from operations and investments declining (84% and 52% respectively)Since 1989, earnings from integration had declined well below earnings without ($193 difference in 1993)S.D. Warren’s products were projected to increase, which represented 58% of the paper industryTissue industry facing downward pressure due to increased competition
FinancialsAnalysis & Alternatives
Over 12,500 unionized employeesPoor relations throughout 1980sPotential $20.2 M in severance pay for 5600 employees3 different CEOs in less than 14 years Dunlap first CEO hired outside the firm
Human ResourcesAnalysis & Alternatives
1. Close down European OperationsUnionized workers only in N.A.Allow for exploration into emerging countries (BRIC)W. Europe and N.A. accounted for 70% of the global tissue marketMajority of costs still centralized in N.A.
AlternativesAnalysis & Alternatives
2. Sell Forestry DivisionVery few years where integration has been beneficial for ScottAccounts for bulk of capital investmentsMajority of unionized workersVery sensitive area for labour relations
AlternativesAnalysis & Alternatives
3. Sell S.D. WarrenCurrent book value of $1.6 BAccounted for 25% of total salesMore capital intensive than the rest of the businessPotential earnings with the upturn in coated paper products
AlternativesAnalysis & Alternatives
Recommendation
Exhibit 11 clearly shows no benefit to being integratedHighest paid workers in the industryAlready set aside $490 M for restructuring which can be used for severanceLack of efficiencies across the globeMore focus on core products: tissue and paper
Sell Forestry DivisionRecommendation
Sell Forestry DivisionRecommendation
296-048 Scott Paper Company
2 4
Exhibit 11 xxx Impact of Fiber Integration on BaselineEarnings, 1977-1993
YearPrice of
NSWK Pulp
Earningswith
Integration
Earningswithout
Integration
1977 390 27.8 (9.8)1978 340 35.3 73.91979 435 49.6 52.21980 535 22.4 11.71981 545 38.2 47.21982 480 44.6 111.01983 415 89.2 180.51984 525 146.7 196.41985 400 132.1 258.11986 470 172.3 293.61987 600 215.1 271.71988 730 270.8 262.71989 830 226.3 189.41990 810 212.6 229.91991 570 147.1 274.21992 550 178.7 290.71993 425 125.9 318.1
Source: Company documents
Purchased by Benjamin Iannetta ([email protected]) on September 20, 2012
Sell Forestry DivisionRecommendation
296-048 Scott Paper Company
2 4
Exhibit 11 xxx Impact of Fiber Integration on BaselineEarnings, 1977-1993
YearPrice of
NSWK Pulp
Earningswith
Integration
Earningswithout
Integration
1977 390 27.8 (9.8)1978 340 35.3 73.91979 435 49.6 52.21980 535 22.4 11.71981 545 38.2 47.21982 480 44.6 111.01983 415 89.2 180.51984 525 146.7 196.41985 400 132.1 258.11986 470 172.3 293.61987 600 215.1 271.71988 730 270.8 262.71989 830 226.3 189.41990 810 212.6 229.91991 570 147.1 274.21992 550 178.7 290.71993 425 125.9 318.1
Source: Company documents
Purchased by Benjamin Iannetta ([email protected]) on September 20, 2012
Sell Forestry DivisionRecommendation
296-048 Scott Paper Company
2 4
Exhibit 11 xxx Impact of Fiber Integration on BaselineEarnings, 1977-1993
YearPrice of
NSWK Pulp
Earningswith
Integration
Earningswithout
Integration
1977 390 27.8 (9.8)1978 340 35.3 73.91979 435 49.6 52.21980 535 22.4 11.71981 545 38.2 47.21982 480 44.6 111.01983 415 89.2 180.51984 525 146.7 196.41985 400 132.1 258.11986 470 172.3 293.61987 600 215.1 271.71988 730 270.8 262.71989 830 226.3 189.41990 810 212.6 229.91991 570 147.1 274.21992 550 178.7 290.71993 425 125.9 318.1
Source: Company documents
Purchased by Benjamin Iannetta ([email protected]) on September 20, 2012
Sell Forestry DivisionRecommendation
296-048 Scott Paper Company
2 4
Exhibit 11 xxx Impact of Fiber Integration on BaselineEarnings, 1977-1993
YearPrice of
NSWK Pulp
Earningswith
Integration
Earningswithout
Integration
1977 390 27.8 (9.8)1978 340 35.3 73.91979 435 49.6 52.21980 535 22.4 11.71981 545 38.2 47.21982 480 44.6 111.01983 415 89.2 180.51984 525 146.7 196.41985 400 132.1 258.11986 470 172.3 293.61987 600 215.1 271.71988 730 270.8 262.71989 830 226.3 189.41990 810 212.6 229.91991 570 147.1 274.21992 550 178.7 290.71993 425 125.9 318.1
Source: Company documents
Purchased by Benjamin Iannetta ([email protected]) on September 20, 2012
Sell Forestry DivisionRecommendation
296-048 Scott Paper Company
2 4
Exhibit 11 xxx Impact of Fiber Integration on BaselineEarnings, 1977-1993
YearPrice of
NSWK Pulp
Earningswith
Integration
Earningswithout
Integration
1977 390 27.8 (9.8)1978 340 35.3 73.91979 435 49.6 52.21980 535 22.4 11.71981 545 38.2 47.21982 480 44.6 111.01983 415 89.2 180.51984 525 146.7 196.41985 400 132.1 258.11986 470 172.3 293.61987 600 215.1 271.71988 730 270.8 262.71989 830 226.3 189.41990 810 212.6 229.91991 570 147.1 274.21992 550 178.7 290.71993 425 125.9 318.1
Source: Company documents
Purchased by Benjamin Iannetta ([email protected]) on September 20, 2012
Sell Forestry DivisionRecommendation
296-048 Scott Paper Company
2 4
Exhibit 11 xxx Impact of Fiber Integration on BaselineEarnings, 1977-1993
YearPrice of
NSWK Pulp
Earningswith
Integration
Earningswithout
Integration
1977 390 27.8 (9.8)1978 340 35.3 73.91979 435 49.6 52.21980 535 22.4 11.71981 545 38.2 47.21982 480 44.6 111.01983 415 89.2 180.51984 525 146.7 196.41985 400 132.1 258.11986 470 172.3 293.61987 600 215.1 271.71988 730 270.8 262.71989 830 226.3 189.41990 810 212.6 229.91991 570 147.1 274.21992 550 178.7 290.71993 425 125.9 318.1
Source: Company documents
Purchased by Benjamin Iannetta ([email protected]) on September 20, 2012
$432 difference
Conclusion
Critical: Sell downstream business and focus on upstream business. Implementation: Restructuring to be done in 3 years. Inform employees that it is not job cuts, rather product focusForecasting: Without the burden of forestry business, stock prices can be expected to go up with higher earnings
Wrapping It UpConclusion
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