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 Sheenes responsibility to execute the discussion on how to finance a major acquisition reach a resolution this time. 2. abide part Board Discussion,However, there was decidedly less agreement on the matter of funding 3. The article is about background and arguments about whether to raising debt or equity. II. Options Funding the acquisition through a bail issue or common profligate? III. Creteria 1. Maximum the interest of shareholders/not hurt the subsisting shareholders interest. . Stable the stock toll and make stock value growth. 3. Solidify its warring position in the Midwest and make expansion. IV. Analysis of options 1. thanksgiving of Issuing stock -Lower cost than bond the principal repayments on the bond mean an additional $6. 25 million funds outlay every year and it is everywhere 9% of the bond issue. -Lower risk than bond debt burden leav e behind 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 at one time undervalued and issuing more shares would be a disservice to share holders. Weaken the constraint of Winfield family and a submit 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. - different 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 long-term debt Risk aversion -very steady cash flows and 1991 pubblic stock religious offering Grow sound and already has stock s in trade Expansion Opportunity -The management team had proven made in the post-acquisition phase, avoiding undue actively seeking a larger acquisition target to solidify its competitive position in the Midwest. Experienced and well-controlled in management As chief financial 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 retrieval, combustion for energy 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 elder management held 79% of the common stock. The CFO missed the point about symmetry of family control. 15 million family 80% = $11,850,000 others 20% $22. 5 million fa mily 52% = $11,850,000 others 48% The family control would be corrupted and it may 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 prolonged 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 plentiful companies. The company now has many branches but all in one industry. had consistently produced 12%-13% in operation(p) margins every year for the past 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 Asset ratio Total Debt/Total Assets =1 High debt to assets ratio indicate low borrowing capacity of a firm, and l ower 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 item 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.