Financial Case Report Business & Marketing Case Study

Case Study
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CASE STUDY
Briefly describe that UST is planning to reverse a long-standing conservative financial policy
At end of 1998 financial year, UST had seven pending health lawsuits. Additionally, there is uncertainty that is enhanced by one of the lawsuit that stipulated UST had violated the advertising and antitrust laws. The company had also engaged in anti-competitive conduct. Further, in the same year November, the industry had agreed to settle the Medicaid lawsuit with 206 million dollars (Haevard Business School & Michell, 2000). The industry had also agreed to bad advertisements and promotions that appealed to the youths. UST is also a major played in the tobacco industry since it controls 77%. As a result, UST ended up expanding the category and also increased the prices of tobacco in the market. In the long run small players eroded the market share of UST. To solve these issues, UST. Inc. plans to make some changes.
Since UST is a major player in the smokeless tobacco market, the company is planning to make important changes in the capital structure through debt-finance stock repurchase program. Since the company is planning to expand, they are expecting to get higher returns firm recapitalization. The company is also expecting to enjoy the task shield and this will be achieved through increased leverage (Peeters & Gilmore, 2013). They have also adopted more structured strategies so that they will be able to cater for the default risks. One of the major strategy the company has adopted is the capital structure strategy. Additionally, with the adoption of capitalization, the company will be able to come up with safer means of operations. Additionally, the company has been able to get rid of increased chances of insolvency. The new capitalization strategy will be very significant in reducing the unsettled amount of shares in the firm. The company also plans to reduce their prices so that they will be able to boost the sale of the products.
Evaluate the business risks of UST from the viewpoint of a credit analyst or potential bondholder
Over the past few years, UST has experienced a lot of risks in their businesses. The situation is also nit friendly for the bondholders because they are likely suffer huge loses. Fists, UST has many competitors in the market and this had led to decreased penetration in the market. The company has also faced a lot of challenges while trying to compete with its rivals in the market. Further, UST has suffered from market erosion and competition from other companies has weakened the capability of the company to perform better in different fields. Some companies in the market have managed to introduce new products with low prices (Haevard Business School & Michell, 2000). As a result, UST has been forced to manufacture new products which are beyond their ability. The only option that is left for the company is reducing the prices of their products to counter the stiff competition in the market. If the company will decide to reduce the prices, then low profits will be recorded (Kohli & Suri, 2011). Moreover, shareholders and bond holders will receive low compensation. This is a major threat UST is supposed to address.
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