Case analysis on "USG Corporation"

USG Corporation Case Analysis
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USG Corporation Case Analysis
Introduction
USG corporation is a renown construction firm and producer of gypsum products in 1988. The board of directors had approved a recapitalization on 2nd May, 1988. Through the recapitalization plan, the company was exchanging every outstanding share for a common stock of $37.00, $5.00 in the indicated amount of the 16% subordinated pay-in-kind debentures, and as well as one share after the recapitalization. The chairman and CEO of USG Corporation, Robert Day noted that the recapitalization plan was consistent with the firm’s commitment to enhance or maximize value for shareholder while leaving them on a continuous equity stake. After the announcement by the company, the share price was valued at $41.50, up for $0.50. However, before the implementation of the recapitalization plan, shareholders were required to approve in a meeting to he held on 8th July, 1988 (President and Fellows of Harvard College, 1996).
Another notable aspect from the case is that the recapitalization was never the only option existing to shareholders. There was an outstanding tender offer of about $42.00 per share from the Desert Partners, a takeover group based in Texas. The offer from the Texas based group was expected to expire by 10th June, 1988. Notably, the group had also indicated their willingness to increase the offer to $50.00 for each share, debt, and stock. However, there was no official change on the tender offer. Before the expiration of the offer, it was expected that shareholders would agree or disagree to tended their shares to Desert Partners, or wait for the recapitalization plan proposed by the board. It is upon the shareholders to decide whether to vote in favor of the recapitalization plan or tender their shares to Desert Partners (President and Fellows of Harvard College, 1996).
In this case analysis, we will review USG’s business, its previous performance, and the outlook into the future. We will also explain why USG is the target of a hostile takeover, and the best course of action for the company. Secondly, the analysis will also value USG under the current operating and financial strategies. The firm analysis will compare how the valuation compares with the current market price. Notably, USG corporation will be valued based on the proposed recapitalization plan. Finally, the analysis will explain how the CEO and Chairman of USG should respond to the tender offer from Desert, as well as argue whether the proposed recapitalization plan is the best approach for the company. From the perspective of Desert Partners, we will also argue how to respond to the recapitalization plan.
USG’s Business Review
Based on the information presented in the case, it is clear that USG’s shareholder is experiencing a dilemma. They are expected to either favor the recapitalization plan or vote in favor of the tender offer from Desert Partners in the purchase of the USG Corporation. It is essential to note that the company has been performing well for several years. This is seen from the historical evidence presented throughout the case study. In this regard, the clients, shareholders, and oth...