Sealed Air

Sealed Air Analysis

How much value was created? Where did it come from?

Great deal of the value was created from necessity of repaying their loan, the restrictions that were placed on the company as a whole, and the positive changes that resulted from the financial "crisis" because of it.

For those individuals who held SEE stock at the time of the payout, there was a lot of value in that they received a dividend that equated to an 87.19% return on their investment. For those who could, and did hold on to their stocks, the price did drop to a low of $12.50 per share but when you take into account that:

Original Price 45.875

Dividend Payout 40.00

Price per share 5.875

Low Price 12.50

Filtering through this it appears that if you held SEE stock and had purchased it at the price on the day of the dividend payout, they refunded you $40 of the 45.875 price and it had a market value of $12.50. This equates to a 112.77% return on the investment if you sold it at the low price.

For the stockholder, this was a good investment. SEE ended up with a negative net worth but since that time they have continued to grow and even began paying dividends again in 2006 which have continued to increase to present day.

2. Is pursuing a program of manufacturing excellence such as World Class Manufacturing (WCM inconsistent with "levering up"?

Not necessarily, the idea behind WCM is:

High quality

Low cost

Dependable customer service

Reduce working capital

Levering up forced the company to comply with the reduced working capital and reducing the inventory which is a portion of dependable customer service. On the other hand it does not help low cost or the high quality aspects of the equation. Because of the constraints put on Sealed Air's capital expenditures, it will be more difficult for them to invest in new equipment that could aid them in producing the highest quality products at the lowest cost and in turn be more responsive to the customers.

3. Why did Dermot Dunphy, the CEO, feel it was necessary to change the company's priorities and incentive structure following the recap?

Before the recapitalization bonuses were based on earnings-per-share.

After the recapitalization bonuses were based on; EBDITA, inventory turns, receivables, and working capital.

Some of these are not the same as the priorities that were distributed to the employees which were,

Putting the customer first

Cash flow