ETL case_Solutions

ETL case_Solutions - ETL T ESTING L ABORATORIES(A The...

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Unformatted text preview: ETL T ESTING L ABORATORIES (A) The morning of Monday, July 30, 1985 was the beginning of a long day for Kim Davis of Weiss, Peck & Greer. The Board of Directors at ETL Testing Laboratories had finished reviewing two proposals which outlined the terms of financing a management leveraged buyout (LBO) of ETL. Before these proposals were submitted, however, the Board advised both the investment firms vying to fund the deal, Weiss, Peck & Greer (WPG) and Darien Financial Services (DFS), to "make the next bid their last and best bid." Additionally, the Board had stipulated that the bid should carry "no contingencies." In response, the Board had received offers of "$24.50/share, all cash, all shares, no strings" from WPG and "$25.00/share, part cash, part debenture, all shares, contingent upon a maximum $600,000 recapture as required under section 338 of the IRS Tax Code" from DFS ("all shares" refers to 477,000 shares of which 119,000 shares were held by employees). Since DFS based its offer on a contingency clause, the bidding would have been over were it not for the fact that a last-minute complication arose with respect to the required recapture figure. ETL's outside auditors, Ernst and Whinney, confirmed over the weekend that the recapture figure was not $600,000, as previously estimated, but actually $2,300,000. The new figure required an approximate $1,000,000 cash tax payment after the settlement of the LBO but also adjusted the book value of ETL's asset base upward of $2,300,000 which would then be depreciated over the next 5 years. Both bidders were informed of the news and were requested to prepare a new final bid. When Kim Davis, an LBO spet with WPG, learned of the bid situation from ETL's legal counsel Dick Thaler (Cornell '53, Cornell Law School '56), who also served on ETL's Board of Directors, he had just three hours in which to reevaluate his firm's offer. The ETL Board expected a response from both WPG and DFS by 2:00 that afternoon. Kim wondered whether WPG should revise its bid upward or downward, hold firm, dropout or take some other action. Cornell University Johnson Graduate School of Management Company Background ETL Testing Laboratories was founded in 1896 as Electrical Testing Laboratory under the direction of Thomas Edison. In 1942, in the wake of antitrust action brought against public utilities by the Federal Trade Commission, employees bought the business from the Edison Illuminating Company, changed the name to ETL Testing Laboratories to reflect a greater scope of services offered, and moved the operation to New York City. The Testing Laboratories to reflect a greater scope of services offered, and moved the operation to New York City....
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This homework help was uploaded on 02/19/2009 for the course NBA 3000 taught by Professor Bendaniel,david during the Spring '08 term at Cornell.

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ETL case_Solutions - ETL T ESTING L ABORATORIES(A The...

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