After establishing
a relationship with Borden's senior management, Japonica Partners
submitted a friendly proposal to inject cash into Borden, separate
the underperforming $7 billion large cap conglomerate into three
distinct publicly-traded businesses, and change the culture via
implementation of a superior business plan. This strategy was
designed to create entrepreneurial returns for all shareholders
by closing a significant "Value Gap" that Japonica had identified.
The entrepreneurial proposal, valued at $2.4 billion, would allow
shareholders to participate in the rejuvenation of Borden.
Borden's operations had been declining
for some time and its stock had fallen to an all-time low of approximately
$13 per share. The stock had recently traded at $38 per share.
Shareholders suffered a loss of $4.1 billion in value during that
time. Borden's tangible net worth was a negative $555 million.
Over the preceding three years, Borden had incurred over $500
million in pre-tax restructuring charges, while sales declined
by more than $2.0 billion and cumulative losses reached $1.0 billion.
A major business magazine stated that "if there were such a thing
as a Society for Prevention of Cruelty to Corporations, it would
long ago have come to the aid of Borden."
Japonica had recently begun its
analysis of Borden's businesses, and was quietly formulating its
business plan for the company. Additionally, Japonica had begun
assembling a team of entrepreneurs from Sunbeam, Procter & Gamble,
and Borden, as well as specialists in brand management, international
operations, insurance, accounting, tax, and law.
Japonica had only completed slightly
more than half of its analysis, with more than 15,000 hours worked
and approximately 2,400 pages of analyses produced. Japonica's
proposal was based on changing the large cap's culture & operations,
and provided current shareholders the opportunity to recover the
billions of lost value. Importantly, major institutional shareholders
including pension funds and mutual funds endorsed Japonica's entrepreneurial
proposal.
Despite Japonica's and major institutional
shareholders' attempts to persuade the board to call a Special
Meeting of shareholders to vote on Japonica's offer, Borden's
board believed an alternative stock swap transaction, which offered
no upside in the Borden recovery, was the preferred alternative.
Japonica chose not to pursue the situation further.
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