Polaroid Corporation, 1996

23 Pages Posted: 21 Oct 2008

See all articles by Robert F. Bruner

Robert F. Bruner

University of Virginia - Darden School of Business

Susan Chaplinsky

University of Virginia - Darden School of Business

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Abstract

This case puts the student in the shoes of the recently appointed treasurer of Polaroid Corporation, who must consider several matters concerning the firm's debt policy. An immediate concern is the company's outstanding $150 million 7.25% notes, due to mature in several months. Although investment bankers interested in doing business with Polaroid have been trying to present proposals for refunding the issue, the new treasurer believes that any refunding decision should be part of a larger review of the firm's financial policies. Accordingly, he has undertaken a review of the firm's overall debt policy, focusing primarily on the mix of debt and equity and on the maturity structure of the debt. The case asks students to consider how much flexibility Polaroid's business will require in future years and to pick a target debt ratio that provides the necessary flexibility. Students must evaluate, in addition to internal demands for funds, the role of bond ratings and investment-grade status in maintaining ongoing access to capital markets.

Excerpt

UVA-F-1181

Version 1.7

POLAROID CORPORATION, 1996

In late March 1996, Ralph Norwood, the recently appointed treasurer of Polaroid Corporation, reflected on several matters of concern about the firm's debt policy that required his attention in the coming months. One immediate concern was Polaroid's outstanding $ 150-million, 7.25% notes, which were due to mature in January 1997. Investment bankers, keenly interested in garnering advisory and underwriting business from Polaroid, had sought to present proposals for refunding the issue. Norwood felt, however, that any refunding decision should be part of a larger review of the firm's financial policies. Accordingly, he undertook a review of the firm's overall debt policy, focusing primarily on the mix of debt and equity and on the maturity structure of the debt. He also sought to consider issues of control, the establishment of any special advisory relationships, and the use of new financial instruments.

In recent years, Polaroid's share price had traded in a narrow range, reflecting small sales and earnings growth. A new plan to exploit aggressively the existing Polaroid brand, introduce product extensions, and enter new emerging markets (such as Russia) had been proposed to spur the firm's performance. The restructuring plan was spearheaded by Gary T. DiCamillo, the first outsider appointed chief executive officer (CEO) in the firm's history. DiCamillo had only recently joined the firm in November 1995. Norwood believed that the plan would reinvigorate the company without materially increasing its operating risk. With important changes in the works, Norwood felt it essential that his financial policies afford Polaroid the necessary funding and flexibility to pursue the initiatives of the new CEO.

The Early Years

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Keywords: equity, debt policy, financial policy, restructuring

Suggested Citation

Bruner, Robert F. and Chaplinsky, Susan J., Polaroid Corporation, 1996. Darden Case No. UVA-F-1181, Available at SSRN: https://ssrn.com/abstract=1278897 or http://dx.doi.org/10.2139/ssrn.1278897

Robert F. Bruner (Contact Author)

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States

HOME PAGE: http://faculty.darden.edu/brunerb/

Susan J. Chaplinsky

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States
434-924-4810 (Phone)
434-243-7676 (Fax)

HOME PAGE: http://www.darden.virginia.edu/faculty/chaplinsky.htm

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