Polaroid Corporation, 1996
23 Pages Posted: 21 Oct 2008
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Polaroid Corporation, 1996
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
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