Search results

Grocery store chain Winn-Dixie had rapidly expanded in an effort to become a national retailer, and by 1999 it had more than 1,000 stores. The company began manufacturing its own products, reasoning that by owning more of the supply chain, it could offer the customer less expensive options. With its new geographic focus and manufacturing facilities, Winn-Dixie attempted to secure a position as a low-cost provider with a national presence. Instead of improving the company's position in the market, however, this strategy crippled both the short- and long-term prospects for Winn-Dixie. The company paid a high premium to expand and increased its leverage without ever realizing the purposed synergies. In fact, there were dis-economies of scale because the distribution, marketing, and administrative costs had risen along with the increased revenue. The expansion and inefficient manufacturing added complexity to its distribution network, and with a greater debt load and less cash, the company was unable to reposition itself in the market when its low-cost provider strategy failed. Not only was the company unable to pursue other opportunities but it also did not have the cash to properly maintain many of its existing stores, which quickly became run down. Winn-Dixie was stuck as a general grocer with few options at a time when the industry was rapidly evolving. Following faulty strategies of expansion, supply chain changes, and increased debt, Winn-Dixie declared bankruptcy. Students will take the view that Paul “Flip” Huffard, lead consultant from Blackstone LP, had in determining the valuation and new capital structure of the company. These decisions would be critical, as they affected what each creditor class would receive and whether Winn-Dixie could emerge from bankruptcy.

Students will: 1. Assess the importance and negative financial impact of past strategic moves, and suggest possible future strategic directions and the expected benefits of such changes. 2. Learn quantitative valuation methods for a company in Chapter 11 and their effects on stakeholders. 3. Learn the elements of a plan of reorganization, including the capital structure, treatment of multiple creditor groups, and management compensation. 4. Discuss sources and uses of capital during a Chapter 11 turnaround.

Grocery store chain Winn-Dixie had rapidly expanded in an effort to become a national retailer, and by 1999 it had more than 1,000 stores. The company began manufacturing its own products, reasoning that by owning more of the supply chain, it could offer the customer less expensive options. With its new geographic focus and manufacturing facilities, Winn-Dixie attempted to secure a position as a low-cost provider with a national presence. Instead of improving the company's position in the market, however, this strategy crippled both the short- and long-term prospects for Winn-Dixie. The company paid a high premium to expand and increased its leverage without ever realizing the purposed synergies. In fact, there were dis-economies of scale because the distribution, marketing, and administrative costs had risen along with the increased revenue. The expansion and inefficient manufacturing added complexity to its distribution network, and with a greater debt load and less cash, the company was unable to reposition itself in the market when its low-cost provider strategy failed. Not only was the company unable to pursue other opportunities but it also did not have the cash to properly maintain many of its existing stores, which quickly became run down. Winn-Dixie was stuck as a general grocer with few options at a time when the industry was rapidly evolving. Following faulty strategies of expansion, supply chain changes, and increased debt, Winn-Dixie declared bankruptcy. Students will take the view that Paul “Flip” Huffard, lead consultant from Blackstone LP, had in determining the valuation and new capital structure of the company. These decisions would be critical, as they affected what each creditor class would receive and whether Winn-Dixie could emerge from bankruptcy.

Students will: 1. Assess the importance and negative financial impact of past strategic moves, and suggest possible future strategic directions and the expected benefits of such changes. 2. Learn quantitative valuation methods for a company in Chapter 11 and their effects on stakeholders. 3. Learn the elements of a plan of reorganization, including the capital structure, treatment of multiple creditor groups, and management compensation. 4. Discuss sources and uses of capital during a Chapter 11 turnaround.

Flying J was a family-owned company that operated travel plazas, oil refineries, a bank for trucking companies, and other related businesses. In early 2009, Crystal Call Maggelet, the majority shareholder and new CEO of Flying J, was tasked with saving the company founded by her father in 1968. In the intervening forty years Flying J had grown from four gas stations to a vertically integrated $18 billion company. Declining crude oil prices, decreased cash reserves, and multiple internal challenges forced most Flying J subsidiaries to file for bankruptcy protection. This came as a surprise to the company's lenders, suppliers, customers, and employees, who did not know the company was in trouble until it was unable to meet payroll just days before Christmas 2008.

Maggelet was determined not only to return her family's company to profitability but also to repay all of Flying J's debts, retain as many of the firm's 12,000 employees as possible, and avoid compromising employees' savings (e.g., 401K retirement accounts). All of the company's advisors told her it could not be done. They thought a more likely outcome would be paying creditors nine cents on every dollar owed. If that happened, Maggelet's family's holdings would be almost entirely wiped out according to the “priority of claims” rules in bankruptcy, and the family would end up with only 1.2 percent of a restructured Flying J.

However, to the surprise of its advisors and creditors, Flying J paid its debts in full, mostly by cutting operating costs before selling assets. The family was left with a smaller, but still very profitable company.

After students have analyzed the case they will be able to:

• Determine governance issues in family-owned businesses

• Identify the pursuit of growth as a typical cause of bankruptcy

• Understand why cash flow accounting is more important than GAAP accounting

• Grasp how huge variations can occur when calculating enterprise valuations of distressed businesses

• Understand the differences among law, governance, and ethics

Determine governance issues in family-owned businesses

Identify the pursuit of growth as a typical cause of bankruptcy

Understand why cash flow accounting is more important than GAAP accounting

Grasp how huge variations can occur when calculating enterprise valuations of distressed businesses

Understand the differences among law, governance, and ethics