Usg Case Analysis

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Executive Summary The USG Company was formed through consolidation of 35 gypsum companies in 1901. USG had a diverse group of building materials for residential construction, nonresidential construction, building repair and remodeling, and industrial processes. USG divided its operations into four divisions: gypsum, interior systems, wood fiber and other products. Since 1986, the building products industry had become a hotbed for takeover activity, and USG was not immune to this. Therefore, USG’s board decided to proceed with a leveraged recapitalization on May 2, 1988. This proposed recapitalization would put the company under heavy debt obligations as some analysts suggested. The fact is that in order to proceed with this plan, the company would have to raise approximately $2.5 billion from Citibank, Bankers Trust, and Chemical Bank. These loans would be repaid over the next nine years. The banks require USG to lock in fixed rates for four years for 75% of the principal. There were also some operating restructuring, including discontinuation of products and distribution channels that failed to meet requirements, layoffs and early retirements. Meanwhile, Desert Partners attempted to acquire USG that they indicated a willingness to increase their bid to $50.00 or more per share in cash for 72% of the shares. Shareholders had to decide whether to wait and vote for the proposed restructuring or tender their shares to Desert Partners. Our recommendation is to reject Desert Partner’s tender offer, and to implement the leveraged recapitalization. There are couple reasons that USG is a takeover target. USG had scale advantages in manufacturing and transportation that kept its costs low. USG divided its operations into four divisions: gypsum, interior systems, wood fiber and other products. The four divisions all had strong positions in their primary market; led in

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