Fojtasek Companies and Heritage Partners--March 1995 Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

Fojtasek Companies and the Heritage Partners

Question Number 1

About the Company and the Fojtasek family’s dilemma:

Fojtasek Companies was incorporated in 1943 by Joe Fojtasek’s, who was the father of company’s current President and CEO, Randall Fojtasek. In the beginning, the name of this company was Lumberman Door and Sash and it served as a building material distributor. In early 1950s, the company also started manufacturing aluminum windows. It is a family-based private company, which is administrated by the group of family members, and some trusted managers. Through a mixture of internal development and acquisition as a growing strategy of the company, the company regularly expanded into wood windows, interior wooden door, modeling materials, and vinyl windows. The company also has a chain of wholesale distribution centers throughout the southwest of America. By 1995, The Fojtasek Companies group has been specialized in manufacturing and distributing a large range of wood material, aluminum and vinyl building material. The company become the tenth largest company in that sector. In recent years, Fojtasek Companies had experienced rapid growth and sales climbed from $46 million in 1991 to $83 million in 1994 and enjoyed 83% growth from 1991 to 1994.

Approximately 70% of the company’s sales revenue has been generated from sales to the new home construction market; the rest 30% has been generated from sales to the major retail home center chains. 85% of the sales revenue of the company has been generated from its aluminum based products. The company’s brand aluminum products like Atrium Door and Windows, H-R Windows, and Skotty Aluminum has enjoyed extensive recognition amongst the builders because of its superior, good quality material and good customer relationship .

The company’s strategy is to enhance the market growth in each geographic market where the company can compete. In order to do this, the company uses several ways and trading names as well as sold its products by using number of channels such as the company operated distribution centers, lumberyards, home center chains, and building products distributors.

Recently, Fojtasek Companies has been concerned about its generational succession issues and some financial problems. It is enthusiastic to sell all or some of their interest in the company. Secondly, the Fojtasek has been concerned about its large amount of inheritance tax liability if ownership of business transferred to the next generation. The business was currently owned by Joe Fojtasek (who had the single largest stake), and his five sons. However, his three sons were not active in the business and were eager to liquidate all or some of their investment. The firm also needed to address the challenges posed by the specter of heavy inheritance taxes when ownership of the family businesses was passed to the next generation. Even though the Federal tax code makes several provisions for family businesses e.g. if a family business represents at least 35% of an estate’s value, then inheritance taxes can be paid over a period of 15 years; however, these taxes can still posed as a heavy burden. Fojtasek does not want to lose control in his old family business, which had retained continuous growth over several years. Fojtasek has some option to resolve both these issue. Various “Buyout” has shown interest in acquiring the company outright, second option to “Leveraged Capitalized” has been offered by an investment bank, and finally a proposal from Heritage Partners has benn proposed regarding a private equity group for hybrid transaction. Now, the family has to take a decision by considering all of the three available options.

Question Number 2

Possibilities of considering - a buyout, a leveraged recapitalization and a “Private IPO” and key concerns with each transaction:

Buyout

“The process of purchasing a company's shares in which the acquiring company gains controlling interest of the victims firm. A buyout strategy is a often made as part of a company's growth strategy and one of the most common method to access a new market and in organically growing growth of business”.

This offer would ensure a well payout to the company’s shareholders because of the premium amount paid by the acquirer company. In this case, Fojtasek family will be paid for their share in a company but Fojtasek family will lose control over the company and they will lose their company as a whole. There are three companies who have given offers to Fojtasek family of about $58 million to $62 million; however, all of these offers are lower than the expected price of Fojtasek family that is about $70 million. These offers include the outright acquisition of company’s assets and liabilities. This will be against the motive of Fojtasek Family.

Leveraged Recapitalization

Leveraged recapitalization is a corporate strategy in which an organization takes on significant debt with the intention either for purchasing its shares or large cash dividend. A leveraged recapitalization strategy normally involves the borrowing or refinancing of debt and sales of equity. In this process of Leveraged Recapitalization, company’s liabilities will increase and company’s equity will decrease. This ....................

This is just a sample partial case solution. Please place the order on the website to order your own originally done case solution.

Fojtasek companies, family businesses, faces several financing options to address generational succession. Several foreclosure expressed interest in acquiring the company outright, investment bank offered debt recapitalization.;, And direct investment, heritage partners, proposed a hybrid deal "Hide
by Samuel L. Hayes, Josh Lerner Source: Harvard Business School 25 pages. Publication Date: January 13, 1997. Prod. #: 297046-PDF-ENG