Jeepers Incorporation Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

Introduction:

Jeepers Incorporation was established in 1988 by two entrepreneurs from San Antonio, Texas, Lee Sandoloski and Dave Pickus. At the time of its incorporation, it was named as Jungle Jim’s Playlands Incorporation. The company used to own and operate many amusement parks in shopping centers around the United States of America. The parks used to appeal the families with a child’s age up to 12 years. The parks included amusement park rides, token-operated skill and video gaming, a diner, and a large birthday party area for the entertainment of families along with their children.

By 1995, the company successfully raised $21 million from the private equity funds to invest in the business for its expansion. In 1995, the company hired El-Hage and a new management team to turn around the company from the situation of losses during the years. This new team overhauled every aspect of the company and it raised approximately $38 million from which equity capital amounts to $17 million. In between 1995 to 1998, it doubled the sales amount.

The company raised an amount of $10 million through the IPO process in 1998, the company planned to raise $30 million through IPO however, the plan was unable to become successful. The company also borrowed an amount of $7.5 million from its commercial bank. The raised capital ran out during 1999 and 2000.

The board of directors has appointed a consultant to advise the investors to evaluate the current situation of the company. The consultant told that the company has to put an extra capital of $16 million to survive it until the year end. The additional capital seems to be a money losing opportunity as if the extra capital would soon run out and nothing would be left for the equity holders.

Analysis:

The analysis of the company is purely based upon the restructuring or liquidation plan. The company has been suffering losses since its incorporation except for a quarter in 1998, the loss history has resulted the company equity deficit of around $50 million. The company has many options from them as it has to choose any of the one for its future action plan. In July 2000, the company’s leading investor asked Deep Distress Consultants (DDC) to provide a report on the current situation of the company and options for better liquidation and survival steps. It gave two acceptable options that are defined below in detail.

Crystallization plan:

During the crystallization plan, the company should be should down as soon as possible and the money should be paid off to its debt holder because the company is no more responsible for shareholder due to high deficits in the financial. It is not possible for the company to pay off the debt holders in full as the percentage of the loan needed to be paid. The debt holders are trying their best to sell the company now as to get the percentage of raising amount as if the company does not liquidate then the amount percentage will decline due to the expected losses in the future years.

There are some suggestions given by DDC that support the liquidation of the company in the shortest possible time period to save any other operating expenses that can lose the money for the company. It is told by DDC that the company does not have any cash therefore it cannot survive for more than 30 days therefore the liquidation must take place in the tenor of 30 days. Along with the cash flow difficulties, it is entering into a traditionally slow sales season beginning in the fall; therefore it cannot generate cash from revenues. It is hard for the company to survive for more than 30 days with any additional capital of cash requirements. It has to pay a total of $1.24 million within 30 days and an amount of $6.7 million within 1 year, therefore it requires substantial cash to perform its operations. These are the debt credit arrangements that it is required to meet along with this it has to pay for the running expenses.

Jeepers Incorporation Case Solution

The company is moving forward into its off season; therefore it may not be possible for it to raise trade credit because of lack of purchases from its side. During the off season, the re-organization plan can be costly to the company because the cash inflows are expected to be very low but fixed operating expense needs to bear by the company. The company is required to raise extra finance to meet the re-organization needs and to face the situation of decline sales season.............

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