Loewen?s Corporate Essay

968 Words 4 Pages
INTRODUCTION
After decades’ dramatically expansion, the Loewen Group Inc, the second largest death care company in North America, went downhill abruptly in 1998. Compared with those in 1997, its net income decreased from $42.7 million to $599 million in deficit, meanwhile, its long-term debt due in one year increased by more than 2000%, from $43.5 million to $874.1 million, and total liabilities exceeded the total assets by $326.8 million (in US dollar). Because Loewen could not get out of its financial crises, in June 1999 the company had to file for bankruptcy protect.

ANALYSIS
As to the causes of the company’s bankruptcy, some people blamed the accounting principle the company used; many others attributed the business failure to the
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Obviously, this practice was good not for shareholders’ but for managers’ own interests.
•     Abused the company’s resources

When the company faced the hostile takeover offer from SCI, the management adopted lucrative severance packages, or “ golden parachutes,” for more than 70 of its senior executives.
This is an example of how hard the management did to its own interests. Though the interests of the be taken care of by the company in this situation, however, to grant so generous severance packages to so many executives at a time would provoke the public to doubt if the management abused the company’s resources to satisfy its own interests.
•     Adopted a risky aggressive acquisition strategy
Loewen adopted a risky aggressive acquisition strategy to speed up its rapid development. The strategy seemed working pretty well before 1998: the consolidated revenues had grown by 30% a year on average, from $303 million to over $1.1 billion in the past several years; the share price increased from $3 per share in December 1987 to $55.5 in September 1995. However, this was a risky strategy that could not sustain the development because the acquisition was based on mountainous debt (see exhibit 6). When the revenue declines and then could not match the accrued debt, the chain of cash flow breaks leaving companies who adopt this

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