Case Study
The Leveraged Buyout of John M. Case Co.

Prof. Ian Giddy, New York University

John M. Case LBO (HBS 9-291-008)

The owner of a small, privately held company decides to sell out, and a group of the company's top managers seeks to structure a leveraged buyout.

Questions :

1. What are the most important operating and financial characteristics of the Case Company?

2. Is the company worth Mr Case's $20 million asking price?

3. Can the $20 million purchase be financed so that management can retain at least 51% ownership? What sources should management tap? In what amounts? Is the return being sought by the venture capital reasonable?

4. How compelling a buyout opportunity is this proposition for the four managers?

5. Would you, as a commercial banking lender, provide the loan needed to finance the seasonal buildup in accounts receivable and inventory? On what terms?

6. Would you, as the venture capital firm, provide the balance of the funds needed? If so, on what terms?

Note :  Mr Case is willing to take a note with a face value of $ 6 million and an interest rate of 4%.  However, the note's economic value due to the low interest rate, is only $ 4 million; the $20 million sale price is based on receiving the note plus $ 16 million in cash. -