Sealed Air Cryovac Financing Case Study

Case Study
Sealed Air Corporation:
Financing the Cryovac Acquisition

Prof. Ian Giddy, New York University

Sealed Air and the Cryovac Acquisition

Sealed Air manufactures packaging materials--everything from polyethylene foam, plastic bubble wrap, and tear-resistant mailing envelopes to meat-packing products. Sealed Air's Instapak packaging equipment is used by manufacturers of products like electronic equipment, furniture, office supplies, and cosmetics to produce custom-formed foam packing inserts. In 1998, Sealed Air agreed with W.R. Grace to acquire its Cryovac division. Cryovac was also in the packaging business, but with a focus on food packaging.

Since Cryovac was actually bigger than Sealed Air itself, the acquisition would require raising a huge amount of financing -- the cost was just over two billion dollars. Fortunately, Sealed Air had been able to pay down most of its debt by this time. Still, deciding how to finance this acquisition was a challenge. The following table show Sealed Air's financial statements at end-1997.

Balance sheet Assets Cash Other current assets Long term assets, net Total assets Liabilities Short term debt Long-term debt Equity Total Liabilities & Equity	($ millions) 36 215 258 498 164 78 257 498
Income Statement Revenues Expenses Earnings Before Interest and Taxes Interest Expense Tax (at 35% rate) Net income	842 704 138 4.6 53.6 80

Questions:

1. Should Sealed Air have financed this acquisition with debt, equity, or both? How much?

2. What did the company actually do? What effect did this have on the company's financial health?

Appendix: 10-year financial history of Sealed Air Corporation.