Fisher & Paykel Industries Ltd. Restructuring

Abstract

This case examines the use of an American Depositary Receipt (ADR) program in the context of an overall restructuring plan that students are asked to evaluate. A New Zealand-based conglomerate's stock in recent months has underperformed in the New Zealand market. Analysts have begun to speculate that the company suffers from the well-known "conglomerate discount." In June 2000, in an attempt to improve the situation, Deutsche Bank Alex Brown (DBAB) is asked to conduct a strategic review of the company.

Excerpt

UVA-F-1442

Rev. Apr. 18, 2014

Fisher & Paykel Industries Ltd. Restructuring

The months leading up to June 2000 had been difficult ones for Gary Paykel, chief executive of the company that bore his family's name, Fisher & Paykel Industries Ltd. (F&P). Although the company's operating performance had improved, the New Zealand–based conglomerate's stock price had languished in recent months (see Exhibit 1). Analysts began to speculate that the company suffered from the well-known “conglomerate discount,” in which shares of an entire company appeared to sell at a lower value than the combined value of its separate business units. F&P's business units included household appliances, consumer finance, and health care. In an attempt to improve the situation, Paykel commissioned Deutsche Bank Alex Brown (DBAB) to conduct a strategic review of the company on June 1, 2000. In November 2000, the board met to hear the restructuring options prepared by Mark Klausner, managing director of DBAB's Equity Capital Markets Group. Foremost among the recommendations was a proposal to turn F&P's three existing businesses into two: the appliance and consumer-finance divisions would form one business and the health care division the other. An important aspect of the restructuring called for a portion of the health care division to revert to U.S. investors through an offering of American Depositary Receipts (ADRs). At the same time, the company's shares would continue to trade on the New Zealand Stock Exchange. The ADR issue was motivated by a belief that U.S. investors would pay a higher value for the health care company than would New Zealand investors. Thus, the board faced a difficult set of decisions: whether to restructure the company into separate businesses and whether that split should be accompanied by an ADR issue in the United States.

The Company

Fisher & Paykel was founded in Auckland, New Zealand, in 1934 as an importer of refrigerators, Maytag washing machines, and Pilot mantle radios. In 1938, it started manufacturing appliances under license to several major international appliance companies. Driven by a desire to export, it began to manufacture products utilizing in-house technology in the mid-1960s. By the late 1990s, F&P had become one of New Zealand's best-known conglomerates.

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Keywords: Restructuring, American Depository Receipts, (ADRs), Conglomerate, Discount, IPO, security issuance