Colt Industries

10 Pages Posted: 21 Oct 2008

See all articles by Robert M. Conroy

Robert M. Conroy

University of Virginia - Darden School of Business

Abstract

The focus of this case is an announcement by Colt Industries of its intent to recapitalize the firm. The management proposes to issue $1.5 billion in new debt and pay an $85 cash dividend. The stock price before the announcement was $67. The case requires the student to estimate what the stock price will be after the recapitalization.

Excerpt

UVA-F-0901

COLT INDUSTRIES

God made man, and Colonel Samuel Colt made them equal.

—Unknown

On Sunday afternoon, July 20, 1986, at four o'clock, Fred Graham, an analyst with Goldman Sachs, was enjoying a cookout with his family when the telephone interrupted. Graham's boss, Jack Roberts, informed him that one of his companies, Colt Industries, had just declared a startling major recapitalization.

The basics of the plan called for shareholders to exchange each of their Colt shares for $ 85 in cash plus one new share of stock in the new recapitalized company. Shares held in the employee pension fund, 7% of the outstanding shares, would not receive cash but would receive one new share plus new shares worth $ 85; the actual number would be determined by dividing the average trading price for the 15 days following the exchange of the publicly held shares.

. . .

Keywords: corporate financial strategy, capital structure, restructuring

Suggested Citation

Conroy, Robert M., Colt Industries. Darden Case No. UVA-F-0901, Available at SSRN: https://ssrn.com/abstract=1278844

Robert M. Conroy (Contact Author)

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States

HOME PAGE: http://www.darden.virginia.edu/faculty/conroy.htm

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