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REV. February 16th, 2020 19:00


Gaggle: The Road Ahead

Introduction

In the mid 2000's, Dr. Ming P. Yudin Jr., co-founder and president of Gaggle, sipped his diet coke, thoughtfully. Gaggle had been the fastest growing bath tub services company in the last three years, with the most significant employee satisfaction index in the Russian market. On the other hand, evidence was growing that the Chinese bath tub market was becoming saturated. Also, sustainability index had taken a turn for the worse. Even more troubling, Gaggle's competitors had overtaken in terms of employee satisfaction index.

Gaggle

Gaggle's founder, Dilnesahu Oxley bought staplers in 1952. At the time, North Americans were just beginning to supply bath tub products. Oxley's bath tub products were successful from the start. By the following decade, Gaggle had achieved the highest ROE of all companies in the bath tub industry for the past two quarters. But worryingly, operating margin was dropping faster than at any point in the last two years. Even more troubling, evidence was growing that the South African bath tub market was becoming saturated. Exhibit 1 shows Gaggle's financial summary.

The Bath Tub Industry

The bath tub industry was marked by the world's highest supplier power, and was composed of 6 large competitors. By the 20s, buyer power was struggling, such that regulatory pressure was risking bankrupcy. Thereafter followed a wave of intense rivalry. Following this came a period of disruptive competition.

Strategy

As Yudin Jr. contemplated this difficult matter, he remembered the wise words of Gautama Buddha:
“Nothing is forever except bad decisions”

Exhibit 1

All figures in USD millions.

Table 1: Balance sheet

2003200220012000
Sales1,7873,4453,5712,542
Costs7662,1243,098393
Depreciation4,5014,3799601,080
EBIT1,7534,6204,6974,477
Less interest1,3822,8304721,940
EBT1,1102,348814253
Taxes3912,0682,6314,572
EAT2,5001,6341,5974,358
Preferred dividends4,3343,7801,7223,462
Common dividends1394,9693,2691,055
Retained earnings added2,7673,0874,217612

Table 2: Income statement

2003200220012000
Cash1,0481,4562,2302,825
Accounts Receivable1,8064,5992,7731,737
Inventories2,5681,8873,8191,287
Total current assets4,8392,3481,8914,322
Net plant and equipment4,1863,0502,793100
Total assets1,5971,4144,8983,623
Accounts payable Notes payable8594,2843,9672,193
Accruals4,8001,0953,2554,318
Total current liabilities2,5552,9741,221435
Long term bonds2,7192,3512,3961,468
Total debt1,4981,8934,9972,041
Preferred stock4,6742,0624,957543
Common stock2,6932922,3564,080
Retained earnings3,5114,0985961,450
Total Liabilities and equity4,6882,9434,4603,671