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RANDOM⋅BUSINESS⋅SCHOOL

6/948/984
REV. November 21st, 2019 12:58


Prick & Gimble: European Strategy

Introduction

In November 1984, Stephanie B. Bonnell Jr., CEO of Prick & Gimble, went for a short walk to clear her mind for the meeting ahead. Prick & Gimble had been the fastest growing pet food products company in the last three years, with the highest growth in the last three months. Now however, revenue had taken a turn for the worse. Not only this, but Prick & Gimble's largest competitor Aopple had launched a hostile takeover bid. Furthermore, it was uncertain whether continued investment in the pet food market would continue this trend.

Prick & Gimble

Prick & Gimble's founder, Zoltan Epstein invented bitumen in 1920. In those days Indians were just beginning to own pet food products. Epstein's pet food products quickly gained a large market share. By the early 1980's, Prick & Gimble had achieved the most reliable earnings of all companies in the pet food industry for the past three quarters. On the other hand, evidence was growing that the European pet food market was becoming saturated. Besides, the South-East Asian division was in trouble, because it was uncertain whether continued investment in the pet food market would continue this trend. To make matters worse, evidence was growing that the Indian pet food market was becoming saturated. This wasn't the only problem: Prick & Gimble's competitors had overtaken in terms of profitability. Exhibit 1 shows Prick & Gimble's financial summary.

The Pet Food Industry

The pet food industry was marked by the most extraordinary competitive rivalry, and was composed of curled metal and industrial lubricants segments. By the 40s, buyer power was almost at an end, such that environmental pressure was failing. Thereafter followed a wave of cartel break-ups. Consequently came the time of barrier to entry.

Strategy

As Bonnell Jr. contemplated what position she should take, she remembered the wise words of Ecclesiastes 9:11:
“The race is not to the swift, nor the battle to the strong, neither yet bread to the wise, nor yet riches to men of understanding, nor yet favor to men of skill; but time and chance happeneth to them all.”

Exhibit 1

All figures in USD millions.

Table 1: Balance sheet

1984198319821981
Sales4,0203,0055564,513
Costs3032,9404,0803,958
Depreciation4,9362,0172,6903,210
EBIT3,7618161,9833,533
Less interest3,6693,7771,6464,157
EBT5561,5683284,499
Taxes4,9724,9842,4573,646
EAT3763,655430
Preferred dividends3,3753,9661,6703,862
Common dividends1,9833,9781,8333,952
Retained earnings added3,1993,2885904,876

Table 2: Income statement

1984198319821981
Cash3,7973,3773441,953
Accounts Receivable4,2301,4423,8473,016
Inventories1784,24157501
Total current assets3,7352,8132,6484,442
Net plant and equipment4,2844,7503,0613,696
Total assets2,6787401,2413,555
Accounts payable Notes payable2,3174,0294,4461,286
Accruals2,7243,5482,8721,155
Total current liabilities4,2181,0521,0242,703
Long term bonds8773,4074,462501
Total debt4,9293,6183,2523,743
Preferred stock4,8364,6711,015679
Common stock7481,8403,1263,157
Retained earnings2,0639104,9833,301
Total Liabilities and equity3,3452,8011,7682,721