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CASE STUDY: Zenith
Client
Zenith Electronics Corporation, founded in 1918, has been one of the leading brands in consumer electronics for more than eight decades. Zenith has been responsible for numerous industry-leading developments, including the first wireless TV remote control and the first HDTV system using digital technology.
At the time of our engagement, Zenith had incurred losses in all but one of the years since 1985. The Company’s cash flows for 1998 were negative and absent a restructuring, its cash flows for future years were projected to be insufficient to meet all of the Company’s working capital requirements, scheduled cash debt service obligations and anticipated capital expenditures.
Assignment
To assist the Company in implementing a financial restructuring plan that would allow the Company to complete its operational turnaround and begin to recognize the value associated with its brand name, patent and technology assets, and distribution channels. Considerations:
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The Company was seeking to transition to a sales, distribution and technology company by discontinuing and disposing of substantially all its manufacturing operations and selling certain other assets such as warehouses and equipment. |
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The Company needed to come to agreement on a plan with a variety of interested constituencies with different agendas. Constituencies included: a foreign majority shareholder, subordinated noteholders, a bank group and an equity committee. |
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The Company needed to obtain intermediate as well as exit financing. |
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A significant amount of the Company’s future value was associated with intangible technology assets, which were difficult to value. |
The scope of PJSC’s assignment included:
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Valuing the individual components of the business: technology patents, consumer electronics business and joint ventures |
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Exploring a sale of all and parts of the Company |
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Evaluating capital structure alternatives |
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Assisting the Company in obtaining Debtor In Possession and Exit financing |
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Leading negotiations with Creditor’s Committee and Equity Committee |
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Leading the Company through bankruptcy process and providing necessary expert testimony |
Challenges
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Valuation of a business with rapidly eroding market share in its core business and a significant amount of its projected earnings associated with technology patents with an uncertain commercial value |
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Limited number of buyers interested in the Company as a whole or in any of the pieces |
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Generating value for subordinated holders |
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Strong opposition to Plan of Reorganization by Equity Committee |
Outcome
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Filed prepackaged plan of reorganization in July 1999. |
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Worked with technology consultants to develop financial projections for the Company’s HDTV patents. |
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Completed valuation of the Company’s HDTV patents. |
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Sold non-strategic assets of the Company, including the Network Systems Division. |
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Structured new subordinated note to provide value to existing subordinated note holders. |
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Obtained attractive Debtor in Possession and Exit financing for the Company. |
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In 2001, Zenith launched its first major national advertising campaign in 15 years. |
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Zenith’s 2002 product line comprised more than 75% digital products as opposed to a minimal amount prior to the restructuring. |
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