Sealed Air

        Sealed Air Corporation's leveraged Recapitalization is a strategy where a company takes on significant additional debt with the purpose of paying a large dividend. The result is a far more financially leveraged debt ratio, which is called "optimal" debt capacity. This technique can be used, and has been used, as a "shark repellant" to ward off a hostile takeover. This is done by adding debt, eliminating idle cash and debt capacity.
        Sealed Air had traditionally neglected manufacturing in favor of marketing, they were able to do this because of a lack of competition, however mid-1980s increased competition and expiring patents on products. Sealed Air reacted to this increasing competition by introducing the WCM-World Class Manufacturing program, which promoted manufacturing excellence. This increased their cash and debt capacity. Competitors were marketing cheap imitations of Sealed Air’s products by inventing around SA’s manufacturing process patents.
Sealed Air Corporation’s leveraged recapitalization was a good idea in the context of its changing competitive environment. Competitors were producing the products previously patented by Sealed Air in abundance and were selling them for a cheaper price.
            Sealed Air stock price in 1989- stock seemed to be undervalued because they has a lot of free cash flow which tempted the company to waste money. It was depressed and did not seem to be improving in the near future. Sealed Air had a problem with managing their cash, Sealed Air had 50 million in cash and short term investments and the cash on hand as stated in the case was expected to double in the next year.

            The market value was created by the recapitalization of Sealed air. The various events at which market cap increased due to the recapitalization is shown at Exhibit 1. At one point in time the market value advantage was $141 million when the stock price was at a maximum of...