Assignment 1

Unicord PLC: The Bumble Bee Decision

Case Analysis

Executive summary

A Thai based company established in 1978, Unicord’s main business involved the
processing and canning of fresh tuna which were marketed worldwide.

The global tuna industry consisted of tuna fishing as well as canning. Worldwide, the
United States was the largest importer of canned tuna.

In order to break into the US market and avoid costly tariffs Unicord acquired US based
tuna company Bumble Bee for an amount that stretched the company’s financial
solubility thin.

Once Unicord had entered the US market it was faced with external and internal
challenges that included controversial fishing techniques, cultural barriers between US
and Thai management, aggressive price wars in the US market, the tuna-dolphin
controversy and division on major corporate decisions by top Thai management.

Due to Unicord’s inability to steer around these challenges the company fell into receiver
ship in 1995.

The following case analysis will attempt to present the most feasible solution to the
problem of how to resuscitate Unicord from its present state.

The recommendation includes the purchase and reorganization of Unicord by a private

equity investment firm in order to make the necessary changes to allow Unicord to
become a profitable company once again.

Problem statement

What feasible ways can be used to resuscitate Unicord. Although few options are still
available, first we need to clearly establish what had gone so terribly wrong with Unicord
in so short a time. A sophisticated grasp of events will be necessary.
Analysis

Unicord’s logic underlying the acquisition of Bumble Bee was to successfully counter
growing trade protectionism imposed by United States which had its own tuna
processors. Barriers to competition existed in various forms: tariffs, import duties, and
quotas as well as environmental and food safety standards. The tuna processors in
Thailand perceived these barriers to be a significant competitive hurdle that needed to be
overcome in the United States.

In evaluating Unicord’s acquisition of Bumble Bee, the logic was very sound
strategically. Unicord would gain better access to its largest market (the United States),
and secure a buyer for its tuna. Unicord would also be closer to its goal of owning
facilities on all five continents. It would be less exposed to market fluctuations and could
better secure its future. The Bumble Bee acquisition would make Unicord the world's
biggest tuna canner, increasing the prestige of Unicord's owners and decision-makers,
and even the Thai people.

Financially, it was pushing the limits of Unicord’s financial solubility. Thailand’s

economic boom masked this fact making it feasible for the deal to go through.

After Unicord’s acquisition of Bumble Bee, the focus changed from simply having access
to the US market to aggressively increasing market share and making Bumble Bee
number one.

Of the factors that lead to Unicord’s demise some were controllable and some were not.

The factors that were uncontrollable by Unicord were:

1. The tuna-dolphin controversy not only had reduced profit margins but also fuelled a
noticeable decline in tuna consumption in United States. These outcomes further
intensified rivalry in a commodity industry.

2. In 1992, the U.S. per capita consumption of canned tuna continued to fall; it had
dropped approximately 15% over the last three years. In a commodity industry, this was a
significant drop.

3. In anticipation of price wars, many brokers had bought canned tuna in bulk for
redistribution. When tuna prices increased, only the brokers benefited because all profits
were essentially redistributed from tuna canners to middlemen.

4. The Bangkok Bank insisted Unicord repay its $113 million debt by the end of 1995. As
a result, the company’s shares fell to a low of 5.80 bahts. These events collectively
intensified the tremendous pressure on Dumri to chart Unicord's course out of troubled
waters. On June 13, 1995, Dumri shot himself dead in his office. Following his suicide,
Unicord fell into receivership, thus ending one of Thailand’s greatest corporate success
stories.
The factors that were controllable by Unicord were:

1. Aggressively cutting prices to displace incumbents.

2. Investing 189 million bahts to increase its (annual) Thai production capacity of
processed tuna by 33%. The company was confident of further market share gains even
though industry profitability remained low due to price wars involving powerful
competitors.

In hindsight Unicord could have done the following differently:

1. Unicord could have been more flexible in its cross cultural relations with the
management at Bumble Bee. By this I mean that Dumri could have been more
open or more focussed on breaking down cultural barriers. These cultural barriers
eventually played a role in the downfall of Unicord. For example, when the
management at Bumble Bee was instructed to sell the plant in Puerto Rico and
repatriate the revenues to Thailand they refused. Had more focus been placed on
breaking down cultural differences from the beginning of the relationship this
could have been avoided.
2. Unicord could have been more conservative in its objective of increasing market
share in the US. Although the US was the largest tuna market it was still only one
of the markets Unicord operated in and was extremely competitive with slim
profit margins. Starting a price war may have hurt Bumble Bee’s competitors but
it also hurt Bumble Bee and Unicord.
3. Unicord could have been more conservative in its purchase of a US based
company and maybe looked at buying number four or five instead of number
three. This still would have allowed them to accomplish their goals of entering
the world’s largest tuna market without stretching their financial solubility so thin.
Discussion of alternatives

Below are several feasible alternatives that can be utilized to solve the problem of what
can be done to resuscitate Unicord:

1. Do nothing, ie liquidate all assets and pay any revenues to creditors.

2. Look for new creditors and continue operating as status quo.
3. Sell Bumble Bee and focus on resuscitating Unicord’s Thai based operations.
4. Find a private equity investment firm to buy, restructure, reorganize and sell
Unicord in whole or in parts.

In considering alternative number one which is to do nothing to resuscitate Unicord and

simply dissolve its assets to pay its creditors is definitely an option and probably the most
likely considering its financial state. But I believe trying some of the other alternatives
first before defaulting to this alternative would be in the organization’s best interest.

Alternative number two would be to look for new creditors who would be willing to
refinance Unicord’s debt so that the company can continue operating as it has but with
some structural changes. The problem here is that any company willing to refinance
Unicord’s debt would do so at a rather high interest rate considering the volatility of the
company. This would create even tighter profit margins and less room financially for
Unicord to make the necessary changes to resuscitate the company. Plus, continuing to
do business the way it has been would not make Unicord’s external environmental
problems go away and would probably lead the company down the same path to
receivership again.

Alternative number three is something that can be attempted by Unicord as it exits as a

company now. Unicord would need to sell Bumble Bee, sell its plants and assets that
were acquired to supply Bumble Bee, sell off any divisions of the company that would
bring in immediate cash flow and reorganize Unicord so that it is once again profitable.
The problem here is that the company is already in receivership and would not have the
time to carry out these tasks quickly enough to appease its creditors.

Alternative number four would be to have a private equity investment firm purchase
Unicord at a discount from its market value, pay its creditors, restructure, reorganize and
sell Unicord in whole or in parts at a profit. This would allow Unicord to continue
operating as a company and therefore have the least economical impact on the industry,
its employees and the countries in which it does business. The problem here is finding
private equity investment firm with the capital and the desire to take on such a deal.

Figure 1 will attempt to break down the advantages and disadvantages of the alternatives.
Figure 1
Alternative Advantages Disadvantages Accept/Reject
1. Liquidate Unicord - Unicord is dissolved - Employees, industry
and pay creditors. and problem for and economies in
decision makers ends. which Unicord
conducted business
suffer. Reject
- Does not
accomplish main
objective of
resuscitating Unicord
2. Find new creditors. - Unicord can - Tighter profit
continue operating as margins
it is. - Does not alleviate Reject
negative external
environmental factors
3. Restructure - Employees, industry - Creditors may not
Unicord, selling and economies in allow for the time
Bumble Bee and all which Unicord necessary to
Reject
other unneeded conducted business restructure.
assets. would be least
affected.
4. Find a private - Immediate injection - May be difficult to
equity firm. of capital. find a private equity
- Employees, industry firm to take the deal.
and economies in
Accept
which Unicord
conducted business
would be least
affected.
Recommendations

My recommendation would be to negotiate the take over of Unicord by a private equity

firm.

Negotiating the take over of Unicord by a private equity firm would give the company
the injection of capital and therefore the time needed to reorganize and restructure the
company.

Once the takeover has been completed the private equity firm should complete the
following tasks:

1. Sell Bumble Bee and any other assets that are no longer needed. This would put
Unicord back in a profitable position.
2. Sell any unprofitable divisions of Unicord if any or inject capital into the
divisions with the greatest potential for growth.
3. Lobby the Thai government for legislation that will help companies like Unicord
be more successful internationally.
4. Look for a smaller US based company to purchase or one that has a more
reasonable price tag but that would still allow Unicord to renter the US tuna
market.
5. Allocate revenues to reorganize and re-educate management in practices of doing
cross cultural business internationally.
6. Sell Unicord in part or in whole at a profit