Stone Container Corp Essay

1978 Words May 1st, 2011 8 Pages
FI 602

Case 6
Stone Container Corp
Case Analysis Write-up

I. Overview

J.H. Stone & Sons, a cardboard container and paper products manufacturer was founded by Joseph Stone in 1926 and after World War II reincorporated as Stone Container Corporation. Early on in its conception Stone was able to grow significantly by way of acquisition. The company had a policy of paying for its acquisitions either entirely in cash or borrowing funds with early repayment. Continuing to grow, the company became publicly-owned when it issued its first 250,000 shares of stock in 1947.

After its first IPO, Stone was able to widen its reach demographically. The company began acquiring even more to better diversify itself in
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* Highly competitive Containerboard/Corrugated Containers niche with Stone facing 5 direct competitors. III. Condition of the Company

Due to heavy acquisition, Stone Container Corporation has put themselves in a tight financial situation with upcoming debt and interest payments. Stone's plans to finance its large acquisitions such as the one of Consolidated-Bathurst, went awry when its plan to refinance its loans with high-yield bonds was eliminated. This was partially due to regulators forcing many saving and loans banks to dump their junk bonds. Stone found a way to relieve some of its financial pressure by refinancing and restructuring its debt using securities such as interest rate swaps and convertible exchangeable preferred stock. An interest rate swap would allow Stone to exchange a stream of interest payments for another party's stream of cash flows. This would alter their exposure to interest-rate fluctuations, by swapping fixed-rate obligations for floating rate obligations. Convertible exchangeable preferred stock is stock that can be exchanged at the issuer's option for convertible debt that has the same yield and conversion terms. Both of these options could be problematic for Stone because it leaves them open to interest rate risk. Not only does Stone Container have to battle repayment struggles but it is also facing a volatile industry. In the early 1990's,

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