215235 1 Case Study

Topics: Peak oil, Petroleum, Cash flow Pages: 16 (4384 words) Published: July 18, 2015
Mensa, INC.
(A fictional company)
Mensa, Inc. was a firm with a long and uneven history. It was started in 1974 and at one time or another had been a competitor in more than two dozen industries with varied success. Each of the several CEOs had developed a different strategy and over the decades the firm had had many manifestations. The only real constant in Mensa’s strategy had been a commitment to the packaging business in its several forms. But, even in this business there had been any number of changes in direction which diluted the impact of capital spending and had the effect of Mensa never achieving a strong position in any of the packaging segments although, briefly, in the early 1980s Mensa’s total packaging revenues made it the largest packaging company in the world. The lack of a competitive advantage in any of the large packaging segments resulted in Mensa being pushed into producing commodity products which had them penned between powerful steel and tinplate suppliers and powerful food and beverage producers as customers. Also, as their large customers grew there was pressure for them, especially in the low margin food business, to build their own packaging facilities, especially can plants. The long term effect of this was to cause Mensa’s packaging profitability to lag its better positioned competitors. At one time or another during the 1980s and 1990s the company produced auto parts, electrical equipment, power equipment, electric motors, metal alloys, airplane wings, furniture, appliances, communications equipment, specialty chemicals, and consumer products, to name only the most important of their many businesses. They also bought several regional retail chains. None of these businesses worked out well and all were either sold or liquidated at a loss. The financial and human capital devoted to these businesses was largely lost. Further, the problems they caused diverted capital and management attention from better opportunities. NEW STRATEGIES FOR THE 21st Century

By the late 1990s under still another new CEO a management consensus had developed. The consensus was to (1) reduce holdings in operations that fall short of performance goals or do not fit the long-term strategy of the company; a target of realizing $600-$700 million from the sale of such assets was established, (2) reinvest these funds in areas promising profitable growth, (3) improve return on equity over the long term as a consequence of this reinvestment strategy, and (4) strengthen Mensa’s balance sheet and credit standing. The new benchmarks for the firm included having a well balanced BCG matrix that considered fast growing industries to be those that were growing at more than 10% per year. The end result would be a firm with four main businesses: financial services, energy, packaging and forest products. The latter was primarily a paper, fiber drum, and cardboard business that also generated about 25% of revenues from selling lumber and wood chips.

This strategy was followed and many businesses were sold although the amount of money received for the businesses fell short of the $700 million target by almost $250 million. The businesses sold were all either small competitors in their industry or were in industries that suffered from overcapacity and low returns.

1

The New Mensa
By 2XX1 the sales were complete and most of the realized funds had been redeployed into Mensa’s four main business groups, resulting in a firm that management thought met their goals. The Chairman stated in the 2XX0 Annual Report that Mensa was ready to move on to a new phase:

“Our primary task is now the efficient production of quality goods and services within our restructured business segments: packaging, forest products, insurance, and energy. Further details on Mensa’s posture are contained in the attached operating and financial statements. Our overall strategy is to achieve the competitive advantages that can result from increased productivity,...
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