Rothschild: The Conergy Financial Restructuring Conundrum, LBS Case Study Solution
Initially there were extraordinary returns in the market globally which led Conergy to invest in projects over ambitiously which eventually derived the prices to go down dramatically. It was observed that the average price reached to half between 2008.Less focus on research into the market led the company to make unfocused strategies towards goals which were no more favorable for the company because of the shift of the market. In Germany solar thermal energy market and wholesale price declined by 30% and 20% during 2007.
Huge investments were made to diversify the business and for this purpose factory was constructed with huge infrastructure for manufacturing solar modules but instead of positive outcomes company witnessed loop holes inn operations which resulted in inefficiency of operational activities and inventory became costly.In 2007 company bore a huge costs such as labor cost and material cost by hiring more than 1,400 employees and increased short term financial liabilitieswhich resulted in financing of working capital
Poor analytical skills resulted in over exaggerated expectations forrevenue and played a role to bring the company into liquidity as revenue was lower and fixed costs was higher. As a result of this company’s share price went down by 66% only in half a month of disclosure in publication mentioning company’s reduction in revenue and forecasts of its earnings.
In order to turn around the company, Rothschild which was hired as a Financial Advisor in August 2010 after the company loses its liquidity to pay off its debt according to a specified schedule, advised to take short loans to make the debt conditions stable and invested into development of the business but did not succeed because photovoltaic system was no more in demand in the market in 2009.Another attempt to rescue the company from the trouble was a debt-to-equity swap but in highly volatile market it was highly criticized by the stakeholders and ultimately got rejected. Moreover to cope with the liquidity issues company issued 2.1 million shares on Nov 7, 2007 and increased its capital by $70,350,000 but it worked temporary for a shorter period of time and was not an ideal solution.
Change of CEO from Hans-Martin Ruter to Ammer brought transformational changes into the company as he decisions such as: focusing on core business which is photovoltaic, disposing off the idle assets, divisional structure of organization, acquiring new and selling or closing down subsidiaries, provide independency to subsidiaries to assess performance and adopting KPI model to evaluate the performance for better transparency with the help of unified IT architecture, efficient management of working capital by laying off unnecessary number of employees by 40%, reduction in inventory and increasing capital by €339 million………………………………….
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