Valmont Industries, Inc

Abstract

This case serves as an introduction to the concept of economic value added (EVA). The student is placed in the position of Valmont's CFO to decide whether EVA can live up to its promise to motivate managers to act like shareholders and ultimately lead them to make value-enhancing decisions that can reverse Valmont's weak earnings and lackluster stock-price performance. The case works best if students are acquainted with the concepts of cost of capital and net present value. The teaching note that is available for registered faculty explains how to incorporate the accompanying six-minute video supplement. Excerpt UVA-F-1191 Rev. Feb. 1, 2011 VALMONT INDUSTRIES, INC. Forty years ago, we made our first center pivot irrigation system. It was essentially a long steel pipe resting upon a set of wheels that would travel in a circle, watering crops. A few years later, we stood that irrigation pipe on its end and made our first light pole. It was our first lesson in leverage. It wouldn't be our last. —Valmont 1993 Annual Report After being one of the most successful Fortune 500 companies during the 1980s, Valmont Industries fell on difficult times in the 1990s. For the period 1990–92, Valmont's earnings fell well below the company's peak year of 1989, and Valmont management believed that the company's stock had fallen out of favor with Wall Street (Exhibit 1). Although Valmont management fought back by cutting costs, restructuring, and spinning off segments of its business, by the summer of 1993 there was still no tangible evidence that the tide had turned. . . .