Väätsa Agro AS financial distress

Abstract

Subject area Corporate finance, financial management. Study level/applicability The case is suitable for Master's level corporate finance or financial management courses. Sufficient prior theoretical knowledge of corporate finance concepts is required. Case overview Väätsa Agro AS is an Estonian dairy farming company. Although the company had operated successfully in the past, its ownership changed significantly in 2006 leading to changes in the company's capital structure. Starting from 2008 milk prices on global markets decreased and this trend had also affected the company's profits. As a result of these developments the company's financial situation had deteriorated since 2008 and towards the end of 2009 the company had problems in meeting its obligations. On 1 September 2009 its owners hired a consultancy firm represented by Karl Kukk to tackle the company's problems. Expected learning outcomes The case should help students to: understand the risks of LBOs; understand the importance of an appropriate capital structure of a firm; evaluate a company's financial situation and compare it with competitors; understand the alternatives facing firms in financial distress; and choose the best course of action for a distressed firm considering the pros and cons of each alternative for each stakeholder group. Supplementary materials Teaching notes are available; please consult your librarian for access.