1. The Case of the Expensive Expansion.
- Author
-
Willigan, Geraldine E.
- Subjects
CORPORATE growth ,ECONOMIC expansion ,TOY industry ,BUSINESS expansion ,MARKETING strategy ,BUSINESS finance ,EDUCATIONAL toys ,EDUCATIONAL toy industry ,DOLL industry - Abstract
1988 was a big year for Playto Industries. The Teach-Her doll, Playto's first new product since Jim Clayton took over as president, was a winner in the East. Now Jim planned to take Teach-Her national and to introduce another new educational toy called Playto's Labs. All he needed was the financing, which Ray Reilly--the young vice president of finance--would arrange. Playto needed $30 million--almost as much as its existing capitalization--to grow. Monument National Bank said it wouldn't lend a dollar more than $20 million. The price on any new stock Playto might issue would be deeply discounted, thanks to the visible failures of Coleco and Worlds of Wonder. The best option seemed to be subordinated bonds. Rates were high, but if Playto made the bonds convertible, rates fell from 12.5% to a more manageable 8.75%. For months, Jim had been riding high thinking about the company's expansion plans. Judith Freidman, the vice president of marketing, had researched the market and was lining up potential customers in the Midwest. Jack Abrams in production had arranged to lease factory space in Ohio while Playto built its own plant. Judith and Jack were anxious for Jim's go-ahead. Meanwhile, Ray was awaiting Jim's approval to issue the bonds. But when Jim sat down to study the financial statements, he got a knot in his stomach. Interest coverage might drop to half what it was in 1988. He was no financial expert, but he knew that if a competitor imitated Teach-Her or if Playto's Labs flopped, the company would be in serious trouble. When Jim caught himself rethinking the entire marketing strategy, he stopped. "It's just a financing problem," he reminded himself. But was it? The president of a toy distributor, a CFO, a treasurer, and two professors analyze Playto's situation. [ABSTRACT FROM AUTHOR]
- Published
- 1989