Pacific Grove Spice started as a small specialty grocer on the Monterey Peninsula of California in the early 1980s. Within 10 years they were the “place” to find spices in Central California and now have a widespread reach covering all 50 states. The spice industry that it is in has been growing steadily because of how important a role spices are getting in the kitchens and in cooking. The growing concern about obesity and diet has also left a positive impact because of the health conscious people that desire healthier meals that are still favorable. The demand for spices is at an all-time high and although multinational firms like McCormick & Company dominate the industry, many small firms are competing successfully, Pacific Grove spice being one of them.
The problem that Debra Peterson and Fletcher Hodges are having is that they have three choices to make. They have to decide whether they should accept an offer from a cable-cooking network to produce and sponsor a new program, raise new equity by selling shares of common stock, and/or acquire High Country Seasonings-a privately owned spice company. While making their decision they have to keep in mind that the bank financing their company wants them to reduce interest-bearing debt to less than 55% of total assets and the equity multiplier to less than 2.7 times by June 2012. We recommend that
Debra Peterson is currently the Chief Executive Officer of the Pacific Grove Spice Company. The Chief Financial Officer, Fletcher Hodges, and she are trying to figure out what strategy to take to meet the demands of the bank that finances their company. The recent financial crisis had made the credit committee uneasy and they now want Pacific Grove Spice to reduce interest-bearing debt to less than 55% of total assets and the equity multiplier to less than 2.7 times by June 2012. They have three options they are currently considering and this case study illustrates the financial forecasts for the next few years and showcases what we feel is the best decision for them regarding their options and the banks demands.
Pacific Grove Spice’s operations are not profitable enough to quickly bring it into compliance with the bank’s requirements. It’ll take about four years with just the regular operations.
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