Question

OLD WISCONSIN BREWERY, INC. Old Wisconsin Brewery, Inc. ("Old Wisconsin") is a brewer of specialty beers located in western Wisconsin. Old Wisconsin has been in existence for 75 years and one of the oldest private breweries in the state. Its physical plant was constructed in three phases and is in serious need of substantial upgrade and repair. These repairs would cost in excess of $700,000. Its lenders and unsecured creditors are generally cooperative, but it is owned by 15 shareholders who also hold subordinated notes from the company in the amount of $910,000. A majority. of the subordinated note holders refused to renegotiate the terms of the subordinated notes and refused to invest any additional moneys in the company to make the necessary repairs to the physical plant. Pursuant to a voting agreement, the principal shareholder ("Mr. Big") controls 3 of 5 seats on the board of directors and would like to save the brewery which has been in his family for all of its history. A major beer distributor in LaCrosse, Wisconsin ("LaCrosse Co") holds the license for Old Wisconsin's flagship brew, Best Beer. Best Beer accounts for over 50% of LaCrosse Co's sales and it is concerned that if the Old Wisconsin fails. LaCrosse Co's financial livelihood would also be threatened. LaCrosse Co and Mr. Big have met and discussed how they can resolve what appears to be a deadlock. What advice would you give to Mr. Big to solve the problem? Assume that the subordinated note holders have commenced a legal action to collect their debt. Does this modify your answer?

Answer 1

question 1: What advice would you give to Mr. Big to solve the problem?

Solution: As we see in the case the shareholders are not willing to pay for repairs which are costing around $700,000 so to save the company Mr. Big has to come up with alternative ideas.

1) As a principal shareholder Mr.Big controls 3 out of 5 seat inboard of directors so whatever decision he takes it can easily be passed through in the meeting.

2) As lacrosse is the major distributor of old Wisconsin and it accounts for 50% of its sale. what Mr.Big can do is get funding from Lacrosse on an agreement basis so that once the company starts operating it can be paid from the profits in this way both the distributor and the company can be saved from financial breakdown.

Question 2: Assume that subordinate note holders have commenced a legal action to collect their debt. does this modify your answer?

Solution: "No" my answer remains the same as when subordinate noteholders commenced for legal action to collect the debt Mr.Big can go counter the case to borrow more time because the company does not have any money to pay as of now. Even the court accepts the subordinate notes claim it has to give the company a fixed period of time otherwise no one is in win-win situation as company may go bankrupt.