Case2-Loewen Group-Capital Structure Essay

Words: 9038
Pages: 37

rP os t

REV: MARCH 4, 2002

op yo The Loewen Group, Inc. (Abridged)

In March 1999, John Lacey and the management team at the Loewen Group, Inc., had to decide what course of action to take in light of the company’s imminent financial difficulties. On
January 22, 1999, Lacey, a renowned turnaround specialist, was appointed chairman of Loewen, the second largest death care company in North America. Headquartered in Burnaby, British Columbia,
Loewen owned over 1,100 funeral homes and more than 400 cemeteries in the U.S. and Canada; it also owned 32 funeral homes in the United Kingdom. The company had come a long way since its modest beginnings in Canada, where Ray Loewen, the founder (and, until recently,
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Most of these were small family-owned concerns that served their local communities, where reputation and personal relationships were critically important in generating future business. The largest firms in the industry were, like Loewen, publicly traded, and had achieved this scale by acquiring hundreds of independent funeral homes and cemeteries. At the end of 1998, the four largest firms (Service Corporation, Loewen, Stewart
Enterprises and Carriage Services) collectively owned 2,986 funeral homes and 1,083 cemetery properties in the U.S., but this represented only 13.5% and 11.3%, respectively, of the US market.
(They also owned businesses outside the US.) Exhibit 1 provides financial data for the major firms in the industry and Exhibit 2 shows their stock price performance.


Aggregate revenues in the death care industry were relatively predictable. One reason was that death rates were largely driven by demographic factors that did not vary significantly from year to year. Since 1960, the number of deaths in the U.S. had increased at an annually compounded rate of
0.8% a year. Occasional large deviations from this rate were possible, however.1 Another stabilizing influence on revenues was the historical lack of price competition in the industry. New entry into the funeral home business was extremely difficult, given how much weight most people placed on tradition and reputation when selecting a funeral home. New