This detailed analysis encompasses important concepts in bankruptcy and reorganizations, corporate responsibility and business ethics, finance and debt restructuring. The case study examines issues faced by a company experiencing financial distress such as a conflict of interest among debt holders, management and stockholders and corporate responsibility in practice.
Dice, Inc., a provider of online recruiting services for technology professionals, faced a series of challenges, which included a troubled economy, undesirable balance sheets and heartless debt holders following the crash of the dot.com bubble. The company earned revenue from customer purchase of monthly subscriptions or long-term contracts. However, Dice never reported net income and its ability to continue operations solely depended on sources of funding beyond those provided by its operations. This raised concerns between financial analysts and shareholders as to whether Dice’s senior management had the required skills and experience to get the company out of financial distress to enable it to increase the economic value of its competitive strengths.
In the light of these circumstances, the board of directors felt that, in the face of such financial distress, the company was in need of a new leader who would turn Dice around. The new management, however, failed to come up with any new strategies to help the company overcome the issues. Clearly, the situation for Dice was dire but the management still hoped it would implement a successful strategy to improve its capital structure and bankruptcy would not be in the company’s future.
Some companies such as Elliot Associates still believed in Dice and they began to put into motion a strategy to take control over the company. Dice’s management had to implement a restructuring plan and rejuvenate the company. Dice had a number of possibilities that they could have made concerning the company’s structure such as a merger, acquisition, and sale, debt restructuring or refinancing before the company’s cash position had sunk well below its debt obligation.
Dice, however, faced an insurmountable obstacle while deciding upon a strategic alternative to improve its capital structure and maintain its viability. This was the strong position of the debt holders. Elliot Associates was one of the debt holders that had not only owned most of the outstanding debt of the company at more than a 70% discount, but had purchased a controlling stake in the company’s stock at low prices putting the future of the company in its hands.
After Elliot gained de facto the control over the company, it worked with Dice’s management to design a reorganization plan. This plan included reorganization of the company and Elliot associates would receive 97% of a common stock of Dice’s stock after solving issues concerning bankruptcy. While going through the process of seeking effective bankruptcy protections, Dice went on with its business operations and saw a significant increase in its client base. The company also experienced an increase in its job listings as it had high gross margins and a brand name recognized in IT recruiting across all industries.
Dice eventually emerged out of bankruptcy with a strong balance sheet and an improved economic climate. The company began to receive interests from suitors and in less than 3 years, Quadrangle, a private equity firm, agreed to pay approximately $200 million for Dice. Despite the distractions and competition, Dice not only survived but also thrived.