PENINSULA GASOLINE CORPORATION(Case 4)
Time Context / Period: late quarter of 2007 to 2008
Summary / Abstract
Business world is a survival of the fittest. It is a battlefield where only those strong and great are expected to remain. However, proving that and doing that is a hard thing to do as a company has to consider many internal and external possibilities. possibilities. Company must cope up to the growing competition, directly and indirectly, and the economic fluctuations and government policies that could affect their industry. And since the ultimate purpose of business is to earn profit, it is important that the companies serve its customer by continuously improving the services it could provide. Peninsula Gasoline Corporation (PGC) is a corporation which purpose is to operate a gas stations along the South Super Highway between the boundaries between Muntinlupa City and San Pedro Laguna. From one gasoline gasol ine station on its commencement on 1975, it opened 10 more in 1981. In its desire to expand and have 30 more outlets in Luzon in 1997, it grabbed the opportunity opened by the Oil Deregulation Act that was enacted on 1996 and issued 15-year indenture bonds. However, the first 10 months after the said deregulation, the comoany incurred losses amounting to abot P150,000 per day. It was also even supported by the problems in the operations and human resources department of the said company, which cause the company in the turmoil it is facing right now. And since thr officials of the said company comp any have not yet came up with a solid solution regarding the aforementioned issue, a case analysis is prepared to provide different alternative courses of actions, together with its advantages and disadvantages, after
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considering the strength, weaknesses, opportunities and threats the current corporation have. This case analysis will also provide the writers recommendation and the plan of action related to that. Possible problems may arise in connection to the recommendation provided, but a contingency plans are also stated.
I.
STATEMENT OF THE OBJECTIVE
To provide a feasible solution for the Peninsula Gasoline Corporation (PGC) on how it could address its problems on the matter of its Finances, Operations and Human Resources and further improve the service quality to maintain its position in the industry. II.
CENTRAL PROBLEM
How can the PGC provide the periodic payments of interests and principals to its bondholders, and settle its tax liability to improve the financial condition of the company and later on address other important issues faced by it?
III.
AREAS OF CONSIDERATION
STRENGTHS
1. The company was chosen by Caltron Philippines as the gas dealer of its oil products. 2. The PGC has 20 units of tanker trucks and engaged in the wholesale of petroleum products in different areas in Cavite and nearby provinces. 3. Josie Capul, VP for Finance, has been in the company since its operation.
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4. Cost of goods sold was reduced by 1% 5. An outside marketing specialist was hired to get fresh ideas 6. Alma Borlongan, VP for Human Resource, has 30 years of experience as an HR practitioner in government and private companies. 7. According to the respondents, front linesprs of PGC are very courteous, personable and with good communication skills
WEAKNESSES
1. During he first 10 months of deregulation, PGC incurred losses 2. The company's rate of return in 1997 dropped to negative 7.25% 3. PGC's capitalization relied heavily on its creditors 4. Another tax liability issue arose from the alleged deficiency taxes 5. Gas patrons have to wait for about 30 mins before they could be attended to 6. Over/under supply of spare parts 7. The repair and service boys are sneaking extra fluids and lube oil to their favorite customers, presumably to gain bigger tips 8. Repair rooms have leaks and some reception areas needed repairs and renovations
OPPORTUNITIES
1. Opportunity to improve its sales 2. Opportunity to increase its rate of return
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3. Opportunity to expand in the near future 4. Opporunity to increase its current ratio an ddecrease its debt to equity ratio 5. A law was passed that will cut the oil tariff to 3% from 10% 6. Congress is proposing the lifting of the P58B worth value-added tax on oil to address he effect of rising oil prices
THREATS
1. Natural calamities that may arise 2. Government policies and/or law may affect the operation 3. Competition in the marketplace, 4. Technological advances 5. Economic fluctuation that may hinder economic growth 6. Various transportation organizations announced the possibility of staging a nationwide transportation strike 7. Growth in demand for natural gas nationwide.
IV.
ALTERNATIVE COURSES OF ACTION
1. Take Capul's advice, i.e., to split the company into two entities
Advantages
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a. This alternative will help the gasoline corporation to earn higher profit from its operation since one part of the split company does not have to shoulder the interest expense of the whole company b. With this ACA, they can establish a profitable company and later on entice future potential investors and creditors to become part of the company c. It will pave way for the company to seize the opportunities they currently have and expand d. The money that could be derived can be used to address other issues faced by the company.
Disadvantages a. Costly on the part of corporation as it has to shoulder all the expenses related to this b. Time and effort consuming as further negotiation with government agencies will be required c. Current bondholders will grow doubtful with this ACA. d. With this alternative, more employees will be needed since substantially, two companies have to be served.
2. Negotiate with its creditors for a loan restructuring
Advantages
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a. The corporation can provide payment for the maturing debts including its tax liability without compromising its operations b. Compared with the ACA #1, the bondholders and other creditors will be more confident that their money will be returned c. Under this alternative, the company can ask for a grace period to be more prepared for the payment
Disadvantages a. Not an immediate solution as the effectiveness of this depends on the bondholders and creditors b. This ACA means that the corporation accepts its defeat and announces its inability to uphold their promises to take charge of money of their bondholders, creditors and investors. c. Level of uncertainty for the success of this ACA is low as not all bondholders would agree on this d. Time, effort and fund consuming for the negotiations e. This alternative calls for good corporate connection f. Lost confidence of future potential bondholders and creditors
3. Sell the corporation to interested buyers
Advantages a. Infusion of more fresh minds to think possible solution
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b. Current problems faced by the owners will come to an end c.
Employees' welfare will possibly not be affected as their job will be maintained
d.
Relieve of its owners further effect of continuing downfall of the economy and the business
e. More money to use for further activities since it is expected that the buyer has large capital
Disadvantages a. This will need many legal requirements which will cost time and effort to both parties b. Lack of expertise of new owners will lead to further distress to the gasoline corporation c. Lack of trust and confidence to its new owners by corporation's creditors and bondholders d. Credibility of its previous owners and officers will be stained. e. Hostile takeover is possible
V.
STRATEGY FORMULATION
I therefore conclude that the best solution to the problem is alternative course of action number 1 which is to take the VP for Finances Josie Capul's advice to split the company into two with one shouldering the interest expense that eat much of the income it earned for the operation and one freeing it. It is true that splitting the
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company into two is too risky, since the success of it is not certain as it is purely dependent on the trust that current bondholders and future potential creditors will cast on the corporation and the presence of some economic and government opportunit ies but it should be noted that the higher risk, the higher return it could have. It will require more time, effort and money, and will bring more disadvantages but if compared to the advantages the company could have, it is surely worth it. This decision will benefit the gasoline corporation as a whole. If the corporation will be split into, the corporation can accumulate an enough fund to continue the operation and the corporation can probably address its issues on the Operations and Human Resources section. The fulfillment will also be there, as they employ something that could help resolve the current problems they face while still being in line with their objective as a corporation and without accepting defeat or announcing their inability to uohold their promises to their bondholders, creditors and investors. Business is a roller coaster ride and therefore one who rides it must know how to adjust for its speed and height. With this alternative courses of action, the corporation will be able to manage their flaws and will be able to use their strengths and maximize the opportunities they have to counter whatever weaknesses they have and the threats that comes along with it.
VI.
PLAN OF ACTION
1. Conduct a board meeting to talk about the chosen alternative course of action. 2. Consult legal experts regarding the matter. 3. Talk to their current bondholders, creditors and investors regarding this bold move. Give them assurance that their interest will still be guarded.
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4. Start complying with the necessary requirements the related government agencies would ask. 5. Once everything is settled, conduct another meeting to appoint new Board of Directors for the two companies with respect to the capabilities of each member. 6. Hire qualified employees to take charge of the two companies. 7. Fix their issues with regards to its personnel. Properly renumerate its qualified employees. Recognize honest, credible and well-deserved employees to avoid them from engaging them on under-the-table transactions. 8. Look for accountants the could properly forecast the sales and demand for the product as to avoid over and under supply and to entertain customers as soon as possible 9. Continue maintaining the good brand name by serving its customers properly and upholding its objectives
VII.
POTENTIAL PROBLEMS
1) What if the government would not allow this kind of move? 2) What if the potential investors and creditors would react negatively to the move made by the corporation? 3) What if the employees continue to sneak company's supply for their own advantage?
VIII.
CONTINGENCY PLANS
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1.
Before employing this alternative course of action, it is understandable that the company will seek advice from the legal experts. They will be the one who will tell the company what are the probable loopholes for this one. However, the point of view of the legal experts and the government may not be always aligned. It is possible that the agencies will see this as a way of the PGC of running away from its liabilities and if that will be the case, after the company has seize all the possible ways for the ACA to be pushed, the comoany may settle for the second alternative course of action.
2. The company may opt to share to the public their experiences for the past years, how they had that situation and how they were able to gracefully solve them. With that, it could earn respect from the public and even trust due to its honesty. This can be done by conducting a press conference and or publishing the news to the local newspapers and broadcasting to radio stations. 3. Ordinarily, an employee tries to do those things when they think that a company does not renumerate them well. Given that fact, it can be hypothesized that the way for the gasoline corporation to keep its qualified employees is to provide something the employees are looking for. Provide them better renumeration, benefits, and other recognitions for them to be more motivated to give the very best of them and think of good hings for the betterment of the company. However, it should also be backed up with strict inspection so employees, despite now that they are well-renumerated, will still not engage on such activities.
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