Case: WL Ross and Plascar

1. Evaluate the strategy of the International Auto Components Group.
International Auto Components Group’s (IAG) strategy is to acquire distressed auto components companies and turn them around. Ross and Toy concluded that the Automotive Components Group is fragmented, plagued by overcapacity, exposed to rising raw material costs, and debilitated by globalization.
Ross and Toy specifically identified automotive plastic parts as their target product line and started acquiring all distressed companies in this area. They are mainly interested in companies that have good operations and management in place and buy the debt at a bargain and takeover the company. They are especially interested in companies in developing countries like Brazil, and Argentina where there is a lot of growth opportunities for the automotive industry and where the labor costs are less.

2. Should Ross acquire the equity and inter-company debt-claims of Plascar?
Yes, Ross should go with the third option mentioned in the case. In essence, Ross should acquire the equity and inter-company debt-claims of Plascar. The cost of equity is not that high, as the stock price of Plascar is trading very low due to customer’s lack of confidence in Plascar.
Once he takes over the company, Ross should work with Minority shareholders and tax authorities to resolve outstanding issues.
Ross should reject the option of using Brazil’s bankruptcy procedure to pursue their debt claims as it is time consuming and the outcome in uncertain. In addition, since their claims are unsecured, tax claims would take priority over Ross’s claims.
Ross should also reject the option of swapping debt for equity. This is a risky route as then need the approval of other debt and equity holders. In this scenario, the preferred shareholders would also raise concerns about the years Plasacar did not pay