LESSONS FROM A MIDDLE MARKET LBO: THE CASE OF O.M. SCOTT

In 1986 The O.M. Scott & Sons Company, the largest producer of lawn care products in the U.S., was sold by the ITT Corporation in a divisional leveraged buyout. The company was founded in Marysville, Ohio in 1870 by Orlando McLean Scott to sell farm crop seed. In 1900, the company began to sell weedfree lawn seed through the mail. In the 1920s, the company introduced the first home lawn fertilizer, the first lawn spreader, and the first patented bluegrass seed. Today, Scott is the acknowledged leader in the “do-it-yourself” lawn care market, with sales of over $300 million and over 1500 employees. Scott remained closely held until 1971, when it was purchased by ITT. The company then became a part of the consumer products division of the huge conglomerate, and operated as a wholly-owned subsidiary for 14 years. In 1984, prompted by a decline in financial performance and rumors of takeover and liquidation, ITT began a series of divestitures. Over the next two years, total divestitures exceeded $2 billion and, after years of substandard performance, ITT's stock price significantly outperformed the market. On November 26, 1986, in the midst of this divestiture activity, ITT announced that the managers of Scott, along with Clayton & Dubilier (C & D), a private firm specializing in leveraged buyouts, had agreed to purchase the stock of Scott and another ITT subsidiary, the W. Atlee Burpee Company. The deal closed on December 30. Clayton & Dubilier raised roughly $211 million to finance the purchase of the two companies. Of that $211 million, almost $191 milion, or 91% of the total, was debt: bank loans, subordinated notes, and subordinated debentures. The $20 million of new equity was distributed as follows: roughly 62% of the shares were held by a C & D partnership, 21% by Scott's new subordinated debtholders, and 17.5% by Scott management and employees. After this radical change in financial structure and concentration of equity ownership, Scott's operating performance improved dramatically. Between the end of December 1986 and the end of September 1988, sales were up 25% and earnings before interest and taxes (EBIT) increased by 56%. As shown in Table 1, this increase in operating earnings was not achieved by cutting back on marketing and distribution or R & D. In fact, spending on marketing and distribution increased by 21% and R & D spending went up by 7%. Capital spending also increased by 23%.     

Information technology developments and implications for national policies

A review is made of the global status of information technology (IT) development and new opportunities identified for government IT policies. Despite operational problems, IT innovations continue apace. Poor human-computer interaction, user friendliness and lack of standardization are all key issues which must be addressed. Globalization trends, east-west politicomilitary changes and third world development, all have implications for government IT policies over the coming decade—and the right directions must be pursued now to derive real benefits from IT and move towards a true information economy.     

Developing Countries as Plaintiffs and Defendants in GATT/WTO Trade Disputes

Developing countries have been increasing their participation in the formal institutions and proceedings of the multilateral trading system. A prominent example is their more frequent involvement as defendants and plaintiffs in GATT/WTO trade disputes. This paper provides an initial economic appraisal of developing country performance in the GATT/WTO dispute settlement system. We measure the economic resolution of these disputes through trade liberalisation gains, and our results suggest that developing country plaintiffs have had more success under WTO disputes than was the case under the GATT. We also document evidence on potential determinants of this success: the capacity for plaintiffs to make credible retaliatory threats and the guilty determinations by GATT/WTO panels. Finally, there is also some evidence that developing countries have recognised the importance of retaliatory threats and have responded by changing their pattern of dispute initiation under the WTO to better take advantage of the instances in which they have sufficient leverage to threaten retaliation and induce compliance with GATT/WTO obligations.     

Entrepreneurship and Risk Premium

This article deals with the measurement and determination of entrepreneurship. It utilises the issue of the absence of the entrepreneur from neoclassical theory and uses the theory of portfolio management to establish a model connecting risk premium with the entrepreneurship premium. It shows that the non-systematic risk may be a satisfactory proxy of the level of entrepreneurial activity. The development of successful entrepreneurial activity proxy contributes towards the development of a theorisation of entrepreneurship and an assessment of its contribution to growth.     

The Influence of Task Load and Automation Trust on Deception Detection

The purpose of this research was to investigate the effects that user task load level has on the relationship between an individual's trust in and subsequent use of a system's automation. Military decision-makers trust and use information system automation to make many tactical judgments and decisions. In situations of information uncertainty (information warfare environments), decision-makers must remain aware of information reliability issues and temperate their use of system automation if necessary. An individual's task load may have an effect on his use of a system's automation in environments of information uncertainty.It was hypothesized that user task load will have a moderating effect on the positive relationship between system automation trust and use of system automation. Specifically, in situations of information uncertainty (low trust), high task load will have a negative effect on the relationship. To test this hypothesis, an experiment in a simulated command and control micro-world was conducted in which system automation trust and individual task load were manipulated. The findings from the experiment support the positive relationship between automation trust and automation use found in previous research and suggest that task load does have a negative effect on the positive relationship between automation trust and automation use. Experiment participant who incurred a higher task load exhibited an over-reliance on their automated information systems to assist them in their decision-making activities. Such an over-reliance can lead to vulnerabilities of deception and suggests the need for automated deception detection capabilities.     

The Intergenerational Supply of Loggers Under Conditions of Declining Economic Well-Being

This paper addresses the supply-side explanations of a logger shortage by estimating an occupational choice model that considers the role of earnings, nonpecuniary determinants and intergenerational factors. Our results showed that: (1) relative earnings have no statistically significant effect on career choice; (2) improvement in the public image of loggers substantially increases entry into logging; and (3) a strong intergenerational supply linkage exists but is currently being eroded.     

GOVERNMENT POLICIES AND AGRICULTURAL SUPPLY RESPONSE: PADDY IN SRI LANKA

An aggregate analysis of supply response in the paddy (rice) sector of Sri Lanka during 1952-87 is conducted to identify the impact of pricing policy, irrigation programmes, institutional credit and concessional sales on area, yield and overall supply. The focus of the estimation procedure is the selection of an appropriate functional form for regressions and on the price variable that best represents the price to which producers respond in making area and yield decisions. In the case of both area and yield, the econometric criteria favour the acceptance of log-linear equations with the ratio of the guaranteed price of paddy to fertiliser price. On the basis of overall supply elasticity estimates, it is concluded that while pricing policy, irrigation programmes and institutional credit provide incentives to the expansion of paddy production, concessional sales of rice act as a disincentive.