Turnaround Value and Valuation: Reassessing Scott Paper

Abstract

This article presents an approach for assessing turnaround opportunities that includes both pre- and post-turnaround valuation considerations, as well as exit planning. The approach is illustrated by way of the Scott Paper Company turnaround. In April of 1994, Scott appointed “Chainsaw” Al Dunlap as Chairman and CEO with a mandate to turn the firm’s poor performance around. Slightly more than one year into the turnaround, Scott’s value increased from approximately $2.8 billion to approximately $9.4 billion (Kimberly-Clark’s acquisition price). We show how Scott qualified as a turnaround opportunity before Dunlap’s appointment, and how a conservative exit plan could have been formulated following his appointment. Conservative exit planning mitigates execution risk, which could manifest in a variety of ways, as we discuss. The approach presented in this article could be significant from a private equity perspective because, according to some observers, there is a scarcity of professionals skilled in turnaround analysis and management. If that observation is correct, turnaroundrelated opportunities could emerge if current economic risks manifest and corporate returns decline.