Lockwood Case: Strategy and Recommendations

With four newer plants able to produce higher qualities and quantities of products at more efficient rates all scheduled to come online within the next decade (and with two of these expected to be operational in the next few years), this area of the business is almost certain to become unprofitable for Lockwood.

The timber land that the company holds, however, is still quite valuable, though according to the consultants (and logic) it is most valuable as a source of controllable raw materials for the actual product-manufacturing end of the forest product divisions operations. At the same time, the consultants suggest that the value of the timber land will increase dramatically over the next decade, and if this asset can be held with minimal carrying costs while the rest of the forest products division is sold immediately this would be ideal, as the timber gains in value while the paper plants will lose value each year. If the timber cannot be effectively held after a sale of the paper plants, then the sale of the timber should commence immediately as well; as the spreadsheet clearly shows, the rate at which the paper plants lose value outstrips the rate at which the timber will increase in value, meaning that if the sale of both assets must coincide the greatest net present value is achieved by selling them both immediately.

Again, however, if the timber can be held indefinitely it should be, while the paper plants should be sold off regardless and will dictate (in part) the decisions made here.

Conclusion

Lockwood has a history of making rash decisions to leave and enter industries. The decision to wrap up tow (or one and a half) more of its divisions while limiting growth in its remaining visions might seem too extreme an overreaction to this historical trend in the company. In realty, however, these conservative measures are necessary to ensure that the company regains focus and places itself on a strong internal footing before moving forward with more aggressive growth strategies. Eliminating the high debt load that it is implied exists and ensuring that all current targets are being met before advancing on new projects will help to control the companys ongoing growth and ensure that it maintains appropriate profitability.