Friendly Ice Cream Founded by Prestley Blake - Assignment Example

Blake sold the company back in 1979 to Hershey Corporation. A decade later Friendly Ice Cream was sold in a leveraged buyout to Don Smith who became the chairman of the company. The firm underperformed under the management of Smith who was accused by its founder of mismanagement and misuse of funds.

A company that had a policy under the leadership of Blake of not mortgaging the opening of any new store became burdened by debt. A second issue at Friendly was conflicts of interest between TRC, Smith, and Friendly. Smith was both owner of TRC and Friendly. He approved a lot of dubious contracts including two shared costs programs of an Illinois office, where the company had no presence, and a leasing agreement of a jet with TRC. There were also conflicts of interest in the board of directors which had some members that were dual board of directors of both companies. A third major issue at the firm was that its chairman was misusing company funds for personal expenses such as using the private jet for personal reasons. A fourth major issue at the firm was the lackluster financial performance of the company. The company lost over $30 million between 2005 and 2006. In 2007 the company achieved profits, but its net margin was very thin at 0.9%. The net margin ratio measures the absolute profitability of a company (Peavler).

Alternative Solutions
A potential solution for the shareholders of the company is to sell off the shares of the company all at once. The problem with this solution is that a selling frenzy might further erode the price of the stocks driving it to become a penny stock. A second solution for the firm is to force the resignation of Don Smith. The problem with this solution is that his resignation would have to be forced by the board of directors and Smith has them in his pocket. A third solution is for the shareholders of the company to unite in the efforts of Sadar Biglari to turn around the company by getting two seats in the board of directors including his nomination.

Optimal solution
The optimal solution in this case is for the shareholders of the company to support the efforts of Biglari of getting two seats on the board of directors. Once he and his colleague are voted into the board of directors the firm has to start an implementation process to change the company. The corporate governance of the company has to be fully redesigned to gain the credibility of the investor community. Read More