Dick Smith Limited Case Study

This assignment analyzes the collapse of Dick Smith Limited, focusing on the role of its directors' failure to adequately understand the business's financial situation and inform investors about potential solutions. It explores how the company's inability to meet financial obligations ultimately led to its acquisition by Anchorage Capital Partners in 2012. The analysis draws upon various academic sources and industry reports to provide a comprehensive understanding of the factors contributing to Dick Smith Limited's demise.

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FINANCE AND QUANTITATIVE METHODS
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Dick Smith Holdings Company
Introduction
This particular report attempts to provide a summary of ownership history of Dick Smith
Brand. This report also provides a critical assessment of the firm evaluation when it was
purchased by Anchorage Capital Partners and at its Initial Public Offer (IPO) and also an
evaluation of the critical impasse that faces the two separate set of people. Senior managers
of Dick Smith Brand with regard to statements made in the FY2014/15 accounts and
Anchorage Capital Partners as regards the floatation of the business. Dick Smith Holdings
Company was until 2016 an Australia broad-chain of wholesale shops that basically sold user
electronic products, hobbyist electronic constituents and electrical projects kits (Bryman, and
Bell, 2015). The company grew productively into New Zealand and ineffectively into other
nations. The business was established by Dick Smith in 1968 and located in Sydney,
Australia. Dick Smith Holdings Company was basically owned by Dick Smith and his wife
until they sold it to Woolworths Company in 1982. The business ended in FY2016 after
entire acquisition by Anchorage Capital Partners. According to the FY2014, Dick Smith
Brand revenues were approximately AU$1.2 Billion.
History summary of the Dick Smith Company ownership
Dick Smith Limited was started by Dick Smith in 1968 as a full chain of trade stores that
basically sold user electronic products, hobbyist electric elements and electronic projects kits
(Clements, 2015). The business started in small rented houses in a vehicle park in the Sydney
outskirts with a capital of only A$610. At the start, the company emphasized on servicing and
installing car receivers. In FY1969, the company’s business needed it to move to a much
bigger building in the country. The business promoted itself with zany styles, and smiths own
publicity acts. The company basically profited from the CB receiver boom in the 1970s, and
by the end of ten years, the business had several stores all over the country. Dick Smith and

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his wife were the sole owners of the company since it was founded until they sold the
majority of the company shares to Woolworth Company in 1982.
Dick Smith Holdings Limited basically expanded to several areas in the country with the aim
of increasing the revenues by stocking diverse products such as electronic kits and Television
receiving stations because of the declining rates of interest (Eriksson, and Kovalainen, 2015).
After the sale of the company majority shares to Woolworth Limited, Dick Smith Holdings
Limited later established itself as Dick Smith Electronic Powerhouse Limited that was a store
across Australia that majored in producing diverse goods in the computing, armature and
audio visual radio regions to heighten its overall production. In 2008, the company revamped
its flagship following Woolworth Company review to shed off the unit because it was not
generating enough revenues for the parent company (Lau, 2016). In this aspect, Dick Smith
Electronic Powerhouse Limited rebranded to Dick Smith Technology Limited that engaged in
designing and production of wide range of electronic devices.
Following a further tactical review, the firm decided to continue in its operations with the
new notion under the rework Dick Smith – Speak to the Experts branding merger with the
existing Dick Smith Electronic and Powerhouse Supplies in the similar banner (Cascetta,
Carteni, Pagliara, and Montanino, 2015). In 2008, the new Dick Smith format and logo was
moved out with several power stores like Auburn being changed so as to apt the new business
logo. In March 2009, Woolworth Company Limited confirmed the conclusion of the
Powerhouse as a distinct company and that the firm third customer electronic brand will be
progressively removed over the subsequent three years and the store's lease ended. In
FY2012, Woolworth Company stated that after the outcomes of a strategic evaluation and an
AU$300 Million shakeup, the company will close-up to 100 Dick Smith Shops and basically
sells the company (Zvoch, 2014). The firm was fully sold to Anchorage Capital Partners for
an opening cash amount of AU$20 Million and the final cost of AU$115 Million. Anchorage

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Capital Partners paid AU$10 in cash and the rest of the money being obtained from the
company itself via insolvency of equipment and plant, inventory and making provision for
future tedious lease charges (Zikmund, Babin, Carr, and Griffin, 2013). Dick Smith Brand
had been possessed by Woolworth Company since 1980’s until FY2012 when Woolworth
Company declared the business was considered to be underperforming and non-core and has
initiated a selling process. After a period of distinctiveness, in 2012 Anchorage Capital
Partners attained the company for AU$20 Million. In FY2016, Dick Smith Brand exited its
operations completely.
Critical evaluation of Dick Smith Brand when it was taken by Anchorage Capital
Partners and its Initial Public Offer
Woolworth Limited had maintained Dick Smith Brand since 1980’s until 2012 when the
company director announced that it has ended the Powerhouse as a distinct company and that
the firm third customer electronic brand will be progressively removed over the subsequent
three years and the stores lease ended (Swift, and Piff, 2014). This was due to the aspect that
the unit has not been performing well and that it could not enhance Woolworth Company to
increase its revenues from its overall operations. After a period of negotiation, Anchorage
Capital Partners purchased the Dick Smith Brand in FY2012 for AU$20 Million.
Initially, Anchorage Capital Partners publicized that the company had reached a settlement
with Woolworth Company to own 100% of Dick Smith Brand. Dick Smith Brand has been
the biggest electronics firm in New Zealand and Australia by a number of stores that had
approximately 381 stores as at FY2014 (Sekaran, and Bougie, 2016). Anchorage Capital
Partners paid as much as A$115 Million for the acquisition of Dick Brand Company even
though it is believed that only about AU$20 Million was paid up front. Woolworth Company
having basically struggled from its acquisition in 1980 was keen to discharge a noncore
business that it took an AU$420 Million acquisition in FY2012. While the company is

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criticised for vending the company so cheaply, it was small beer for a trade giant with
FY2013 sales of nearly AU$60 Billion and its revenues surpassing AU$2 Billion. When
Anchorage Capital Partners entirely acquired Dick Smith Brand, the company basically had
less value because of the aspect that the business was considered to be unproductive in that it
was not even listed publicly (Davies, and Hughes, 2014). After the cheap acquisition by
Anchorage Capital Partners, the company valued at more than its five times the value at
which it was acquired for, and its Initial Public Offer was at A$2.20 for each share.
Following the business purchase, Anchorage Capital Partners rationalized its operations, and
the store was registered on the stocks market for A$2.20 per share rising to about A$345
Million which was in excess of 5 times its original acquisition value (Houston, and Brigham,
2012). Anchorage Capital Partners marked down an extensive cost of Dick Smith Brand
stock in order to sell it at a discount that enhanced the company reporting significant profits.
These specific changes did not affect the new Dick Smith Brand profit and loss statements.
Anchorage Capital Partners had evaded about A$120 Million in imminent pre-tax income.
Dick Smith Brand financial statements as at FY2012 indicated that the company had
inventories that worth A$371 Million but it had been written down to A$312 Million. On the
other hand, as at FY2013, Dick Smith Brand stock had been decreased to AU$171 Million
that pointed out its apparent sale to Anchorage Capital Partners. In this case, the decrease in
Dick Smith Brand stock provided a revenue worth AU$140 Million to the firm operating cash
flows because there was no process of restocking despite selling of the stock available
(Iyakaremye, 2015). Due to this particular aspect, the significant markdown of most of its
current assets basically enhanced Anchorage Capital Partners to facilitate its acquisition
easily.

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Assessment of the ethical problems that face the senior directors and managers of Dick
Smith Holdings concerning its financial statements made in FY2014/15 reports and
accounts
Anchorage Capital Partners came under attack from fund managers, politicians and investors
in the wake of Dick Smith Brand failure in the FY2012 because the company basically
acquired the chain of Woolworth in 2012 for just AU$20 and the floating it on the ASX at the
end of the FY2013 for AU$520 Million. According to the company financial reports for
2014/2015, Dick Smith management duped its shareholders on the actual position of the
business (Anderson, Sweeney, Williams, Camm, and Cochran, 2012). The company directors
basically hid their dishonest aspect on the enterprise business operations as they mispleaded
the investors that the firm was basically making profits while the industry was primarily
affected by a financial crisis. This particular aspect of the company management was
basically unethical and unprofessional because deceiving the business shareholders is
considered not a right action by the people entrusted to guide the company (Zvoch, 2014).
According to the financial statements, another ethical dilemma that faces the company
management is that senior directors and managers of Dick Smith Company were aware of the
inventory dilemmas that resulted in most of the firm inventory to be written off. The
executive directors basically deceived the shareholders of the company overall state of
operations that actually contained diverse problems (Gendron, and Smith, 2015). The senior
directors and managers of Dick Smith did not provide feasible data to its shareholders and
investors that resulted in the business sale in FY2012. This is because the directors had a
material understanding of what was going on in the business and failed to warn the investors
on the potential methodologies to save the business from breakdown. The senior executives
and directors of Dick Smith Limited failed as they were unable to make stated funds without
breaking the terms of its bank's services.

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Assessment of the ethical problems that face Anchorage Capital Partners regarding the
floating of the company
Anchorage Capital Partners are faced with the ethical problem of confidence and trust from
its stakeholders regarding floating of the company stocks because they feel less safe from the
company transactions. The business had been selling mainly through its corporal store system
and also operated an award winning website that offered a complete range of services and
products to its customers (Kenney, Cava, and Rodgers, 2016). Anchorage Capital Partners
which was more than quadrupled the amounts that it used to buy Dick Smith Brand from
Woolworth Company in 2012 and then listing it public a year later basically earned
significant returns from shaping companies in Australia that ranges from footwear, clothing,
irrigation and packed food. Floating of shares by a company is usually considered to be a
significant activity of raising capital.
Anchorage Capital Partners management faces various ethical problems when floating stocks
because of the undesirable critics that basically faces due to Dick Smith Brand acquisition.
Anchorage Capital Partners is criticised for reducing the value of Dick Smith Limited and
later listing the company for a significant amount of AU$520 Million in the ASX (Oakshott,
2014). The company is faced with ethical dilemmas because most of the investors cannot
trust the company to the extent of increasing their shares because they view the company as
performing some of their operations so as to enrich the management.
Dick Smith Brand was originally sold off to Anchorage Capital Partners for A$115 Million,
where only AU$20 was paid up front, and the remaining amount was to be paid later. The
privately owned company floated the company stocks after one year for more than five times
its initial costs of the business (Mertens, 2014). Another ethical dilemma is that since
Anchorage Capital Partners is believed to have misled the directors of Dick Smith Holdings
Limited on the value of their business. The amount spent on acquisition was small whereas

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Anchorage Capital Partners made big profits that led to floating Dick Smith Holdings
Limited for an amount that was more than five times its initial value.
Conclusion
Proper ethics among the company management is usually a vital action that enhances a firms
operations. Being ethical when carrying out diverse business is significant because the action
will facilitate trust and confidence from customers and the investors. The fall of Dick Smith
Limited was because its directors had material understanding of what was going on in the
business and did not advise the investors on the probable methodologies to save the business
from collapse. The senior executives and directors of Dick Smith Limited failed as they were
incapable of making scheduled payments without breaching the conditions of its bank's
facilities and this led to acquisition be Anchorage Capital Partners in 2012.

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