In the last installment of this series, Egalitarius’ management instituted several aggressive cost-cutting measures to offset the cost of more expensive unionized labor, and Meritocratus’ management moved its production facilities offshore.
This scenario starts before Egalitarius’ strike begins.
As both companies fought for market share, the global economy was hit by a crippling recession. Most industry analysts projected widget demand to drop across the industry by 10% in 2012.
Investors began withdrawing capital from widget companies, resulting in a market multiple decline of 1.0x across the industry. Egalitarius and Meritocratus now traded at 8.5x and 11.0x 2012 earnings, respectively. Egalitarius stock was down nearly 43% on the news, while Meritocratus shares fell by a little over 29%.
The recession spared neither company. However, both firms were likely to survive the crisis intact.
At least, of course, until Egalitarius’ workforce decided to strike…
Below is a spreadsheet showing a comparison of both companies after unionization of Egalitarius’ workforce, Egalitarius’ aggressive cost-cutting measures, the offshoring of Meritocratus’ workforce, and the 2012 recession.
In the next installment of this series, we will explore the lessons learned from these six scenarios.