Winfield Refuse Management has a strong history of consistent performance and paying dividends. They have successfully expanded their operations through small acquisitions and have a skilled management team with a proven track record of integrating acquisitions. The proposed acquisition of Mott-Pliese Integrated Solutions (MPIS) would improve Winfield’s cost position in the Midwest and provide an entry into the mid-Atlantic region. However, the acquisition is large enough that external financing is required.

One weakness of Winfield is their policy of avoiding long-term debt, which has limited their ability to make larger acquisitions. The performance of their stock has also been disappointing, leading to questions about its undervaluation. Additionally, the company has significant long-term liabilities, including leases, which could increase risk and cause fluctuations in stock price. Issuing new shares at the current price would be unfair to existing shareholders and dilute management’s control.

There are opportunities for Winfield to issue bonds to finance the MPIS acquisition and maintain a competitive cost position in the Midwest. The interest payments on the bonds would be tax deductible, making this the most economically attractive option. The stability of the combined Winfield-MPIS business could support the decision to issue debt. Other major players in the waste management industry rely on long-term debt in their capital structures, suggesting that Winfield’s policy against debt may be unjustified.

However, there are also threats to consider. The bond issue would create a significant ongoing need for cash, which could be challenging for Winfield to manage. The bond market could decline, making it difficult for Winfield to obtain financing. New common stock could be issued at a lower price than expected, reducing the value of the debt financing. There could also be disruptions and inefficiencies in the post-acquisition integration process.