You are the president and chief executive officer of a family owned manufacturin

Question

You are the president and chief executive officer of a family owned manufacturing firm with assets of $45 million. The company articles of incorporation and state laws place no restriction on the sale of stock to outsiders. An unexpected opportunity to expand arises that will require an additional investment of 14 million. A commitment must be made quickly if this opportunity is to be taken. Exiting stockholders are not in position to provide the additional investment. You wish to maintain family control of the firm regardless of which form of financing you might undertake. As a first step, you decide to contact an investment-banking firm.

A. What consideration might be important in the selection of an investment firm?
B. A member of your board has asked if you have considered completive bids for the distribution of your securities compared with a negotiated contract with a particular firm. What factors are involved in this decision?
C. Assuming that you have decide upon a negotiated contract, what are the first questions that you would ask of the firm chosen to represent you?
D. As the investment banker, what would be your first actions before offering advice?
E. Assuming the investment-banking firm is willing to distribute your securities, describe the alternative plans that might be including in a contract with the banking firm.
F. How does the investments banking firm establish a selling strategy?
G. How might the investment banking firm protect itself against a drop in the price of the security during the selling process?
H. What follow up services the banking firm following a successful distribution of the securities will provide?
I. Three years later, as an individual investor, you decide to add to your own holding of the security but only at a price that you consider appropriate. What form of order might you place with your broker?
P2:
In the late 2010, you purchased the common stock of a company that has reported significant earnings increases in nearly every quarter since your purchase. The price of the stock increased from $12 a share at the time of the purchase to a current level of $45. Notwithstanding the success of the company, competitors are gaining much strength. Further, your analysis indicates that the stock may be over-priced based on your projection of future earnings growth. You

Explanation / Answer

1. a. Considerations in selection of banking firm: History of company, net worth, success rate. b. Competitive bids v negotiated contract = You might receive more money from competitive bids as the negotiated contract will rely on your commitment in the contract. c. What is the amount of bank fee and does bank receive a percentage of total profit? d. Find out the profit margin of your company and selling potential of stock. e. You want to maintain family control so the banker must decide how many securities to distribute and how many must remain with the family. f. g. The bank can protect itself in the event of a drop in price by setting a flat amount of compensation, rather than a percentage of sales and profit. h. Keeping track of the portfolio, watching and predicting the market and notifying you of changes.

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