q6fall11

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Nov 24, 2024

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SIXTH QUIZ FNCE 238/738 November 30, 2011 WRITE ALL ANSWERS ON THE TEST. IF YOUR ANSWER CONTINUES ON THE BACK, MAKE A NOTE OF IT ON THE FRONT. 30 PTS / 25 MINUTES NAME:_____________________________________________ SECTION (12, 1:30, 3):__________________________________
1. (5 pts) Recent Mattress news: Mattress Firm Holding Corp. Mattress Firm Prices Initial Public Offering Investment Weekly News © Copyright 2011 Investment Weekly News via VerticalNews.com Mattress Firm Holding Corp. announced the pricing of its initial public offering of 5,555,555 shares of common stock at $19.00 per share. The common stock is expected to begin trading on the NASDAQ Global Select Market on November 18, 2011 under the ticker symbol "MFRM." The underwriters have a 30-day option to purchase from the Company up to an additional 833,333 shares of common stock, at the same price per share, to cover over-allotments, if any. The offering is expected to close on November 23, 2011, subject to customary closing conditions. All shares are being offered by the Company. The Company will utilize the net proceeds from the offering (which are estimated to be approximately $95 million, after deducting the underwriting discount and other estimated fees and expenses payable by the Company, prior to any exercise of the underwriters' overallotment option) primarily to repay indebtedness and to pay accrued management fees and interest, and the remainder for working capital and other general corporate purposes. What practical difference will it make if this offering trades below $19/share, as opposed to above, in its first month? Why?
2. (10 pts) A firm has existing assets and an investment opportunity that costs 10, and everybody knows that the firm’s manager h as private information about the value of each: the firm is either in state 1, where the assets-in-place are worth 9 and the investment opportunity pays off 11 (i.e. has an NPV of 1), or it is in state 2 where the assets-in-place are worth 27 and the investment opportunity pays off 13 (i.e. has an NPV of 3). The manager knows for sure which state the firm is in, whereas everybody else puts a 50% probability on each state. If the firm has to finance the new investment by selling equity for 10, then will the new investment get financed in both states or just one state? Explain.
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3. (10 pts) From the WSJ, 9/19/11: Last week ConAgra Foods set a deadline for today for Ralcorp Holdings to begin negotiating ConAgra’s $94 -a-share takeover bid for Ralcorp. Otherwise, ConAgra says, it will withdraw its takeover proposal. Ralcorp management and its advisers are undoubtedly popping the champagne corks. The Ralcorp board previously rejected the $94 bid and the ultimatum actually amounts to an unconditional surrender by ConAgra. There is no reason to think Ralcorp, having fought so hard to defeat the ConAgra bid, will do anything but let the deadline pass and hold ConAgra to its word that it will walk away. Shareholders may not exactly be celebrating in the streets. On Friday the Ralcorp stock closed at $76.19, a long ways below the soon to be gone $94-a-share ConAgra bid. Monday, Ralcorp’s shares ope ned about 3.6% lower to $73.44. This deal, like the earlier defeat of Air Products’ bid for Airgas, demonstrates w hat has become a fundamental principle of takeover defense. Three tools, when used together, constitute an almost bullet-proof defense: A poison pill, a staggered board and a strategic plan that gives a board cover to turn down a takeover offer. Consider the last sentence. How (briefly) does Air Products / Airgas demonstrate this?
4. (5 pts) Contrast two scenarios where you are voting on whether one slate of directors should be replaced by another, your goal is to maximize shareholder value, and you think that the directors should not be replaced, but you are far from sure. In the first scenario, replacement requires a simple majority of shares. In the second, it requires a two-thirds majority of shares. How might your approach to voting differ across the two scenarios? Does it matter whether the other voters share your goal, or vote in line with their own beliefs, or whether you see their votes before you cast your own? Explain.