Monday, September 30, 2019
Art Deco Reproductions, Inc.: Financial Analysis
The first proposal is issuing the new shares to publics at $38, but right now the commission fee is $3, and the market price is $39, but the investment banker believe that the price will drop to $38 and the commission fee is $2 per share subscribed. To capitalize exact millions dollar, Art Deco reproductions need to issue 556,000 new shares in total. And the stock price will drop slightly. And the company need to pay the investment banker $1 , 112,000 for the commission fees. There are some advantages selling shares to public. The stock price will not drop so much, compare with others proposal.The less new shares issued, the less share dilution, and one member of the Board of Directors think this proposal will allow for greater distribution of the stock throughout the market. This proposal also has some disadvantages. The commission fees are the highest, compare with other proposal in the circumstances of all shares are subscribed. Issuing new shares to public will dilute the proport ional ownership of the company. It also will dilute the voting right of the current shareholders. It also will give much more voting right to the outsiders. Issuing shares to public might also hurt the current shareholders' loyalty.There also some potential risk the company need to face in this proposal. The first one is the fluctuations of the market price, if the market price goes down under $38, the new issue shares cannot sold and it had to decrease to the market price, and the commission fees is $2 per share, which meaner the company cannot capitalized enough money and need to issue more shares and pay more commission fees to get the millions capitalize target. The proposal 2 is the company offer rights to current shareholders and gives them at $36 per share, this price is lower than the current arrest price $39 per shares, but the commission fee will be $1. 5 per share for every share subscribed, and any remain shares will purchased by Hugh ; Company, which will charge inscrib ed share $3 per share. In this proposal, assuming all the shares subscribed. The company need to issue minimum 576,000 shares to meet the $million capitalized goal. And the company will pay $720,000 as the commission fee. And each rights worth $0. 48, when the rights was generated from the old shares, over 60% of the stock holders will be expected to sell their rights to outsiders anyways. The advantage of proposal 2 is very obviously.The high subscription price can lead to less amount of dilution of earning per shares and still give loyal stockholders a chance to keep their equity positions at a discount. It also will not harm the shareholder's interest so much, and will not dilute too much voting power to outsiders. And it will not hurt the ownership of the current stock holder and protect their rights The disadvantage of proposal 2 is very clear, the high commission fee is still the problem, and in this high offering price, the current stockholder might not have enough cash to re invest the company. There are some potential risks in this reports as well.The high risk of unfavorable market price fluctuations, and if the stock price drops to $36, the cost of flotation will go up dramatically. And it also has a risk of dilute the current shareholder's ownerships' proportion. The cheap right but high stock price might not attractive enough to the outsiders who want to invest in this company. The proposal 3 offers a right at $32 per share and the underwriting cost is 0. 25 per share, and $3 per share taken by the investment banker. In this proposal, if all the shares are subscribed, company need to issue 640,000 shares and says total $480,000 commission fees.In this proposal each right worth $1. 23 In this proposal, the advantages are lower commission fee compare with the proposal 1 and 2, and it will increase the current stockholders' loyalty if they are in the management team. And it also will protect the current stockholder's right, because they are offered be fore outsiders and don't need to pay the price of the rights to buy the shares. And it also provides an adequate margin of safety against downward market price fluctuations, protects the stockholders from the excessive equity dilution entailed in rapports 4 and 5, and give an appealing purchase discount.The disadvantage in proposal 3 is much more likely as the proposal 2, the proposal g's offer price still too high to afford, because only a small percentage of stockholders might have immediate funds available for reinvestment, and leave the large percentage of stockholders no choice but to sell their rights. The more shares issue the more earnings will be diluted. The risk is about the flotation cost will highly increase because most of investors' choice to sell their rights and it probably dilute the hardcover's ownership proportion.The proposal 4 is company offer a right to stock holder at $20 per share and the underwriting cost will be 0. Pepper share and it the cost of $3 per ea ch share if the investment banker take the remain shares. Assuming all the shares are subscribed, the company will issue 1 to meet million goal, and it needs to pay $253,250 as the commissions fees. In this proposal each right worth $4. 80. In this proposal 4, the advantage is very low offer price, compare with the proposal 1 to 3, and the low commission fees, and the low offer price will eve wide range of shareholder to reinvest it, and it keep the shareholder's loyalty.And it will attract more outside investor to buy the rights and invest the company. It will not harm the company hard-earned reputation of the company's stock price. And the proposal 4 put the stock in a popular trading range, a low enough subscribed price, a low flotation cost, and a reasonable ex-rights stock price , which will attract a wide range of investor But the disadvantage of proposal 4 also very seriously, one is it will diluted the earnings per share greatly from $2. 58 to $1. 93. T is very seriously pro blem to the big stock holder, and the market price will also goes down, which will harm the stock holder's worth if they don't exercise their rights. The risk still exists in this proposal, such as the ownership proportion dilute, voting right diluted. Proposal 5 gives shareholders rights to buy shares at $5 per shares, and there is no commission fee and all the shares will be taken. In this proposal, the company need to issue millions new shares and the value of the rights worth $19. 43. In this proposal, the advantage is very huge.Because of low share price, all the shares will e taken by the share holders. Second, there is no flotation cost, so it will save lot of money. But the advantage is very big as well. Because the lower price, the company will issue millions new shares, and we know the old outstanding shares only have millions right now, the equity, earnings per shares will be diluted greatly. The market price will be greatly drop downs as well. And the high value of right s will also challenge the stockholder's loyalty, the shareholder might sell the rights to outsiders and get this huge amount of money to invest other valuable company.