财务管理基础工业出版社13版Chap017-PPT

CommonandPreferredStockFinancing 17 1 2 ChapterOutline PrivilegesofacommonstockholderCumulativevotinganditscharacteristicsRightsofferingPoisonpillsandotherregulatoryprovisionsPreferredstock 1 3 CommonStock Stockholders UltimateownersofafirmLegally stockholderdirectlycontrolsthebusinessAlargecreditormayhavethepowertoexertpressureonthefirmtomeetcertainfinancialperformancestandards 1 4 PreferredStock PlaysasecondaryroleinfinancingthecorporateenterpriseRepresentsahybridsecuritybycombiningsomeofthefeaturesofdebtandcommonstockStockholdersdonothaveanownershipinterestinthefirmStockholdershaveapriorityofclaimstodividendssuperiortothatofcommonstockholders 1 5 CommonStockholders ClaimtoIncome CommonstockholdershavearesidualclaimtoincomeThesefundscanbepaidoutasdividendsorretainedbythefirmTheydonothavealegalorenforceableclaimtodividendsAfirmmayhaveseveralclassesofcommonstockoutstandingthatcarrydifferentrightstodividendsandincome 1 6 InstitutionalOwnershipofU S Companies 1 7 TheVotingRight Commonstockholdershavetherightto VoteintheelectionofboardofdirectorsVoteonallothermajorissuesAssignaproxyor powertocasttheirballot CompaniescanhavedifferentclassesofcommonstockwithunequalvotingrightsSuchas founders shares Bondholdersandpreferredstockholdersmayvote Ifacorporateagreementhasbeenviolated 1 8 CumulativeVoting MajorityvotingStockholdersowningabove50 ofcommonstockmayelectallofthedirectorsCumulativevotingStockholderswithlessthan50 interestmayelectsomeoftheboardmembers 1 9 CumulativeVotingProcess Todeterminethenumberofsharesneededtoelectagivennumberofdirectorsunderthismethodofvoting Ifthenumberofminoritysharesoutstandingundercumulativevotingisknown thenumberofdirectorsthatcanbeelectedcanbedetermined 1 10 TheRighttoPurchaseNewShares HoldersofcommonstockmustbegiventhefirstoptiontobuynewsharesEnsuresthatmanagementcannotsubvertthepositionofpresentstockholders 1 11 TheUseofRightsinFinancing UsedbymanyU S companiesandispopularasfundraisingmethodinEuropeQuestionstoconsider Howmanyrightsshouldbenecessarytopurchaseonenewshareofstock RightsrequiredStockholdersmaychoosetoselltheirrights ratherthanexercisetheminthepurchaseofnewshares 1 12 TheUseofRightsinFinancing cont d Whatisthemonetaryvalueoftheserights Monetaryvalueofaright twotermsWhenarightsofferingisannouncedastockinitiallytradesrights onThevalueoftherightwhenastockistradingrights onis Alternateformula Where Mo marketvalue right on S subscriptionprice N numberofrightsrequiredtopurchaseanewshareofstock Me marketvaluewhentradingex rights Ex rights whenyoubuyasharethereisnorighttowardsfuturepurchase 1 13 EffectofRightsonStockholdersPosition Option1 SupposeStockholderAowns9sharesbeforetherightsofferingandhas 30incash Hisholdingswouldappearas Ifhereceivesandexercises9rightstobuyonenewshareat 30 1 14 EffectofRightsonStockholdersPosition cont d Option2 Sellrightsinthemarketandstaywithhispositionofowningonlyninesharesandholdingcash Theoutcomewouldbe Asindicated whetheryouchoosetoexercisearightsornot thestockwillstillgodownalowervalue 1 15 DesirableFeaturesofRightsOffering Thecurrentpositionofthestockholders current isprotectedinregardtovotingrightsandclaimstoearningsUseofrightsofferingsgivesthefirmabuilt inmarketfornewsecurityissuesItmayalsogeneratemoreinterestinthemarketthanastraightpublicissueStockpurchasedthrougharightsofferingcarrieslowermarginrequirementsMarginrequirementisthecashorequitythatmustbedepositedwithbrokeragehouseorbank withabalancefundeligibleforborrowing 1 16 PoisonPills ArightsofferingmadetoexistingshareholdersofacompanyUsedtoavoidatakeoverMakeshostiletakeoversveryexpensiveandunattractiveAllowsexistingshareholderstherighttobuyadditionalsharesofthestockataverylowprice 1 17 AmericanDepositoryReceipts Certificatesthathavealegalclaimonanownershipinterestinaforeigncompany scommonstockAlsoreferredtoasAmericanDepositoryShares ADSs AllowsforeignsharestobetradedintheUnitedStatesmuchlikecommonstock 1 18 AdvantagesofADRsfortheU S Investor AnnualreportsandfinancialstatementsarepresentedinEnglishaccordingtoGAAPDividendsarepaidindollarsandaremoreeasilycollectedConsideredtobe MoreliquidLessexpensiveEasiertotradethanbuyingforeigncompanies stockdirectlyonthatfirm shomeexchange 1 19 DrawbacksofADRsfortheU S Investor ADRsarealsotradedintheirowncountrysubjectinginvestorstocurrencyriskInfrequentreportingoffinancialresultsInformationlagduetothetranslationofreportsintoEnglish 1 20 PreferredStockFinancing AnintermediateorhybridformofsecurityLacksthedesirablecharacteristicsofdebtandcommonstockMerelyentitledtoreceiveastipulateddividend ReceivepaymentofdividendsbeforecommonstockholdersRightsforannualdividendsisnotmandatoryforcorporationsFirmmayforgothepreferreddividendswhendeemednecessary 1 21 JustificationforPreferredStock MaybeissuedtoachieveabalanceincapitalstructureAmeansofexpandingthecapitalbasewithout DilutingthecommonstockownershippositionIncurringcontractualdebtobligationsAdrawbackisthatinterestpaymentsarenottax deductible 1 22 InvestorInterest Primarypurchasersofpreferredstockarecorporateinvestors insurancecompanies andpensionfundsUnderthetaxlaw thecorporateinvestormustneedtoaddonly30 ofpreferredorcommondividendsofanothercorporation toitstaxableincomeBycontrast alltheinterestofbondsaretaxabletotherecipientexceptformunicipalbondinterest 1 23 SummaryofTaxConsiderations Taxconsiderationsforpreferredstockworkintwooppositedirections Theymaketheafter taxcostofdebtcheaperthanpreferredstocktotheissuingcorporation InterestisdeductibletothepayerTaxconsiderationsgenerallymakethereceiptofpreferreddividendsmorevaluableSince70 ofthedividendisexemptfromtaxation 1 24 CumulativeDividends CumulativepreferredstockhaveacumulativeclaimtodividendsThisfeaturemakesacorporationawareofitsobligationstopreferredstockholdersAfinancialrecapitalizationmayoccurifafinanciallytroubledfirmhasmissedanumberofdividendpayments 1 25 ConversionFeature PreferredstockmaybeconvertibletoaspecifiednumberofsharesofcommonstockAllowsthecompanytoforceconversionfromconvertiblepreferredstockintoconvertibledebt Allowscompanytotakeadvantageoffallinginterestrates ORAllowscompanytochangethepreferreddividendsintotax deductibleinterestpayments 1 26 CallFeature AllowscorporationsfortheretirementofsecuritybeforematurityAtsomesmallpremiumoverpar atthediscretionofthecorporationApreferredissuecarryingacallprovisionwillbeaccordedaslightlyhigheryieldthanasimilarissuewithoutthisfeature 1 27 ParticipationProvision AsmallpercentageofpreferredstockissuesareparticipatingpreferredsTheymayparticipateoverandabovethequotedyieldIfthecommonstockdividendequalsthepreferredstockdividend Thetwoclassesofsecuritiesmayshareequallyinadditionalpayouts 1 28 FloatingRate Dividendsareadjustableinnature floatingratepreferredstockInvestorscanminimizetheriskofpricechanges InvestorscantakeadvantageoftaxbenefitsassociatedwithpreferredstockcorporateownershipThepricestabilitymakesitequivalenttoasafeshort terminvestment 1 29 DutchAuctionPreferredStock Short terminnatureThesecuritymatureseverysevenweeksandisre auctionedatasubsequentbiddingAllowsinvestorst