Case Study : De La Portilla Food Stores Assignment Help
In 5 to 8 pages, write a report based on the following scenario:
de la Portilla food stores, a family owned grocery store chain headquartered in Refugio, Texas, is considering a major expansion. The proposed expansion would require de la Portilla to raise $80 million in additional capital. Because de la Portilla currently has a debt ratio of 50 percent, and because the family members have all their funds tied up in the business, the owners cannot supply any additional equity. So the company will have to sell shares of the company to the public. However, the family wants to insure they retain control of the company. This would be de la Portilla’s first stock sale, and the owners are not sure just what would be involved. Therefore, they have asked you to research the process and to help them decide exactly how to raise the needed capital. In doing so, you should answer the following questions:
1. What are the advantages to de la Portilla to finance with shares rather than bonds? What are the disadvantages of using shares?
2. Are the shares of de la Portilla food stores currently publicly held or privately owned? Would this situation change if the sale shares were made?
3. What are classified shares (stock)? Would there be any advantage to de la Portilla of designating the shares currently outstanding as “founders’ shares”? What type of common shares should de la Portilla sell to the public to allow the family to retain control of the business?
4. What does the term going public mean? What would be the advantages to the de la Portilla family of having the firm go public? What would be the disadvantages?
5. What does the term listed stock mean? Do you believe de la Portilla shares would be listed shortly after the company goes public? If not, where would the shares trade?
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The report has been to handle the de la Portilla food stores which involves the grocery store chains with the major expansions. The company has been working on handling the rise of $80 million of the capital with the current debt ratio that is of 50%. With this, it is seen that the family is involved in tying up the funds in the business and the owners cannot easily supply for the additional equity standards. The company has to then sell the shares to the public but since the company is doing it for the first time with research process and helping to decide how to raise the capital which is needed. The report will include the finance with shares rather than the bonds. The food stores need to handle the privately-owned forms with situation that changes if the sales were made. Hence, the classified versions of the shares involves the designating shares with planning about how the public is allowed to focus on retaining the control of the business.
With paying bonds, there are long term debts which needs to be handed and there is a need of the formal agreement for paying interest in the semi-annual form. Hence, the shares are involving the common stock range with ownership interests in the corporation. The advantages are for issuing the bonds rather than of the stocks (Chang et al., 2017). The interests are mainly on the bonds and the other debts which is completely worked upon through handling the returns on the income tax with focusing on the common exchange stock which is also not deductible. Hence, if the corporation is working on the incremental federal and the state income tax rate which is 30%, then there will be a bond interest payment for $40000 which will reduce the payments of the income tax. Hence, de la Portilla food stores should work on handling the existing stockholders with ownership interests that is not to be diluted completely. Hence, the future gains will come through the use of bonds and the proceedings and then planning about the flow for the stockholders. This is important concept which includes the leverage or the trading on the equity. With time, it is seen that the stocks are the ownership forms where the representation is mainly in the form of the growth of company, where the investors do not tend to receive any of the promises for the returns on the investments that are done (Jenkinson et al., 2018). The profitability is mapped with the investments that depends upon the rise of the stock pricing and it also relates to the performance and the growth. There have been bonds that are worked upon to offer and provide a complete reliable return.
Disadvantages of using the shares are the dividends which has neither any of the fixed investor and the management needs to decide about the dividend. With this, there are higher risks and fluctuation of the market price as well. The shares are in limited control where it is hardly possible to impact the company decision through using the voting rights even.
The shares of de la Portilla food stores are held privately by the people and they are planning to sell the shares of the company to the public. This is the Initial Public Offering process, where there are investment banks who tend to take the possession of the different security measures and then distribute them for the various investors (Kumar et al., 2016). The primary market plans about the investors involved in participating for the primary market and buying the stock ranges that are being directly issues from the company. The prices are for the primary market with setting an IPO and investors need to know about the payments for investing in the shares. It is dominated with the sophisticated banks, pensions funds and the hedging funds. The market is when the investors buy and sell the shares with understanding the stock market. The transactions are made between the investors and the proceeds are for the sales that are undergoing the plans with prices on the secondary market which fluctuates maybe with determining the forces of the supply and demand (Boulton et al., 2019).
The classified stock is about the common stock which has special privileges like the enhancement of the voting rights and the dividend rights. They are class A and class B stock where the corporation has been able to work with different specific privileges as per the different types of stock. The specific features are set with charter and bylaws that gives advantages to the class A shares like the power of increased voting.
At the time of going public, then there are founder shares which are given for the classification of the stocks that have been generally owned by the founders of the firm. The founders need to maintain a complete control over the company, where the firm might be able to designate the shares which are owned by the founders. Hence, Class B stock would have the right to properly receive the dividends but not for voting mainly because that would already be sold for the public.
The common stocks which are possible for de La Portilla to sell to the customers are the common share, ordinary share and the voting share. The holders of the company can right to claim a share with company profit and exercise the control over the participation in the board of director election and voting which is in regard to the corporate policies. The common stock owners can also take the profits from the capital appreciation of securities where the average is about the shares that offer a higher value of the return which is relative to the preferred stock or bonds (Bahadir et al., 2015).
This refers that the shares if made public are related to IPO (initial public offering) with publicly trading and handling the owned entity. The business need to go public with raising the capital in the hope to expand. There are venture capitalists who tend to use IPOs as the exit strategy with getting out for the investments in the company. The venture capitalists might be using adaptation to the analyst coverage, media coverage and stock exchange.
Considering the advantages of going public for de La Portoillo, there are possibilities that there will be a raise in the capital with reaching a larger number of investors. The company needs to work on the cash to handle research, infrastructure and the expansion. The issuing of the shares, with new and lesser known companies that generate the publicity with increased business opportunities. The IPO can help in growing opportunities with attracting new talent and offering better perks depending upon the options of the stock.
Considering the disadvantages for the company, there will be major problems with the time and the expense for going through the process (Li et al., 2015). There will be problems with the company management team to likely be focused on handling different business areas which tend to suffer. The company needs to answer to the shareholders as well.
In the corporate financing, the listing is about the company shares which are on the list and the board of stock which are considered to be officially traded with the stock exchange. There are some of the stock exchanges which also allow the shares of the foreign company to handle and allow the dual listing which are subjected to different conditions.
The company needs to manage with the different private share ownership factors that are seen to be handling the public and the trading factors which are private (Gibbs, 2018). The share underwritten also includes the factors where there have been shares that relates to the ownerships. Apart from this, there are major changes that comes with private to the public factors that holds the investors for the cash and the earning that is done by the people as expecting. The private shareholders might be on the shares in public market with selling an option for the gains. For de La Portillo, there are underwriters that make the company insiders like the officials and the employees sign a lock-up agreement which is legally binding the contracts between the underwriters (Anand et al., 2018).
For the company, it is important to understand that the shares have to be specific for the legal documentation. The companies need to plan about how the limitations can be handled with company balancing sheets. The liabilities are determined by the company with increased accountancy and planning for the owner equity. The assets are increasing with the cash received and the changes of the stock pricing. The new stock is issued at the same price with current market pricing where there is no reason for expecting to share the changes and plan about the decisions to purchase a new stock with fulfilling the position.
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