Metapath Company had been financed by both external and internal sources from the year 1995 up to 1997. The shares held were classified as common stock and preferred stock; the preferred stock was divided further into classes A, B, C and D. There was a slight variation of rights in these classes of shares. Classes A and B were held by non-owners while classes C and D were held by the owners of the company.
The total amounts available from the various shares as per the balance sheet were preferred stock class A $ 61, class B $ 976, class C $ 2, class D $ 7 and common stock $ 6. The price per share for the different classes was as follows, namely, preferred Class A $1.05, preferred class B $1.05, preferred class C $ 1.05, preferred class D $ 1.62 and common stock is 1.05.
The capital structure and the total capital of Metapath Company influenced the offer price of Robertson and Stephens. The offer takes into consideration the rights of the various classes of share holders. It is along this line that they negotiate for a new class of preferred shares. The extra right to be attached to this class of shares is the right to participate in extra earnings of the company.
RSC’s participating preferred stock is to earn dividends at the rate of the current preferred shares but the share has extra rights. A good example of these rights is the participating right of the shares. The participating right enables them to get a share of the excess earnings of the company similar to the owners of the company.
I find RSC’s offer to Metapath attractive in terms of pricing. The only unattractive part of the offer are extra rights they have to acquire which are likely to dilute the ownership of Metapath Company.
The shareholders of classes A, B, C and D will not be significantly affected by acceptance of the offer. They will earn dividends at the same rates although the prices of their shares are likely to fall since unlike classes A, B, C and D, the new class E has an extra right that will attract a high demand.
The high demand will cause a rise in its price while the prices of the other classes fall. The dividends of common stock holders are likely to reduce if the offer is accepted. The new class of shares will have a right to participate in the excess earnings of the company which were initially shared among common stock holders as dividends. Thus, there will be a significant reduction in the dividends of the owners of the company.
The Celltech offer is reasonable as it comes with immediate advantages. It does not dilute the ownership of the company and it is likely to increase the market of Metapath Company. The price of the offer also makes it reasonable and attractive.
They should take into consideration the historic information available on the price of the shares of Celltech Company.
The price has been rising all through. It will be fair to compute the average price over the years and use it as the current share price or use other computation methods that consider the rising price over the years.
Some of the risks associated with the offer are the high competition in the telecommunication industry that may make the company go under as well as the fact that Celltech Company has not been in existence for a long time.