...1 Because both JP Morgan and Merrill Lynch promised to underwrite $17.5 billion of the debt financing and $6 billion in the bridge loans and the another $1.5 billion of credit lines. FCX’s two equity related transactions were led by JP Morgan and Merrill Lynch as joint book-runners. Big risk happened to the FCX interests and these two firms. FCX’s book running and M&A were controlled by the two firms which facilitated M&A transaction. Than, the two firms equally shared fees and league table credit for these transactions. It is a risker way to commitment to provide bridge loans. 2 (1) It is the leading syndicated and leveraged finance platform worldwide, lending money to private equity firms or corporations for leveraged acquisitions. They also provide liability management and financial restructuring advice to corporate clients and private equity portfolio companies. (2) Because the FCX wants to acquire a larger company and the large number of debt, and the group has to do the analysis of the capital and credit ratings and to sell debt to other investors. When the firm issues a press release describing a merger, it is the first time that an individual in sales and trading will hear of it. 3 Capital risk is the financing risk associated with investment bank’s underwriting commitment in relation to financing an acquisition and underwriting transactions. If the bank commits to providing a loan, it undertakes in relation to an acquisition.(2) If the firm facing market risk, the...
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...MCI COMMUNICATIONS CORPORATION Introduction In 1982, the Justice department ordered the separation of ATT into local subsidiaries. MCI was one of the main competitors of AT&T and the impact of this new competition on MCI was uncertain. In this case the financial impact of this increased competition will be analyzed. Analysis of External Financing Needs for MCI from 1983 to 1989 Please see Exhibit 1 and Exhibit 2 MCI’s external needs will keep increasing over the next few years as the operating margins would shrink because of higher competition & higher access charges. In order to increase its market share, MCI would need to continue investing huge capitals in its network. As per exhibit 9 of the case, it is anticipated that MCI will increase its market share to 20 % in the next 6 years. The telecom industry is very capital intensive and in 1983 required $1.15 worth of investment in fixed plant & equipment for each extra $1 of revenue; that is first you have to build the network before you can sign up customers. The operating margin is expected to stabilize at 15% by 1990. But they are expected to vary substantially based on competition. It can go up to 22% or go down to 8%. Types of securities which were issued by MCI (1972-1983) 1. 2. 3. 4. 5. Common Stock Common Stock with warrant Convertible cumulative preferred stock - Cost Around 12.27 Debentures – Cost around 15% Convertible debenture – cost around 10% MCI initially issued equity in 1972 and later it started...
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...MCI COMMUNICATIONS CORPORATION Introduction In 1982, the Justice department ordered the separation of ATT into local subsidiaries. MCI was one of the main competitors of AT&T and the impact of this new competition on MCI was uncertain. In this case the financial impact of this increased competition will be analyzed. Analysis of External Financing Needs for MCI from 1983 to 1989 Please see Exhibit 1 and Exhibit 2 MCI’s external needs will keep increasing over the next few years as the operating margins would shrink because of higher competition & higher access charges. In order to increase its market share, MCI would need to continue investing huge capitals in its network. As per exhibit 9 of the case, it is anticipated that MCI will increase its market share to 20 % in the next 6 years. The telecom industry is very capital intensive and in 1983 required $1.15 worth of investment in fixed plant & equipment for each extra $1 of revenue; that is first you have to build the network before you can sign up customers. The operating margin is expected to stabilize at 15% by 1990. But they are expected to vary substantially based on competition. It can go up to 22% or go down to 8%. Types of securities which were issued by MCI (1972-1983) 1. 2. 3. 4. 5. Common Stock Common Stock with warrant Convertible cumulative preferred stock - Cost Around 12.27 Debentures – Cost around 15% Convertible debenture – cost around 10% MCI initially issued equity in 1972 and later it started...
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...committed $6 billion in bridge loans and to underwrite the entire $17.5 billion in debt financing, plus $1.5 billion in credit lines. This created significant risk by aligning the interests of FCX and the two firms in terms of placing the debt and credit with other banks and institutional investors. Because this commitment was critical in facilitating the M&A transaction, FCX gave all of the book-running and M&A business to these two firms. JPMorgan and Merrill Lynch had guided FCX through the M&A pre-deal conception and the activity targeting Phelps Dodge. In addition, both firms held high positions in league tables for financings and M&A and had existing long-term relationships with FCX’s management. But the key to their fee bonanza was the risky commitment to provide bridge loans if placement was not possible in the capital markets. 2. The leveraged finance group was responsible for making the bridge financing commitment on behalf of JPMorgan that allowed FCX to make a firm bid for Phelps Dodge. To ensure that the M&A transaction could be completed, it was essential to line up the acquisition financing. This leveraged financing was particularly important because FCX was taking on so much new debt and was acquiring a company larger than itself. The leveraged finance group had to analyze the new capital structure, the impact on credit ratings, and the ability to “resell” the debt to other investors and banks. The group also had to lead the effort to secure...
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...market expansion and decreasing in operating margin, in addition, since telecom industry is very capital intensive, the increase of large amount of CAPEX required year by year is another factor that causes the external funds grow for the following time period. Then, we obtained the 10-year U.S. Treasury rate for 1983, which is around 10.46% and discount each year’s external fund back to 1983 using it as the discount rate for convenience. We got the final total external fund needed for the next five years is $1984.3 million. See Appendix A. Analysis of MCI’s past financial strategy MCI needs external funds to operation, which is the main financial policy. During the past 1972-1983, MCI has issued common stock, common stock warrant, convertible cumulative preferred stock, debenture and convertible debenture. With the call provision and the rising stock price, MCI converted those debentures to common stock successfully. Apparently, raising new equity will hurt shareholders’ value, so the cost of equity will be high. But convertible debentures have a lower interest...
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...FREEPORT 1. Why do you think JPMorgan and Merrill Lynch were selected to underwrite and book-run all $23.3 billion in financings (all debt, common stock, and convertible), instead of sharing the underwriting with additional firms? JPMorgan and Merrill Lynch were selected to underwrite and book-run all of the financings because together they committed $6 billion in bridge loans and to underwrite the entire $17.5 billion in debt financing, plus $1.5 billion in credit lines. This created significant risk by aligning the interests of FCX and the two firms in terms of placing the debt and credit with other banks and institutional investors. Because this commitment was critical in facilitating the M&A transaction, FCX gave all of the book-running and M&A business to these two firms. JPMorgan and Merrill Lynch had guided FCX through the M&A pre-deal conception and the activity targeting Phelps Dodge. In addition, both firms held high positions in league tables for financings and M&A and had existing long-term relationships with FCX’s management. But the key to their fee bonanza was the risky commitment to provide bridge loans if placement was not possible in the capital markets. 2. What was the role of the leveraged finance group at JPMorgan and why was its involvement important to the acquisition? The leveraged finance group was responsible for making the bridge financing commitment on behalf of JPMorgan that allowed FCX to make a firm bid for Phelps...
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...FREEPORT 1. Why do you think JPMorgan and Merrill Lynch were selected to underwrite and book-run all $23.3 billion in financings (all debt, common stock, and convertible), instead of sharing the underwriting with additional firms? JPMorgan and Merrill Lynch were selected to underwrite and book-run all of the financings because together they committed $6 billion in bridge loans and to underwrite the entire $17.5 billion in debt financing, plus $1.5 billion in credit lines. This created significant risk by aligning the interests of FCX and the two firms in terms of placing the debt and credit with other banks and institutional investors. Because this commitment was critical in facilitating the M&A transaction, FCX gave all of the book-running and M&A business to these two firms. JPMorgan and Merrill Lynch had guided FCX through the M&A pre-deal conception and the activity targeting Phelps Dodge. In addition, both firms held high positions in league tables for financings and M&A and had existing long-term relationships with FCX’s management. But the key to their fee bonanza was the risky commitment to provide bridge loans if placement was not possible in the capital markets. 2. What was the role of the leveraged finance group at JPMorgan and why was its involvement important to the acquisition? The leveraged finance group was responsible for making the bridge financing commitment on behalf of JPMorgan that allowed FCX to make a firm bid for Phelps Dodge. To ensure that...
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...determine the level of risk an organization is willing to assume before investments can be properly executed. 2. Leverage – The simplest way to apply this principle is to magnify earnings that are the direct result of fixed costs. These magnifications can be realized by operational, financial and total or combined leverage. 3. Time Value of Money – Every penny earned or invested has a time value. Omega Health needs to be sure this principle is kept in check. 4. Valuation – Knowing that the current value of an asset is equal to the present value of future cash flows is critical. By understanding the formula of: Value = Present value of future cash flows 5. Bond Prices vs. Interest rates – Knowing if a bond is the best measure of raising money is critical for continued...
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...Benefits Program A benefit plan that includes the following benefits is personally appealing to me: 1. Health (other than dental or vision) 2. Life insurance 3. Dental 4. Vision 5. Temporary disability (accident and sickness) 6. Long-term disability 7. Code Section 125 (premium conversion, FSAs, cafeteria plans) 8. Dependent care (either through a facility or by reimbursement) 9. Supplemental unemployment 10. Prepaid legal 11. Severance pay 12. Apprenticeships and training 13. Scholarship (funded) 14. Death benefits other than life insurance 15. Educational assistance programs 16. Group legal services plan In addition to common benefits like vacation pay, holiday pay or overtime premium pay. I work in the public sector so comparing the public sector-versus-private sector taking into consideration the compensation cost of lifetime compensation public-versus-private sector pay and benefits. When total compensation is based on years worked the divide between the public and private sectors increases significantly. While preretirement compensation levels were comparable between the two sectors the retirement benefits of public sector employees are far greater than their private sector counterparts. These postemployment benefits earned over a lifetime led to the higher total compensation for the public employee. Part of the reason total lifetime compensation is more for the public employees (both with and without social security benefits) when compared with...
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...it will speak about the last news about raising the legal limit of USA debt and how this affects to the rest of the world. Finally, when the each monetary policy is clear, it will be given my own opinion. First of all, it should start defining what monetary policy is: Monetary policy is a central bank’s use of either the money supply and/or interest rates to influence economic activity (Froyen, Richard (2009). Macroeconomics Theories and Policies. Pearson Prentice Hall). Monetary policy is run by the Federal Reserve in the United States and by the European Central Bank (ECB) in Europe. The mean objective of the first institution is to insure price stability and full employment; meanwhile, for the second one is price stability. They are the responsible institutions for issuing Money. The ECB focus on price stability because, accordingly with this institution, it cannot control anything more. However, I do not believe that. Everything is linked and, by economics decisions (interest, taxes…), is possible to change different variables which influence, for example, the employment. Even so, it is true that the ECB have in consideration the employment and a sustainable and non-inflationary growth. The European Central Bank by fixing interest rates in the short-term, monetary policy influences the economy and, ultimately, the price level. ECB has adopted the so-called "two-pillar approach": the economic analysis and monetary analysis. This is to prevent loss of information relevant...
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...Q1] what is the maximum permissible bank finance? As per the recommendations of Tandon Committee, corporates should be discouraged from accumulating too much of stocks of current assets and should move towards very lean inventories and receivable levels. The committee even suggested the maximum levels of Raw Material, Stock-in-process and Finished Goods which a corporate operating in an industry should be allowed to accumulate These levels were termed as inventory and receivable norms. Depending on the size of credit required, the funding of these current assets (working capital needs) of the corporates could be met by one of the following methods: · First Method of Lending: Banks can work out the working capital gap, i.e. total current assets less current liabilities other than bank borrowings (called Maximum Permissible Bank Finance or MPBF) and finance a maximum of 75 per cent of the gap; the balance to come out of long-term funds, i.e., owned funds and term borrowings. This approach was considered suitable only for very small borrowers i.e. where the requirements of credit were less than Rs.10 lacs · Second Method of Lending: Under this method, it was thought that the borrower should provide for a minimum of 25% of total current assets out of long-term funds i.e., owned funds plus term borrowings. A certain level of credit for purchases and other current liabilities will be available to fund the build up of current assets and the bank will provide the balance (MPBF)....
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...------------------------------------------------- Financial Strategy and Value Creation Service Corporation International Section 100 Group 10 Lingxiao Chang Tianchi Chen Ziliang Ji Yibo Ma Hongyang Shao Xincheng Shen 02/24/2015 Introduction Service Corporation International is a Houston based death care provider that is founded by Robert L. Waltrip. After years of rapid growth and global expansion, SCI now faces the potential of slow growth and capital structure risk. The company also falls in a dilemma to maintain its 20% growth in EPS and to limit the use of debt. In the article, we will analyze how SCI achieved the high growth rate and how sustainable is it. In addition, we will analyze the stock price of SCI and give an investment suggestion. Death Care Industry The death care industry in United States is a mature and low growth one whose performance heavily depends on the death number per year. We use the Five Force Analysis to measure the performance of the industry. Entry Barrier (Green) The entry barrier to the death care industry is high. Since the keys to succeed in the industry are personal relationships and reputation, which need quite a long period to build. These result in a low entry and failure rates for funeral homes. Buyer Power (Red) We think the buying power is pretty high. Customers can choose the sites and professional service items according to their preference. Besides, with only 1% estimated death increasing rate, companies in the industry may...
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...INVESTMENT BANK Definition:- Investment bank is a financial institution that assists individuals, corporations, and governments in raising capital by underwriting and or acting as the client's agent in the issuance of securities. An investment bank may also assist companies involved in mergers and acquisitions and provide ancillary services such as market making, trading of derivatives and equity securities, and FICC services (fixed income instruments, currencies and commodities). Investment banks do not take deposits. There are two main lines of business in investment banking. Trading securities for cash or for other securities (e.g. facilitating transactions, market-making), or the promotion of securities (e.g. underwriting, research, etc.) is the "sell side", while buy side is a term used to refer to advising institutions concerned with buying investment services. Private equity funds, mutual funds, life insurance companies, unit trusts, and hedge funds are the most common types of buy side entities. An investment bank can also be split into private and public functions with an information barrier which separates the two to prevent information from crossing. The private areas of the bank deal with private insider information that may not be publicly disclosed, while the public areas such as stock analysis deal with public information. List of the bank: 1) CIMB Investment Bank Berhad 2) RHB Investment Bank Berhad 3) Alliance Investment...
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...characterized by the dominating presence of commercial banks, especially the Nationalized Commercial Banks (NCBs). Although, a paradigm shift in the degree of dominance has been observed of late with the emergence of private commercial banks-traditional and shariah based banking. Banking sector accounted for about 75 percent of the total financial system. Most of the available funds go to the NCBs in the form of deposits and channeled into lending. However, the NCBs had substantial nonperforming loan (NPL) portfolios. Both insurance and mutual funds industries are very small. The debt market being an integral part of financial market plays a complementary role in developing economy through allocation of funds to the different deficit sectors. The debt market consists of money market, mortgage market, bond market and derivative market. The debt market of Bangladesh is very small. The size of domestic debt accounted for...
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...Brent Handley Accounting II - Professor Beier Final Accounting Paper: Priceline Group (PCLN) Company Background In 1997, the Priceline Group Inc. was formed as a Delaware LLC until it converted its status to a corporation during July 1998. The Priceline.com brand launched its’ flagship brand, Priceline.com, and later expanded its’ operations with the acquisition of four other independently managed and operated brands, Kayak, Booking.com, Rentalcars.com, and OpenTable. The Priceline.com brand offers consumers reservations for airplane tickets, cruises, vacation packages, and rental cars. Accommodation services are offered to consumers through Booking.com, Agoda.com, and the aforementioned Priceline.com brand. These services include: bed and breakfasts, hotels, hostels, apartments, vacation rentals and other properties. Rentalcars.com provides access to rental car reservations worldwide. On Kayak, consumers are able to compare airline ticket, hotel reservation and rental car reservation information on an easy to use online platform with hundreds of travel websites. The mostly recently acquired company, OpenTable, offers online restaurant reservations. The chief objective of the business is “to serve consumers, their travel service providers, and restaurant partners with worldwide leadership in online reservation services.” (Priceline 10K) Priceline Group’s business model concentrates on earning its gross profit through five income streams: commissions earned from facilitating...
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