Case Study: Merit Enterprise Corp
March 19, 2013
After careful review Merit Enterprise Corp case study the pros of option 1: (assuming that JP Morgan Chase will continue to extend season credit lines and medium term loans.) First, it would keep Merit Enterprise as a private company. Secondly, Merit’s would have the right of non-disclosure. Private companies are not required to disclose details about their operations. Third, Merit Enterprise does not have to answer to shareholders if the stock is underperforming. The cons of option 1 are: First, banks may limit Merit borrowing after being financed for the 4 billion dollars. This may become a problem if Merit is maxed out on receiving financing and would need any additional capital for any other projects. Another con is that JP Morgan Chase may require frequent review of financial statements during the expansion project to determine if Merit’s financial condition is sound.
The pros of option 2: (assuming that Merit decide to take their company public) 1. Issuing stock to public would quickly raise the necessary financing ($4 billion) needed to expand Merit’s production capacity. 2. Also, going public would allow Merit to offer stock and stock options to their employees which is additional incentive to contribute to the success of the company. Option 2 cons: Merit would have to be subject to extensive financial disclosures such as quarterly and annual reports which are required by the SEC. Another con of going public is that it would leave Merit vulnerable to hostile takeovers or leave other institutions holding a large portion of stock. Finally, Merit would have to deal with the additional pressure from stockholders if the stock is underperforming and earnings do not meet their expectations. I believe Sara should recommend to the board is option 1. Why? Because Merit Enterprise has thrived as a private company up to this point even through going public sounds tempting. There is no need to...
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