Q: TA Energy: Should Ayhan accept or reject Okan’s proposal to buy out Ayhan’s stake? Why?
Ayhan should reject Okan’s proposal to buy out his stake. RG offer Ayhan $1.5million for his stake while keep the developer’s fee which is 5% of the capital budget. However ” Rather than be satisfied with a one-time developer’s fee, Ayhan intended to reinvest this fee in TA Energy in order to retain a significant equity position in the auto producer; Ayhan was relying on this fee as he had no alternative sources of capital. Ayhan hoped to exploit his early mover advantage in Turkey to create six or so auto producers by 2000, and then list the entire portfolio of auto producer holdings on the Istanbul Stock Exchange. “ The future of TA energy is optimistic owing to the big market it is in and it is now a pioneer for the market. Ayhan will get more return if he holds the stake. What’s more, TA energy is a bundle of international partnership. There are other partners besides RG. If he sells the stake to RG, other partners may argue for that and the situation now will change. It also referred in the essay that “The banks also questioned RG’s electricity purchase commitment. Furthermore, the banks insisted that an experienced, international construction contractor be in the deal, and made it clear that interest charges would be substantially higher if we decided to use a local construction partner, as project risk would be added to country risk. The higher rates would render my proposed debt financing unfeasible.” So the risk of TA energy may increase if RG holds the main share of the company. Once RG become the main holder, it tends to consider more about RG’s benefit instead of TA energy, which is not good for the growth of TA energy.
So Ayhan should not sell his stake to RG.
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