Tirstrup Raising Dollar Debt
OVERVIEW
In this case Tirstup, a Danish company, is acquiring a U.S. based business, Medtechnics, for 410 million. Tirstrup asked Julie Harbjerb, Assistant Treasurer International, to put together a proposal for financing the acquisition. She has to keep in mind Tirstrup has 30 million in cash, they earned 163 million from a sale and the priorities are not to issue additional equity of convertible shares.
QUESTIONS
Question 1: Which of the many debt characteristics – currency, maturity, cost, fixed versus floating rate – do you believe are of the highest priority for Julie and Tirstrup?
According to the case study, Julie Harberj is assembling a proposal pertaining to the financing requirements for the acquisition of Medtechnics. The main concern of her supervisor is that she should issue any additional equity or convertible shares. In other words, Julie’s objective is to figure out how to finance the acquisition using the least expensive manner possible. Ultimately, after analyzing the several debt characteristics, longer-term fixed debt rate seems to be the most important characteristic, in addition to the currency of denomination being in US Dollar.
Question 2: Does the currency of denomination depend on the currency of the parent or the currency of the business unit that will be responsible for servicing debt?
The currency denomination depends on the parent currency, when a firm issues a foreign currency that is denominated in debt; the actual cost is equal to the after-tax cost. The majority of multinational companies have centralized financial management which includes where, how and why they raise funds. Most government limit the greater part of their debt interest obligation tax deductions to debt capital raised for domestic investment, not international financing. In this specific case, we most note that the Danish government has tax regulations which prevent tax deductions on debt held by a company once used for foreign investment. We believe
In this case Tirstup, a Danish company, is acquiring a U.S. based business, Medtechnics, for 410 million. Tirstrup asked Julie Harbjerb, Assistant Treasurer International, to put together a proposal for financing the acquisition. She has to keep in mind Tirstrup has 30 million in cash, they earned 163 million from a sale and the priorities are not to issue additional equity of convertible shares.
QUESTIONS
Question 1: Which of the many debt characteristics – currency, maturity, cost, fixed versus floating rate – do you believe are of the highest priority for Julie and Tirstrup?
According to the case study, Julie Harberj is assembling a proposal pertaining to the financing requirements for the acquisition of Medtechnics. The main concern of her supervisor is that she should issue any additional equity or convertible shares. In other words, Julie’s objective is to figure out how to finance the acquisition using the least expensive manner possible. Ultimately, after analyzing the several debt characteristics, longer-term fixed debt rate seems to be the most important characteristic, in addition to the currency of denomination being in US Dollar.
Question 2: Does the currency of denomination depend on the currency of the parent or the currency of the business unit that will be responsible for servicing debt?
The currency denomination depends on the parent currency, when a firm issues a foreign currency that is denominated in debt; the actual cost is equal to the after-tax cost. The majority of multinational companies have centralized financial management which includes where, how and why they raise funds. Most government limit the greater part of their debt interest obligation tax deductions to debt capital raised for domestic investment, not international financing. In this specific case, we most note that the Danish government has tax regulations which prevent tax deductions on debt held by a company once used for foreign investment. We believe
References: Yankee Bonds. (n.d.). Retrieved 08 31, 2012, from InvestingAnswers: www.investinganswers.com