Fojtasek Case DaisunKong
1. What problems does the Fojtasek family face?
There are two problems. First thing is difference needs between the president’s children. One son wants to run the company, and of course he wants to have control of a company. However the others want to have a cash. Second problem is the company is a private company, and that means they can’t see their stocks easily, because private companies don’t have liquidity. The foremost solution is borrowing money by stocks from a bank until the leverage don’t threat the control power. However the son who wants to operate the company doesn’t want to that solution, because that leverage can catch up with growth of the company.
2. Assess how each alternative addresses the family needs and key concerns of each alternative (buyout, leveraged recapitalization, private-IPO).
A. Buyout : It can’t be good solution, because a private company doesn’t have liquidity. It means buyout fund have difficulties to make the money from a private company
B. Leveraged recapitalization : As I mentioned, this is foremost solution if they want to solve their problems on their hands. However this is too risky for the company. They should grow fast as fast as they can, but the big leverage can be big problem.
C. Private-IPO : I think this is best solution, but that is also big problem to those who runs the company because of warranty. Heritage partners should protect themselves because they are minority shareholders, so they made warranties. However that warranty can take control power from CEO when CEO don’t maintain their growth. In that case CEO can make the estimation lower, but that means they can be evaluated lower by Heritage partners.
3. What is the fair market value of the firm considering the Heritage proposal? Use DCF analysis—specifically, the adjusted present value method. Discount cash flows at the firm’s unlevered cost of equity (calculate cost of equity using the comparable public firms provided), and discount interest tax shields
There are two problems. First thing is difference needs between the president’s children. One son wants to run the company, and of course he wants to have control of a company. However the others want to have a cash. Second problem is the company is a private company, and that means they can’t see their stocks easily, because private companies don’t have liquidity. The foremost solution is borrowing money by stocks from a bank until the leverage don’t threat the control power. However the son who wants to operate the company doesn’t want to that solution, because that leverage can catch up with growth of the company.
2. Assess how each alternative addresses the family needs and key concerns of each alternative (buyout, leveraged recapitalization, private-IPO).
A. Buyout : It can’t be good solution, because a private company doesn’t have liquidity. It means buyout fund have difficulties to make the money from a private company
B. Leveraged recapitalization : As I mentioned, this is foremost solution if they want to solve their problems on their hands. However this is too risky for the company. They should grow fast as fast as they can, but the big leverage can be big problem.
C. Private-IPO : I think this is best solution, but that is also big problem to those who runs the company because of warranty. Heritage partners should protect themselves because they are minority shareholders, so they made warranties. However that warranty can take control power from CEO when CEO don’t maintain their growth. In that case CEO can make the estimation lower, but that means they can be evaluated lower by Heritage partners.
3. What is the fair market value of the firm considering the Heritage proposal? Use DCF analysis—specifically, the adjusted present value method. Discount cash flows at the firm’s unlevered cost of equity (calculate cost of equity using the comparable public firms provided), and discount interest tax shields