The Privatization of Rhône-Poulenc, 1993

Topics: Stock, Stock market, Privatization Pages: 3 (1152 words) Published: June 18, 2013
The Privatization of Rhône-Poulenc, 1993
Every government is subject to political pressure and finding a consensus between political and financial aims is difficult. In practice, some choices may not further the company's long-term development. Regarding the main goals of the French government, the privatization of Rhône-Poulenc (RP) is supposed to raise funds (essential to cut budget deficit) and decrease new government participation in the French economy. Through privatization the government hopes to add industrial diversity and liquidity to the equity market, which is currently undeveloped and laws should be modified to promote its development. The French government wants employees to own shares in their companies to motivate them and also prevent companies from being acquired by foreign institutions. However, due to the limited number of potential investors in France and diversification benefits foreigners will own some shares. A poor tradition of individual stock ownership makes it harder to persuade workers to buy shares but the successful privatization of RP can be used as a good example and stimulate further privatization. As for RP, the privatization will allow the company to access private capital necessary for future investments. RP strives to be efficient and to have a high employee motivation. The stock ownership will provide initiatives for employees to perform better, however, first it is necessary to overcome participation unwillingness in the privatization process as a failed privatization attempt will cause additional costs for the firm. The goal of employees is to maximize income without additional taxation and minimize initial investments, however the lack of benefit information caused by the acquisition of company stock and the weak tradition of this kind of transaction makes the firm's stock ownership not especially attractive. Bankers Trust (BT) is known as an innovative firm and participation in this deal will not...
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