A local family business is facing a decision. Constantine’s Grocery has been a landmark company in a small city in the USA. Over the past 60 years, what began as a single fresh fruit and vegetable store became a full service grocery store chain with many stores throughout the city. Constantine is incorporated with only 6 shareholders, all family members. The decision it is facing is how to raise much needed capital to maintain its current business operations and to allow the possibility of growth in the future. The family believes it needs an additional $135 million dollars. This sum is too large for a bank line of credit and no one in the family has additional funding to invest into the company. The family is considering other alternatives.
One alternative is to publicly issue debt (corporate bonds), the other alternative is to issue common stock to the public.
- In this paper, describe the process (in detail) of how a public offering occurs. A chronological account of how most public offerings would be an appropriate format, although not required.
- In addition, discuss the impact and implications of each alternative.
- How does each alternative affect control over the company?
- As a small family business, the internal affairs and finances of the company were well guarded from the public view by the family. How does this change?
- What are the financial reporting effects of this decision?
- How will additional debt impact future earnings? How will new stockholders change the management of the company?
Superior papers will explain the following elements:
- Provide a narrative about the impact of issuing stock to the public. The narrative will include the topics of loss of control of the company and the requirements that future financial statements will be available to the public.
- Provide a narrative about the impact of issuing debt to the public. The narrative will include the topics of potential loss of the company if debt covenants are breached and the requirements that future financial statements will be available to the public.
- Provide a narrative on the initial public offering (IPO) process using at least four research sources outside the textbook material. The narrative of the IPO process steps should include the (a) role of investment banker, (b) deal negotiation, ( c) preparation and submission to the SEC of the registration statement, (d) SEC approval, ( e) setting an issue date, and (f) setting an issue price.