Equity Financing Ty Medler Marie Hoffman Cynthia Robertson

Recap from last chapter: Debt Financing Bonds vs loans as a source of financing capital Debt vs Equity Financing

Concepts to learn What are the key features associated with Equity Financing What is the investment banking process Conduct simple valuation analyses of common stock What is market equilibrium and efficiency

Equity Financing in a nut shell

What is a shareholder? Any person, company or other institution that owns at least one share of a company’s stock. Shareholders are a company's owners. They have the potential to profit if the company does well, but that comes with the potential to lose if the company does poorly. A shareholder may also be referred to as a "stockholder".

Rights and Privileges Preferred Stock- not always “preferable” Usually no voting rights Don’t increase in value the way common shares can When company does pay dividends, holders receive money before common stockholders. Claim on Residual Earnings Net income “belongs” to share holders Some portion may be paid out as dividends Sometimes management doesn’t pay out to divided b/c the firm needs that money elsewhere, like back into the firm t sustain operations or conduct research and development.

Common Stock Holders Rights and Privileges Control of the Firm Right to elect directors of the firm and hold sway over critical moves and decisions in the firm. The more shares you own the more votes you have. Hostile Takeovers During a merger or acquisition, control of the firm occurs without the support of the controlling or majority shareholders. Poison Pill: a “triggering” event allows shareholders during a hostile takeover to purchase additional shares at a nominal price. This safety clause keeps hostile takeovers from occurring because it dilutes the entirety of all shares. General VS Family Dollar

Common Stock Holders Rights and Privileges Preemptive Right The right to purchase additional stocks shared by the firm. Protects the stockholder… Power of control Dilution of value Ask Eduardo Saverin what this means. “you were told…signed papers” - rights offering Lawyer up! Just Angry Words

Selling New Stock Rights Offerings: When new stock is issued by a company, it sells these shares first to it’s existing stock holders, usually at a nominal price. Private Offerings Public Offerings/Private placement The sale of securities to a small number of investors (e.g., large banks, mutual funds, insurance companies and pension funds). Alternative Purchase Options ESOP / ESPPs Employee Stock Ownership Plans Employee Stock Purchase Plans DRIPs dividend reinvestment plan DSPP Direct Stock Purchase Plans

NYSE and NSDAQ like I'm five Facebook Hiccup: What Went Wrong on the NASDAQ Dealers Market Vs Auction Market

Types of Common Stock Types of transactions… New Issue Market Primary Market Secondary Market Private placement - The sale of securities to a small number of investors (e.g., large banks, mutual funds, insurance companies and pension funds). Alternative Purchase Options - ESOP / ESPPs Employee Stock Ownership Plans Employee Stock Purchase Plans - DRIPs dividend reinvestment plan DSPP Direct Stock Purchase Plans

Selling New Stock Rights Offerings: When new stock is issued by a company, it sells these shares first to it’s existing stock holders, usually at a nominal price. Private Offerings Public Offerings/Private placement The sale of securities to a small number of investors (e.g., large banks, mutual funds, insurance companies and pension funds). Alternative Purchase Options ESOP / ESPPs Employee Stock Ownership Plans Employee Stock Purchase Plans DRIPs dividend reinvestment plan DSPP Direct Stock Purchase Plans

Selling New Stock: Public Offerings

Selling New Stock: Private Placements

Selling New Stock: Employee Stock Purchase Plans

Selling New Stock: Dividend Reinvestment DRIPs Stockholders can automatically reinvest their share of the dividends back into the company Direct Purchase Plans Allows individual investors to purchase stock directly from the company. Employee Purchase Plans, Dividend Reinvestment Plans, and Direct Purchase Plans are great for individual investors but typically do not raise large sums of capital for the firm.

Review What is a rights offering? What is a private placement, and what are it’s primary advantages over a public offering? What are employee stock purchase plans? What is a dividend reinvestment plan? What is a direct purchase plan?