Chapter 9 Lecture Notes Flashcards
(22 cards)
Proxy Fight
An attempt by a person or group to gain control of a firm by getting its stockholders to grant that person or group the authority to vote its shares to replace the current management
Proxy
Power to vote shares of common stock
Takeover
An action whereby a person or group succeeds in ousting a firm’s management and taking control of the company
Preemptive Right
A provision in the corporate charter or bylaws that gives common stockholders the right to purchase on a pro rata basis new issues of common stock (convertible securities)
What are management’s attempts to block takeovers?
Elect only 1/3 of the directors each year
Require 75% (rather than 50%) of stockholders to approve merger
Vote in poison pill provision (allows stockholders to buy takeover firm’s shares at reduced price)
Stockholders do not want barriers to protect incompetent managers; SEC ruled in 1993 that large investors may work together now to affect management decisions
Classified Stock
Common stock that is given a special designation such as Class A or Class B to meet special needs of the company
Founder’s Shares
Stock owned by the firm’s founders that enables them to maintain control over the company without having to own a majority of stock
Closely Held Corporations
No IPO
Ex: siblings start a corporation and each own 25% (no one else)
Publicly Owned Corporations
IPO->taken public
Primary Market
Where securities are created
Secondary Market
Where investors buy and sell securities they already own
Going Public
Companies becoming publicly traded to raise capitals in hopes of expanding
Initial Public Offering (IPO)
Process of offering shares of a private corporation to the public in a new stock issuance
Generic Model of Stock Valuation
As stated before, the value of any asset is the present value of its cash flows, using the appropriate required rate of return
Stocks and corporations have an ______ life
Infinite
If a stock doesn’t give dividends, what are our other options?
- EVA (try to estimate the stock price)
2. P/E Multiple Version
What does a technical analyst do?
Looks for patterns
Perpetuity
Zero growth
“Holder of Record”
Dividend list (get dividend when it first comes out)
The P/E Multiple Approach
AJ Cohen (Goldman Sachs) early 2000 (All computer stocks were given 40 * P/E multiplier)
The EVA Approach
EVA is highly correlated to stock price
Market value of equity (all of the shares added together)
Why is preferred stock called a hybrid?
It is like a bond in that it has a set payment, and it is like a stock in that it has an infinite life
