Cargill: Keeping The Family Business Private Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

Cargill: Keeping The Family Business Private Case Solution

Question 4

Apart from spinoff option, the Cargill management can have other options, which might help the company in resolving the foundation’s liquidity concerns, serving the stake of the existing shareholders in best regard and resolving the conflict of interest between the Cargill’s family and the potential stakeholders i.e. the MAC foundation.

·Shares Buyback

Rather than going public, the company’s management should ask the foundation to sell the stake of Margaret Cargill to the existing shareholders of the company. This would resolve the foundations’ liquidity concerns and it would save the company’s long term legacy of being a privately held business. In this way the shareholders would not have to give the stake in the market and the company would not be required to deal with the regulatory concerns. It would resolve the concerns of the minority investors, whose voting power would get reduced if the company spinoffs the Mosaic stake. The conflict of interest, which has arisen between the company’s shareholders and the foundation, could be handled by exploiting the share repurchase option. The only hurdle would be financing, but the company has sufficient cash and the ability to generate loans, so it would not be a big problem for the company. Losing the voting power through spinoff and losing the long term secrecy and authority of the business is not a viable option of the company's management.

·Sell to Cargill Family

The second option for the company’s management is to convince the members of the Cargill family to purchase the stake, even if the foundation requires a certain premium over the sale, but the company should not lose its focus from being a private and secret business entity. The huge size and success of the business has always relied on the company’s legacy of being a private firm. With this option, the company would be able to provide sufficient liquidity to the MAC foundation. The company can convince any of the existing Cargill family’s shareholder to purchase the shares of MAC foundation. Thereby providing the cash based amount. Though it is costly, but for the long term interest of the company; it seems to be a better option.

Question 5

Corporate governance refers to the way through which the companies are governed. Corporate governance involves a set of processes, procedures and purpose, on the basis of which the matters are dealt within the organization. The corporate governance in Cargill Company was based on the rules and standards of a private company, which has maintained its secrecy and business legacy over the long term. The key concept based on the corporate governance involves the conflict of interest and the agency conflict between the company’s owners and the MAC foundation management. The conflict of interest arose between the two parties, based on the fact that the stake of Margaret Cargill was now owned by the MAC foundation and the foundation wanted to serve its own liquidity interest by selling the Margaret’s stake into the public by issuing an IPO. On the other hand, the Cargill family had kept the business as a private entity and did not want to issue an IPO and lose the company’s management control.

Question 6

IPO- initial public offers to the process of going public for the first time by selling the company’s stake into the public market and getting listed on the stock exchange. If the Cargill’s management decided to go for the IPO, then it needs to follow a detailed, lengthy and costly procedure of issuing its stock for the very first time. The IPO road-map for guiding the company’s management is explained as under. As the company has already chosen an investment, so in lieu of my responsibility; I will be presenting the company with different kinds of underwriting contracts, such as:

·Firm Commitment

Under this agreement the whole stock offering is purchased by the underwriter, whereby it is assured to the company that a particular money will be generated by issuing the stock to the public by the underwriter (Corporate Finance Institute, 2020).

·Syndicate Or Underwriters

An initial public offering can be made through a single underwriter or by forming a syndicate. In a syndicate, different investment banks coordinate to make the company’s IPO successful. The syndicate is usually formed by a lead investment bank. This is an effective way because the risk IPO is diversified among different banks.

·Best Efforts Agreement

Under this agreement, the raise of particular amount of money is not guaranteed by the investment bank, rather, eth investment bank only tries to sell the securities within the public on behalf of the issuing company.

After getting this agreement few documents need to be initiated by the company if the company wants to issue an IPO. These documents include an engagement letter which is based upon the reimbursement clause and the spread between the sale price and the issuer price of the stock. In addition, the company has to generate a letter of content which should be based on the commitment of the underwriter, disclosing all the necessary information by the issuer to the underwriter and over allotment option. Next, the company needs to get the agreement done and get the company’s prospectus and private filing form SEC done through the investment bank. Afterwards, the company needs to decide about an effective date for the issuance of an IPO and just a day before the effective date, it is necessary to determine an IPO price with the help of the investment banker. After the stock issuance; the underwriters have to create a market, provide the analyst recommendations and after markets stabilization for the stock issued by the Cargill. After a period of 25 days; a transition to market competition takes place, whereby the investment bank provides the recommendations regarding the company’s valuation by being an evaluator and an advisor.........................

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Cargill: Keeping The Family Business Private Harvard Case Solution & Analysis