The company: Aluminum Bahrain Case Study Solution
Since the buyout offer would be made at a premium due to the reason that the buyer would be keen to take the company private from the public and ensure that the deal is successful, any hints that the company is contemplating going private could result in high share price due to which the investors or shareholders could see the potential gain in purchasing stock before buyout (Officials, 2018).
In addition to this, the shareholders would have the option of electing to challenge the proposed transaction in the court with reasonable grounds for the challenge, if they are upset with the company’s decision of going from public to private. Hence, the shareholders of the company going private have the right to reject or accept the offer as long as they know what the implications and consequences are.
Investors types that would be interested in this offering
Since the privatization offerings sold at an even higher discount and privatization stock have the potential to outperform the market average, the investors seeking to pursue the sector investment strategy or to buy the index would purchase the stock. This is mostly relevant for the large institutional investors & much less so for the retail investors. For retail investors, privatization offerings have come with many benefits, these extra incentives seek to secure wide share distribution among the general public and the offer price is below for retail investors as compared to the price for institutional investors. There are various other types of investors who would be benefited from the privatization in a way of receiving the number of rights to exercise such as active investors who take a great deal of care with each decision of investment and would likely be benefited from the offerings. Additionally, active investors also constantly monitor the market & trades when they see the opportunity to make money.
Potential risks that an investor in Alba's faces
Since Alba depends on imports for all the raw material inputs which are used in the process of production, one of the greater concern of investors is a rise in prices of inputs, which would lead towards a decrease in supply anddecline in profit margin, because the profit margin is of high importance when evaluating the financial health of the company. A low-profit margin would not make the business attractiveto the investors.
Another concern of the investors of the company is that the company is exposed to the risk of interest rate which might affect the holding assets & liabilities interest. The company is subject to high market risk, in case of a rise in interest rate, both consumer & business would cut back on spending, which in turn would cause earnings to fall as prices of stock to reduce. It would be the greatest concern for investors because they buy shares see it as a speculative investment.
Additionally, the company is dependent on its suppliers for the supply of raw material due to which any disruption in the supply chain could lead to major drawbacks in the process of production. Furthermore, the profitability of the company is vulnerable to robust competition in the GCC market. Due to the accelerated efforts of new and potential competitors towards taking advantage of the budget surplus to diversify from oil and gas & development of additional smelting and downstream-aluminum fabrication facilities, there is a likelihood that the company would lose its leading position in the market, which in turn would not make investors willing to put their money into unprofitable company (Officials, CFA Institute , 2015)...............
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