Freeport-Mc Mo Ran - End of week questions PDF

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Sam Nelson A01658043 Freeport-McMoRan: Financing an Acquisition Case 1) Usually when a company needs financial advisory or assistance, they will allow for IB’s to show them their “credentials, preliminary valuation, and view of investor demand.” And then they will go and pick the one they think can help them the most. However, they usually stick with the IB that has had existing relationships with them. In this case they already had close connections with both JP Morgan and Merrill Lynch. 2) The leveraged finance group, according to the case, “was responsible for the analysis behind making the bridge financing commitment to the company.” In this case it the loan helped FCX show proof of financing to Phelps Dodge. 3) Capital risk – the financial risk associated with a bank’s financing commitment in relation to an acquisition. Reputation risk – risk from associating in the investment banking firm with the company for which it is raising capital. Setting aside capital means that a firm will invest cash in risk-free securities. 4) In order to carry out the process for raising capital necessary to complete the transaction, the IB has to negotiate with a credit rating agency to obtain the highest rating on the upcoming bond offering. The group within an IB that helps negotiate are the rating advisory professionals on the debt capital market group. 5) Equity research provided information to only the institutional sales force regarding the equity and convertible offerings and their uses. Along with answering their questions. It had changed in the sense that equity research was restricted in providing an investment opinion on shares of FCX. 6) The clients of the institutional sales team are portfolio managers of large assets. Limit orders dictate the highest price someone is willing to pay, which can ultimately affect he final pricing decision. The equity capital market syndicate group “maintains a book of investor demand and makes a pricing recommendation to the company that is designed to allow the security to trade up modestly.” 7) M&A fee: 0.5%*25.9 bill = $129,500,000 Debt fee: 0.75%*17.5 bill = $134,250,000 Equity fee: 3%*5.8 bill = $174,000,000 Total = $434,750,000 In my opinion this is a lot however because they took on lots of risk, this seems like a good/justified amount....