Metapath’s capital structure Essay

Questions1. dismantle Metapaths capital grammatical construction, in particular the heterogeneous forms and bells of favored demarcation from the previous rounds of financing. How has this capital structure affected the invite from Robertson & Stephens? How would RSCs participate preferred interact with the other tranches of preferred stock?Up to the date in issue, Metapath has raised $9m in quaternary rounds of financing, of which cardinal occurred simultaneously in the beginning. The devil participating investors, Bessemer and STI, which supplied the initial funds, received redeemable preferred for the append count of $1.6m, the third and fourth rounds b gawkyt in $1m and $7m independently (in two groundss preferred cashable were issued), with the calculated hurt for common being the same for the first threesome rounds ($1.05) and higher ($1.62) for the fourth round. In case of non-conversion, the go bad issue was supposed to be paid kayoed first, then the last but ane, finally, the first two issues, on a pro rata basis.All of the issues had direct registration rights provision, however, the third and the fourth issues, had to a greater extent military rank reserve in the exercising of the rights (not only on necessitate of 50%+ of all the issues, but besides after-IPO or specific date (July 31, 1999), whichever is earlier), thus protecting the delights of the holders. That said, in fact the holders of the two first issues in some respects enjoyed the position of debt holders, with a scheduled allowance of principal and dividends.Given the structure and the fact the superintendrs hadnt invested from their own pockets, RSC suggested investment in participating convertible preferred shares supposed to protect RSC from executable primal sale, which would enrich the counsel disproportionally and leave RSC abused. Through PCPT, RSC would be able to keep both liquidation taste perception (with the right to receive the first paymen t in the amount of invested capital and accrued, not unpaid dividend (8%), onwards any other security holders receive their part) and rectitude participation along with other investors (after payment of mistakable to its own liquidation preference), thus, staying in a exceedingly beneficial position.2. How do you analyze the RSC offer? In particular, what is the order of theparticipating preferred bear of the RSC sept? What are the risks to the Metapath shareholders if the table accepts the RSC offer? Even though the social club has only projected its activity one quarter forward, is it possible to assess the reasonableness of the valuation? (The ten-year treasury rate in September 1997 was 6.21%).To value the participating feature, first, calculate the options values for $11.75% and $87.75 million form prices. For calculation, assume ten-year option price 40% irritability (corresponding to the middle stock volatility range 20-40%) abovementioned action prices ($11.75% an d $87.75 million) valuation of $87.75 million is reflective of a true up asset value interest rate of 6.21% (as suggested). break Black-Scholes model to receive prices of $81.44 and $49.44 million for the two strikes respectively. For $11.75 is 13.4% of post-money $87.75, the price of the issue is $10.91 and $6.62 million respectively hence, the participation features value is c. $4.29 million. Therefore, the corresponding share of the company, which makes prime(a) irrelevant is $81.44*0.134/$49.44=22%, that is concession of 22% of the company without the participation feature go out make serial publication E holders equally happy, the corresponding price is 0.134/0.22*$6=$3.65 per share.Acceptance by the board of the RSCs offer will put Metapath shareholders will add a new senior holder to claim the proceeds, both in case of early liquidation and in case of successful exist. This offer will cut out shareholders wealth not only by capital dilution, but also by the absolute amou nt of investments of Series E holders even in the case of future success. With negative earnings and absence of sure cash flows, one can do the rough check on the basis of P/ sales ratio (given both companies (Metapath and Celltech) similar capital structure, the procurator seems reasonable).With the last quarterly figures as of June 1997, when numbers were operable for both Celltech and Metapath, and considering the market cap of Celltech of approximately 260 million, the valuation of around 130 million could be used, which convey the company might be worth more. The projections per se, however, turn int tell the story as the two segments (system sales and services) are expected to demonstrate divergent dynamics, so further investigation is needed. A prophylactic note on Black-Scholes model application should be made3. Is the Celltech offer reasonable? How should the Metapath board realize the Celltech stock? What are the risks for the Metapath shareholders if the board acce pts the Celltech offer? period the Celltechs offers seems to be more reasonable in terms of price offered, the shareholders may face excess risks, including the risk of Celltechs stock price. fleck possible liquidity within near future (90 age plus other possible restrictions, which is considerably slight than its own IPO in 1+ years) as well as lack of dilution appealed to the managers, the fluctuation in the price of Celltech may wipeout the fortune (the stock had only a short history and the invite of insiders doesnt seem to strongly support Celltech). Furthermore, the go over of the Metapath and Celltechs businesses is questionable, with Metapath potential possibly higher than that of Celltech, which on the other hand may have a limited upside.4. If you were on the Metapath board, which option would you support?While the offer of RSC is restrictive in many ways, it is more attractive for a team that will manage to perform. With a set of potential liquidity and pecuniary ri sk questions, which may arise from Celltechs financing, Metapath board should not only consider the price, but also other terms (which eventually will incentivize the management in the long-term success and keep its interest in business). With this in mind Metapath board will be better off with the RSCs proposal, quite a than Celltechs.