Scenario:
Avaya and FMC Corporations are operating in the manufacturing industry. Both firms have good reputation in the market and struggling to maintain their images for the long run sustainable growth.
Avaya Corporation is currently working on new products. For the purpose, the company needs more money. The management is well aware that the company is already consuming a larger proportion of debt so more debt financing would not be a good option. The number of shareholders is also large but the management does not have any other option to raise money except equity financing. Therefore, the management decides to raise money through the issuance of new shares by keeping the number of shareholders same.
FMC Corporation has extensive reserves and its number of issued shares is very Less.The Company is earning a good profit and also working on new products. The company does not need new capital for its operations but its substantial share reserves give a bad image to the market that the company is not in a good position to entertain more shareholders that’s why it is not issuing new shares; while the existing shareholders as well as management do not want to increase the number of shareholders.
Requirement: Keeping the above mentioned scenarios into consideration, discuss the following with conceptual rationale:
1. In case of Avaya Corporation;
The company decides to issue new shares by keeping the number of shareholders constant. Discuss how the company may issue shares in the given conditions and what type of issue it will be?
2. In case of FMC Corporation;
The company decides to issue new shares. Discuss the reasons behind the decision of issuing new shares and what type of issue it will be?
