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Financing company growth at MRV Engenharia e Participações S.A.

Financing company growth at MRV Engenharia e Participações S.A. Shahriar Khaksari and Stefan Platikanov CYRUS Institute of Knowledge Conference, Boston, 2012. Topics and Intended Audience. Introduces basic methodology in evaluating financing decisions

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Financing company growth at MRV Engenharia e Participações S.A.

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  1. Financing company growth at MRV Engenharia e Participações S.A. Shahriar Khaksari and Stefan Platikanov CYRUS Institute of Knowledge Conference, Boston, 2012

  2. Topics and Intended Audience • Introduces basic methodology in evaluating financing decisions • Students take the perspective of a financial manager • The case is intended for advanced undergraduate audience, allowing flexibility in the scope and detail of discussion • Allows the extension of discussion to a few related topics: • Capital markets in developed vs. emerging economies • Flotation costs CYRUS Institute of Knowledge, Boston, 2012

  3. The Company • Large Brazilian construction and real estate company – with residential and commercial real estate operations • Public (issued debentures, shares, and ADRs) • Profitable and growing at a fast rate • Influential founder/shareholder serving as the CEO CYRUS Institute of Knowledge, Boston, 2012

  4. The Situation • The Brazilian economic development drives the growth in the construction and real estate sector • MRV has ambitious plans for expansion • The industry is capital intensive CYRUS Institute of Knowledge, Boston, 2012

  5. The Situation • The Brazilian economic development drives the growth in the construction and real estate sector • MRV has ambitious plans for expansion • The industry is capital intensive A dilemma: put up with slower growth, or find external financing CYRUS Institute of Knowledge, Boston, 2012

  6. The Situation • The Brazilian economic development drives the growth in the construction and real estate sector • MRV has ambitious plans for expansion • The industry is capital intensive • What is the best source of external financing for the firm? A dilemma: put up with slower growth, or find external financing CYRUS Institute of Knowledge, Boston, 2012

  7. The Financing Alternatives • Debentures issue • Provides the opportunity to discuss: • Particular features of debentures • Specifics of the credit markets CYRUS Institute of Knowledge, Boston, 2012

  8. The Financing Alternatives • Provides the opportunity to discuss: • Specifics of the BM&FBovespa market • Secondary equity offerings • Debentures issue • Secondary equity offering on the domestic market • Comparison of debt vs. equity issuance: • Flexibility • Risk and cost of capital • Profitability and firm value • Corporate control • Market timing • Other considerations – e.g. flotation costs CYRUS Institute of Knowledge, Boston, 2012

  9. The Financing Alternatives • Debentures issue • Secondary equity offering on the domestic market • Raising capital in the US through an ADR issue Discuss features of ADRs as a security Compare equity issuance on domestic vs. foreign markets CYRUS Institute of Knowledge, Boston, 2012

  10. Learning Objectives of the Case • Identify the important features of classic financing alternatives • Examine quantitatively the impact on firm value, risk, cost of capital, ownership structure • Recognize the interdependence between financial markets and economic development • Describe certain corporate securities CYRUS Institute of Knowledge, Boston, 2012

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