Appraisal of The Right Offer

Appraisal of The Right Offer



The company performance in last 3 years

The financial position of the company shows dramatic changes in the profit and loss figures. In 2009 the company is generating profits of R 2337.3 Million and in 2010 the profit figures shows a down ward trend and reaches up to R 1229.4 Million. On the other hand, in 2011 the company shows negative results and losses of R (1648.3) Million decreasing the performance factor. (MUR, 2011).

Region wise business position highlights some importance facts i.e. Construction business in Africa and Middle East repots a loss of R (1398.7) Million. If we analyze the Liquidity and Debt position of the company it shows some dramatic results i.e. in 2010 the interest coverage ratio was 42.58, in 2009 it shows a dramatic decline and ratio came down to 1.54, whereas in 2011 it became 0, this shows the company is fully loaded with debt burden and is unable to pay interest expenses.

The above financial indicators show the continuous declining trend in the business operations of Murray & Roberts Holdings. Economic slowdown and financial distress are one of the major reasons why the company financials showed negative growth. In order to boost up the financial position the company may have an option to issue Right shares to its existing share holders.

Rights issue

Other than an IPO launch the company has the option to issue extra shares to its existing she holders at a discounted share price (lower than the market rate). By offering a discounted rate company saves huge costs like subscription, commission and other costs, whereas on the other hand the shareholders earn a discounted price. (Williams, 2003).

Need & Requirement

After flotation of normal shares in the market sometimes, the company needs extra finance therefore, the best-fit option for the company at this point in time is 'Rights Isuue'. (Financialtimes, 2008).

Under subscribed & Oversubscribed

Sometimes shareholders of the company do not participate actively in purchasing the right issues of the company, in order to fulfill the capital requirements; the company signs an agreement with underwriting and investment banking firms. It states that if the right issues are not fully subscribed or undersubscribed the remaining shares left behind should be purchased by the underwriting firm. (Williams, 2003).

Benefits from Rights Issue

MUR's initiative to issue right shares solved its debt and liquidity problems. Despite of the low financial and business ...