Toyota’s Innovative Share Issue 2015 Case Solution
On the other hand, the predetermined dividends strategy is used to attract investors as some people make shares investments according to the dividends paid. Moreover, it would help the investors to make further decisions. In addition, as there areonly limited investors, such as Japanese have access to the shares, the company had to make a strategy which would attract its customers.
What is the differences between “Model AA” shares and ordinary shares? What is the difference between “Model AA” shares and bonds (or convertible bonds)?
Ordinary shares that are issued to shareholders possess many characteristics. These includes voting right, which indicates that shareholders have right to vote for company’s decision. Additionally, ordinary shareholders also have the right of limited liability. This right possess that investors would only be liable for their shares and their values. However, there would be no concern of investors on the company’s financial obligations. Lastly, the ordinary shareholders also possess the preemptive rights. These rights determine that shareholders have the right to purchase additional shares of the respective company before it is announced to outsiders and at discounted price. However, these rights of shareholders vary according to the percentage of shares owned by the investors.
Model AA shares are the innovative shares announced by Toyota Company. Like the ordinary shares holders, the shareholders possess the voting rights. However, other two rights are not hold by Modell AA shareholders. In addition, these shares are locked up for limited time, which is 5 years prescribed by the company.Moreover, the dividend provided to shareholders on the yearly basis have been determined before its announcement. The liability of these shareholders would also be limited to their own shares and not the corporate obligations. Lastly, these shares would be either returned to the company at the price they were purchased or they would be converted to ordinary shares after completing its lock up time.
The convertible bonds issued by the company are considered as debt and equity as company have to pay interest liability on it on yearly basis. Also, like Model AA shares, these bonds are converted to ordinary shares after a specific time period decided at the time of contract. As the bond would be redeeming, it would be considered as company’s equity as they would be included under the heads of company’s shares. However, the interest rates of convertible bonds are much lesser than other debt securities issued by the company.
Would you vote for the approval if you were currently a Toyota shareholder?
Being a United States citizen, I would not vote for the approval for AA shares. As being a foreigner, I would have to contact agent, which will cost additional charges and would increase my expense compared to the benefits. Moreover, all the rights of shareholders would be given to the agent due to which I would not be able to achieve all the facilities and advantages. In addition, despite of CEO’s statement, any uncertain factor may decrease the value of ordinary or AA model shareholders, as it would bring disadvantage to the shareholders
How would you price the “Model AA” shares?
There are many ways to price these innovative shares. However, as they are facilitating customers for the limited time period, it has been decided that company would be selling at 20% premium to common stock along with the fixed dividend payout to the shareholders. This pricing strategy has been analyzed at the most suitable as it is facilitating customers with higher benefits than ordinary shareholders and it would be redeemed with additional benefits. Besides, there is no risk attached with these shares. Therefore, company is charging higher price than ordinary shares………………………
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