A B C D E F. G 1 Background 2 3 Nanex Corp. is an established commodities trading firm located in Buffalo, New York. It 4 was founded in 1830 by two brothers, Dewitt and Nicholas Vanderfloffen, to take advan- 5 tage of the boom in commodities trading resulting from the opening of the Erie Canal. Na- 6 nex is a private company, 60% of whose 100,000 shares are owned in equal amounts by 7 four descendants of Dewitt and Nicholas: James Vanderfloffen and his sister Catherine and 8 their first cousins Richard and Jane Frombey. James and his cousin Jane represent the 9 family interest on the board of directors in the capacity of non-executive directors. 10 11 For the first one hundred years of the firm's existence, it was actively managed by the 12 memebers of the Vanderfloffen family. Due to the difficulties caused by the 1929 crash 13 and the Great Depression, the firm had to seek outside capital from minority shareholders. 14 The minority stake is 40% of the total equity. 15 16 Since about 1960, the active participation of the Vanderfloffens as the majority share- 17 holders has waned as family members have pursued other career paths. At present, most 18 of the real decisions concerning the company's direction are left entirely to the executive 19 management, none of whom are shareholders, including the dividend rate of 30%. 20 21 At Easter of 2021, the four Vanderfloffen/Frombey cousins met at the ususal family gathe- 22 ring and took the opportuniy to discuss the legacy family business. Each admitted to having 23 little interest in the company, in spite of two of them having positions on the board. The 24 annual dividends they received from Nanex were certainly "nice to have", but they agreed 25 that the return on their other, outside, investments seemed to be a good bit higher than 26 what they were getting from Nanex. Catherine said last year she purchased shares of a pub- 27 licly traded commodities firm of similar size for $50 per share. The annual dividend for 28 last year was $5 per share, and this year it was $5.10 per share. She wondered whether it 29 might be better just to sell off her Nanex stock to the minority shareholders and cash out. 30 31 James and Jane maintained that it might be more advantageous to explore the possibility 82 of a takeover by a third party. They have just engaged you to advise them and provided two 33 pages of financial information. They would like you to address the following questions: 34 35 1. Based upon this background and the financial information provided, estimate the amount 36 the four might expect to realize if the sold their 60% stake to the minority shareholders. 37 38 2. Do you believe the management of Nanex is doing a good job, that is, maximizing the 39 wealth of the shareholders? 10 11 3. Would it be worthwhile pitching the company's stock to an outside investor such as a 12 private equity firm or a larger competitor in the same industry? 13 14 Assignment: On a maximum of two (2) pages, write a report addressing these questions. 15 You should show calculations where relevant to yout repsonse. Be brief and to the point. 16 M N N O P Q R S T U V K L Nanex Corp. Financial Statements ($000s) Notes: (1) Compensation: [ZDebt: Income Statement For the Year Ended 12/31/21 Interest-only 20-year term loan maturing in 2031. Secured by a lien on the land and building, Nanex may not use the security to raise additional finance, and it must contribute $100,000 per year to a sinking fund dedicated to the loan redemption in 2031. Revenue 31,000 Operating expense: Compensati 12,000 Contract Ser 6,000 Occupancy 6,000 Repairs & ma 2,000 Depreciatior 4,000 Total operat 30,000 Operating in 1,000 Interest 100 Net income 900 Income tax 180 Net income 720 Executive co Operations Technology Sales Force Legal Finance Building faci Human Reso Company Se Total 5,000 2,000 1,400 1,300 900 450 350 350 250 12,000 (2) Contract Services: Technology Legal and reg Audit and ac Total Balance Sheet As of 12/31/21 3,000 2,000 1,000 6,000 Assets (3) Occupancy: Insurance Main operat 2,500 Executive of 1,700 Satellite brai 800 Total 5,000 Property Tax 300 200 150 650 Other 200 100 50 350 Total 3,000 2,000 1,000 6,000 (4) Repairs & maintenance: Cash (5) Accounts rec Pre-paid exp Current asse Accrued exp Short-term E Current liabi Working cap Property, pli Land & builc Non-current Total assets 5,000 10,000 3,000 18,000 600 400 1,000 17,000 4,000 9,000 13,000 30,000 Operational Exec. office e Vehicle mair Total 1,500 300 200 2,000 (5) Cash: The balance of $5 million includes $1 million of restricted cash in the loan redemption sinking fund (see note 7). Capital 2,000 (6) Non-current assets Land Prop, Plant Building & Equipmnt Total Debt (7) Equity: Contributed Retained ear Total equity Total capital 6,000 22,000 28,000 Cost Accumulate 1,000 0 0 1,000 12,000 -4,000 16,000 -12,000 4,000 29,000 -16,000 13,000 30,000 Net asset 8,000 A B C D E F. G 1 Background 2 3 Nanex Corp. is an established commodities trading firm located in Buffalo, New York. It 4 was founded in 1830 by two brothers, Dewitt and Nicholas Vanderfloffen, to take advan- 5 tage of the boom in commodities trading resulting from the opening of the Erie Canal. Na- 6 nex is a private company, 60% of whose 100,000 shares are owned in equal amounts by 7 four descendants of Dewitt and Nicholas: James Vanderfloffen and his sister Catherine and 8 their first cousins Richard and Jane Frombey. James and his cousin Jane represent the 9 family interest on the board of directors in the capacity of non-executive directors. 10 11 For the first one hundred years of the firm's existence, it was actively managed by the 12 memebers of the Vanderfloffen family. Due to the difficulties caused by the 1929 crash 13 and the Great Depression, the firm had to seek outside capital from minority shareholders. 14 The minority stake is 40% of the total equity. 15 16 Since about 1960, the active participation of the Vanderfloffens as the majority share- 17 holders has waned as family members have pursued other career paths. At present, most 18 of the real decisions concerning the company's direction are left entirely to the executive 19 management, none of whom are shareholders, including the dividend rate of 30%. 20 21 At Easter of 2021, the four Vanderfloffen/Frombey cousins met at the ususal family gathe- 22 ring and took the opportuniy to discuss the legacy family business. Each admitted to having 23 little interest in the company, in spite of two of them having positions on the board. The 24 annual dividends they received from Nanex were certainly "nice to have", but they agreed 25 that the return on their other, outside, investments seemed to be a good bit higher than 26 what they were getting from Nanex. Catherine said last year she purchased shares of a pub- 27 licly traded commodities firm of similar size for $50 per share. The annual dividend for 28 last year was $5 per share, and this year it was $5.10 per share. She wondered whether it 29 might be better just to sell off her Nanex stock to the minority shareholders and cash out. 30 31 James and Jane maintained that it might be more advantageous to explore the possibility 82 of a takeover by a third party. They have just engaged you to advise them and provided two 33 pages of financial information. They would like you to address the following questions: 34 35 1. Based upon this background and the financial information provided, estimate the amount 36 the four might expect to realize if the sold their 60% stake to the minority shareholders. 37 38 2. Do you believe the management of Nanex is doing a good job, that is, maximizing the 39 wealth of the shareholders? 10 11 3. Would it be worthwhile pitching the company's stock to an outside investor such as a 12 private equity firm or a larger competitor in the same industry? 13 14 Assignment: On a maximum of two (2) pages, write a report addressing these questions. 15 You should show calculations where relevant to yout repsonse. Be brief and to the point. 16 M N N O P Q R S T U V K L Nanex Corp. Financial Statements ($000s) Notes: (1) Compensation: [ZDebt: Income Statement For the Year Ended 12/31/21 Interest-only 20-year term loan maturing in 2031. Secured by a lien on the land and building, Nanex may not use the security to raise additional finance, and it must contribute $100,000 per year to a sinking fund dedicated to the loan redemption in 2031. Revenue 31,000 Operating expense: Compensati 12,000 Contract Ser 6,000 Occupancy 6,000 Repairs & ma 2,000 Depreciatior 4,000 Total operat 30,000 Operating in 1,000 Interest 100 Net income 900 Income tax 180 Net income 720 Executive co Operations Technology Sales Force Legal Finance Building faci Human Reso Company Se Total 5,000 2,000 1,400 1,300 900 450 350 350 250 12,000 (2) Contract Services: Technology Legal and reg Audit and ac Total Balance Sheet As of 12/31/21 3,000 2,000 1,000 6,000 Assets (3) Occupancy: Insurance Main operat 2,500 Executive of 1,700 Satellite brai 800 Total 5,000 Property Tax 300 200 150 650 Other 200 100 50 350 Total 3,000 2,000 1,000 6,000 (4) Repairs & maintenance: Cash (5) Accounts rec Pre-paid exp Current asse Accrued exp Short-term E Current liabi Working cap Property, pli Land & builc Non-current Total assets 5,000 10,000 3,000 18,000 600 400 1,000 17,000 4,000 9,000 13,000 30,000 Operational Exec. office e Vehicle mair Total 1,500 300 200 2,000 (5) Cash: The balance of $5 million includes $1 million of restricted cash in the loan redemption sinking fund (see note 7). Capital 2,000 (6) Non-current assets Land Prop, Plant Building & Equipmnt Total Debt (7) Equity: Contributed Retained ear Total equity Total capital 6,000 22,000 28,000 Cost Accumulate 1,000 0 0 1,000 12,000 -4,000 16,000 -12,000 4,000 29,000 -16,000 13,000 30,000 Net asset 8,000