TS NUTS TO INVEST

You are the CEO of Mountport Nuts Inc. and soon will have a meeting with your board of directors, to give your thoughts on a possible common stock deal, to raise more capital for your growing business.

Mountport Nuts Inc. has been working with some independent grocery stores across Canada and steadily increasing sales of its organic nuts in different forms such as granola, powerbars, and healthy snacks. One major organic grocery distributor has recently made a decision to carry all of its products across North America. Your Canadian management team has reported that it needs another injection of capital to help sustain its market growth and potential. The operations manager says they are worried about getting more product, as organic nuts are getting harder to source and the price of their main commodities are rising quickly. Other risks brought up by the team include supply chain troubles during COVID, a possible rising inflation rate in Canada. They want to raise money by getting more capital but they notice that the investment banking fees are also going higher.

One local Canadian investment dealer has approached them through a personal recomendation with an offer to help them do another common stock public offering. The investment company has on their team a whiz-kid named Wesley Craven, who recently graduated from finance at a local college and has a relative in the company who recommended this Canadian investment dealing firm to the CFO. Everything Wesley touches turns to gold and his financial and marketing work with recent share offerings have been in the Toronto Star and other Canadian newspapers.

Wesley calls you up and says for a competitive registration fee of about $275,000 his investment dealing company can help your firm to offer 1 million shares of common stock for sale. Wesley estimates the selling price is $30 per share, with Mountport to receive $26.25 per share after the offering. The fee seems much better than what the global investment banks in New York City and London are offering but your board of directors is concerned whether this is the way to go. They prefer to work with international investment banks when expanding into new markets. They will ask many questions about this deal and you will work with you finance team to get the numbers:

SOLVE and ANALYZE:

3A. Find the numbers to see if this share issue (run by Wesley's team) is worth Mountports Nuts time and investment? What do you expect the total expenses of the stock issue to be. Find the numbers for the spread in CDN dollars/in %? If Mountport Nuts needs to generate $28 million, how many shares will have to be sold? (15 marks)

3B. As CEO you must decide if this is the right time to do an offer for your shares? Do you think you should go with this local Canadian investment dealer with Wesley the wonderkid on their team or should the company opt to go more international with the bigger investment banks in the US or London? What other finance ideas do you have to prepare for the opportunities and threats that lay ahead for your meeting with the board of directors? (10 marks)