British Aerospace Plc A Harvard Case Solution & Analysis

In summer 1991, the chairman of the diversified company, is considering a move to increase (in British pounds) GBP32 million new shares after the surprising news that the company will produce losses for the calendar year. This news is a sharp departure from analysts' expectations for the company. If British Aerospace shares issue immediately before the entire impact of the news is absorbed by investors, or wait? The case can be used to introduce students to a method of selling the rights offering of common shares, the main method of issuing shares in Europe. This case is also an excellent tool for the study of moral hazard inherent information asymmetry between managers and investors, the situation presented here illustrates the potential for opportunism suggested Myers and Majluf. Case B (UVA-F-1048) is the epilogue, in which investors react violently to negative news and announced a rights offer. Chairman loses his job, the stock price settles to half its former value. Ultimately, this case series allows students to explore the possibility of measuring progress in the issue of securities. "Hide
by Robert F. Bruner Source: Darden School of Business 9 pages. Publication Date: March 22, 1993. Prod. #: UV2344-PDF-ENG

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