Finance Assignment Harvard Case Solution & Analysis

Finance Assignment Case Solution

QUESTION 1

Question:    As best you can determine, was LPL’s large fall stock price because of the buy-back or just one factor for the subsequent stock decline?  In your opinion, and assuming that everything in the two articles is true and using just those articles and the provided financial information, is the lawsuit with merit or without merit?  Is it based upon “proper” financial theory according to what you have learned in this course?  Management must have known what was happening with respect to operations and the pressure from the various shareholders.  If Marcato was the firm that had acquired a chunk of the company and was agitating for “change” (as stated in the article) why would LPL have bought out TPG’s stock at this high price instead of also including Marcato and other shareholders?  The tools we have used and discussed during the entire course (including the first half) might be of help in answering this question.

The reason behind the fall in the prices of LPL is mainly because of the buy back by which the company introduces the debt financing in its capital structure and on the hand reduces the amount of equity which caused the company stock price fall significantly low in the last quarter of 2015 as compared with the remaining quarters. The company in this way tried to favor the large investor on the cost of the other investors. The buyback causes a lot of issues for the shareholders however, provided benefits for the large investors in terms of increasing the value of earning per share because of less outstanding shares in the market.

The other biggest reason of this fall in price is the false and misleading information from the company’s manager about the bright profitability of the company in the future which hurt the investment of shareholders quite negatively. Because of this false and misleading information, the company’s share started trading at a very high price in the market. The owners despite knowing the effects of these misleading facts concealed this information from the public but soon in the last quarter after the announcement of repurchase of share, the stock price significantly declined to $ 16 and created a big shock for the individual investors who have invested in this stock.

Although by looking at the financial theory it is the right of the company to make the decision regarding the buyback of shares but this can be done by looking at various aspects of the business including the risk appetite the company can take, moreover its future outlook and many others. In addition to this, the company must take the prior consent from the major shareholders in order to undertake this decision. However, in the current case, the company by just considering the interest of one large investor hurt the major percentage of its shareholders which conclude that the lawsuit is on merit.Finance Assignment Case Solution

Mr. Casady was interest in providing benefits to the TPG the private equity fund therefore it does not include Marcato in their plan which hurt them significantly because they have recently entered as a shareholders with a huge stake in the company. Moreover, due to this buyback the plaintiff suffered a lot................

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