Bloomberg News Service reported that Rhodia, SA, France’s largest specialty chemicals company, announced plans to sell 450 million Euros in shares, in addition to a 600 million euro bond issue, to raise cash to prevent a liquidity crisis. Rhodia had posted losses for the three previous years and projected losses for the next two. Rhodia’s largest shareholder, the French drug firm Aventis, will subscribe to the new offering to maintain its ownership slake at 15.3 percent.
Segway, LLC, the much-publicized manufacturer of the Segway scooter, raised $31 million in new equity to augment $100 million previously raised. The Wall Street Journal reported that the original funds have been depleted because “operating expenses were exceeding revenue.”
Required:
(a) Both companies had similar reasons for the equity issuance. On winch financial statement would the reasons be evident? How would the influx of funds after the issuances be reflected on the financial statements?
(b) Why would Aventis want to purchase additional shares in a company in which it already has a significant investment? Would the holders of the $l00 million in equity in Segway have similar issues?
(c) Imagine you are an investor interested in these two offerings. What evidence would you have to observe before making this investment?
