Earnings and dividends are much less volaile than

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Unformatted text preview: tail( 18%( Golden (veto) shares owned by Brazilian govt Common (voting) shares 3,172 million Brazilian(Ins<tu<onal( 18%( Non.Brazilian( (ADR&Bovespa)( 59%( Preferred (non-voting) 1,933 million Vale Equity Aswath Damodaran Vale has eleven members on its board of directors, ten of whom were nominated by Valepar and the board was chaired by Don Conrado, the CEO of Valepar. 27 Case 3: Cross and Pyramid Holdings Tata Motor’s top stockholders in 2013 Aswath Damodaran 28 Case 4: Legal rights and Corporate Structures: Baidu ¨༊  ¨༊  ¨༊  The Board: The company has six directors, one of whom is Robin Li, who is the founder/CEO of Baidu. Mr. Li also owns a majority stake of Class B shares, which have ten Imes the voIng rights of Class A shares, granIng him effecIve control of the company. The structure: Baidu is a Chinese company, but it is incorporated in the Cayman Islands, its primary stock lisIng is on the NASDAQ and the listed company is structured as a shell company, to get around Chinese government restricIons of foreign investors holding shares in Chinese corporaIons. The legal system: Baidu’s operaIng counterpart in China is structured as a Variable Interest EnIty (VIE), and it is unclear how much legal power the shareholders in the shell company have to enforce changes at the VIE. Aswath Damodaran 29 Things change.. Disney’s top stockholders in 2009 30 Aswath Damodaran 30 II. Stockholders' objecIves vs. Bondholders' objecIves 31 In theory: there is no conflict of interests between stockholders and bondholders. ¨༊  In pracIce: Stockholder and bondholders have different objecIves. Bondholders are concerned most about safety and ensuring that they get paid their claims. Stockholders are more likely to think about upside potenIal ¨༊  Aswath Damodaran 31 Examples of the conflict.. 32 ¨༊  ¨༊  ¨༊  A dividend/buyback surge: When firms pay cash out as dividends, lenders to the firm are hurt and stockholders may be helped. This is because the firm becomes riskier without the cash. Risk shiVing: When a firm takes riskier projects than those agreed to at the outset, lenders are hurt. Lenders base interest rates on their percepIons of how risky a firm’s investments are. If stockholders then take on riskier investments, lenders will be hurt. Borrowing more on the same assets: If lenders do not protect themselves, a firm can borrow more money and make all exisIng lenders worse off. Aswath Damodaran 32 An Extreme Example: Unprotected...
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This document was uploaded on 02/03/2014.

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