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If a volatile market exists and stock prices are

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Unformatted text preview: st always be considered. If Aventis wants to maintain its 15.3 percent ownership of Rhodia, it must purchase 15.3 percent of the new shares issued. A large equity stake in another company, such as what Aventis has with Rhodia, is purchased for strategic control reasons. If Aventis wants to continue to significantly influence the operations of Rhodia, it must maintain its large ownership share in the company. If new shares are sold to the public, and if Aventis does not purchase its pro rata share, its 15.3 percent ownership stake will be diluted to something lower and Aventis’ influence might follow suit. The original equity providers of Segway might have a similar interest in maintaining their control position of that company. If they do, they will have to purchase the percentage of the $31 million offering that matches their current ownership percentage in the company. However, if the investors are not concerned with maintaining the amount of influence in the company, they do not need to buy into the new offering. c. Since both companies are experiencing profitability problems, before purchas...
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