Fotajek

The organizational and financial structure of the Fojtasek companies had been in meld since the spring of 1994. By March 1995, three different financial legal proceeding have been proposed to streamline and restructure the firm an outright acquisition, a lever advanced recapitalization, and a hybridisation transaction called Private initial public offering. Heritage Partners is interested in taking a stake in the Fojtasek Companies by proposing aPrivate IPO transaction.The paper will analyze the health of the Fojtasek companies and the economic benefits gained from Heritage Partners proposal. through careful calculations, one would recommend the proposed transactions to take place in the midst of Heritage and the Fojtasek family. Founded in 1986, Heritage Partners has developed a business expertise in family companies. Their value-added can be seen in the General Partners, all of whom had thriving track records in Private Equity.Of the three elements that distinguish them, the most principal(prenominal) is their development of the Private IPO structure. This financial strategy enables majority memory while reducing estate taxation for the founder and forethought. For the Fojtasek family, they had been seeking authorisation buyers to restructure their company. Unlike its other product and distribution channel, business in the Baloleum Division has been declining. Additionally, the founder Joe Fojtasek has decided to step down at the age of 73 and hand over his role to his sons.Thus, Fojtasek companies decided to take utility of the opportunity to radically streamline its structure for future growthbuyout, leveraged recapitalization, or Private IPO. There are two common disadvantages with leveraged buyouts and recapitalizations a high credit and default risk that comes with having a high leverage, and a workable loss of majority control that can lead to conflicts of interest. From both Fojtaseks and Heritages perspective, it would be optimal to have a hybrid transaction that would lower debt levels while keep backing family control of operation.From Heritages perspective, the alternate of securities under a Private IPO, instead of a large exchange payout, would not only leave out ambiguities concerning tax obligations but besides make financing for the transaction feasible. Moral hazard of family members is essentially trim back as their equity is being tied to the firm. From Fostaseks perspective, the ability to retain family control of the company makes certain that some or all of management would not be replaced. In this sense, the Private IPO transaction does mention the information gap, making this hybrid strategy an optimal strategy in this context.