Chapter 1 ReDO

http://www.cbc.ca/money/story/2009/11/18/manulife-share-issue.html



Summary:

The Toronto based insurer Manulife Financial Corp. are trying to position them for long term by issuing common shares. By issuing the common shares Manulife will raise over $2.5 Billion. The CEO added that this achieves “the fortress level of capital necessary” to buffer any further economic downturns. The company intends to retire approximately $1 billion in debt and it also can use the funds for acquisitions. The recession has cause Manulife to build up their balance sheet.

Connection:

This article revolves around issuing out common shares in order to obtain cash for investment, repaying back debts and building up balance sheet. This connects with company activities, which is a major category in Chapter 1 of the financial accounting textbook. Issuing shares in the financial accounting book is described as a financial activity because when a company sell out it shares to do something, it is consider as financing activity. The CEO stated that they are planning to use $1 billion collected to repay the company’s debt;therefore, this connects with the company activities known as “financing activities”. The CEO did state that part of the money might be used for possible investment, so it could also fall into the investing activities section if the investment happens.


Reflection:

This is a smart plan for Manulife Financial Corp. because by issuing shares, they would have enough money to repay its debt or most of its debt. There will also be a good sum of money left for investing activities after they spend $1 billion on repaying their debts. With the money left over they will be able to invest in something to expand their company or to earn more profit. This creates a double win situation; therefore, issuing out shares is a good and efficient plan to bring the company back up. By issuing shares, it will make Manulife become a public company and with the money they can possibly collect would build up their balance sheet because their equity and assets would increase. I think they learned a lesson on what happened with Wall St., so that is why they want to make the company public. Even though that this may be a good plan, but there is a problem. The economy right now may look like it's turning around, but will they be able to raise that much money?