Was the Csm Rights offering a Successful Transaction?

1. Was the CSM rights offering a successful transaction? Could the process be managed better?

* It was not a successful transaction. The rights offering was massively undersubscribed, which led Merril Lynch, the underwriter of the offering, to own approximately 16% of the company. CSM's share price closed at an all-time low of $0.89 on the closing day, a 58% drop from its pre-offering announcement share price of S$2.10

* The process could possibly be better managed if the company had raised capital through private placement. On the other hand, public offering was probably the more effective approach considering the scale of financing that the company was looking for. Secondly, CSM could have better managed the pre-marketing activities by managing shareholders' expectations and maintaining the confidentiality of their plan. Prior to making the announcement, CSM could have made the rounds with shareholders, explaining the purpose of the offerings in order to win their support.

2. Was the offering mis-timed? Could CSM or the underwriters have chosen a better market window to launch the offering?

* The offering was mistimed due to the following reason: (1) The company, and the industry in general, was facing a slump in demand; (2) The rights offering was announced one week after the company announced that it has strong financial position, implying that it had no need to raise new capital.

* CSM or the underwriters could have picked a different market window, e.g. when the company had done exceptionally well in 2000, or after market analysts released promising demand projection. However, picking the right market window is inherently tricky in an industry with high demand volatility and cyclicality coupled with accelerating technology cycles.

3. Was the rights issue over-priced, under-priced or correctly priced? How would you determine this? How does it compare to the other rights offerings contained in Appendix A?

a. Assuming that a right is issued for every share and you require 10 rights to buy 8 shares. Share price before rights issue is $11.85. Share price after rights issue will be $6.83 (Total shares = 1386 + 1110 and total market cap = 16424 + 633). The difference in share price is $5.02. Value of each right is 8/10 of %5.02 i.e. $4.01. The price of right of $5.71 is thus overvalued.

4. Is CSM a "good" company? How would you evaluate CSM's investment propositions?

CSM is a good company based on the following measures:

a. Investment facility. Capital raised through rights offerings would go towards the construction of CSM's new facility, Fab 7. Historically, the company's ROIC had been negative but investment in technology and production facilities was a necessity in foundry industry where scale is