Financial Case Analysis Assignment Example | Topics and Well Written Essays - 2000 words

Financial Case Analysis - Assignment Example Japan Venture Partners provides the knowledge and relationships needed for foreign companies to establish local (Japan) subsidiaries. JVP manages negotiations and structuring of equity investments. JVP uses its relationships with local Japanese corporate and financial investors to help North American companies establish a foothold in the Japanese markets. JVP leans more toward investments from a small group of Japanese corporate and financial investors. Japan Venture Partners offer several financing options to its clients. This organization shares the financial risk while its clients maintain control of the subsidiary. Japan Venture Partners encourages forming, managing, and financing subsidiaries in Japan through the use of local equity or debt financing2. In certain situations IPO's (initial public offerings) are possible in the Japanese market. Local financing in Japan is important in establishing long-term relationships in markets as well as local financial results. Another important aspect of JVP's management of subsidiaries is its ability to keep foreign companies in compliance with local securities laws and ownership structures that are compliant with local laws. It is worthy to note here that an agreement between JVP and Omnicom would be a joint venture. Financing options would be those best suited to a joint venture agreement. 2.1 Identification Of Different Finance Options and Risk As stated earlier there are two main financing options available to Omnicom if they choose to use JVP's services to enter the Japanese market: issuing new equity and issuing new debt. These financing options are further broken down to internal financing and external financing. Internal financing consists of using funds from the parent company, from sister subsidiaries, and subsidiary borrowing with parent guarantee.3 External Financing consists of borrowing from sources in the parent country, borrowing from sources outside the parent country, and local currency debt. The internal choice should minimize worldwide taxes and political risk. The external choice should minimize the cost of funds (foreign exchange risk)4 2.1.1 Issuing New Equity Issuing new equity would raise funds to support Omnicom's entry into the Japanese market. Omnicom's choices are to issue domestic securities or foreign securities (or both). Both types of security's objectives are to maximize the rate of return and minimize risk. Investors in foreign securities face possible currency and political risk (addressed in section 2.4). The securities must appeal to both domestic and foreign portfolio investors to be successful in funding the joint venture. Equity calculations should be forward looking using historical performance records. By selling equities in the foreign markets the company is able to maintain some liquidity. 2.1.2 Issuing New Debt Omnicom also has the option of issuing debt securities to fund its larger presence in the Japanese market. These loans could come from domestic or international sources. Omnicom would enter into agreements (contracts) with the interest rates, interest payments