Cargill trip replacement assignment

1. What force is behind a move for Cargill to go public?
Many of the present Cargill stockholders (namely the decedents of the founders) would like a way to quickly cash in on their holdings. They would like to "tap in to the company’s market value" to realize quick financial gains.

2. What does go public mean?
Initiate an IPO in order to start a public release of a certain amount of shares of stock that will be publicly traded. This allows the company to raise capital, and furthermore, once the stock is publicly traded (in places such as NYSE and NASDAQ) it becomes easy for shareholders to buy and sell at will. Thus anyone who desires can have ownership of the company/

3. What might going public be a mistake?
1) Less tolerance for risk. The company has reaped rewards for many ventures (especially in foreign countries) that caused large losses in the immediate term. After many years of losses and uncertainty of future gains, these ventures eventually paid off, allowing the company to reap large rewards. With a publicly held company, the shareholders would be reluctant to allow the company to spend so much time and money in uncertainties. They would want to see more immediate term gains and sure undertakings. Cargill would not be able to invest in companies when the market turns bad as it currently does.

2) Increase the profile of the company. Cargill is such a large company that it will often be looked at as a scapegoat for any bad turns of the agriculture market. Right now, it enjoys a relatively low profile, and stays out of the public limelight. It does not market itself heavily and doesn’t use the Cargill name for many of its products. If it went public, it would be much more in the public eye, and thus might become highly susceptible to outside forces. Furthermore, since it sells to many of the other food companies, the increased attention might anger them.

3) The company might have to answer to security analysts and outside investors. Cargill is involved in many high-volume, low margin operations. Outside investors might encourage it to enter in to other areas which would seemingly produce higher margins, etc. This might look good on paper, but is Cargill suited for this. Furthermore, this might have an effect on employee morale and loyalty. Most employees are certain they will stay with Cargill. Going public might encourage Cargill to downsize and institutes layoffs like is popular today, thus decreasing worker moral.

4. What do you think the chances are that Cargill will go public and what justifies your answers (a) five years (b) fifty years
a) moderate. The decedents of the founders are pushing for ways to better reap rewards. If Cargill were publicly traded, they could obtain much higher prices for their shares. Furthermore, the infusion of capital could help to finance future endeavors especially building on their marks in rapidly expanding areas such as Eastern Europe and Latin America. However, since the familyonly has a minority voice on the board, and Cargill already has a great deal of money to play with, this option faces an uphill battle. For it to occur, the new leader of the company must be one who has already admitted the desire to take the company public. The force is present today to take the company public, however, the conservative tendencies would have to be overcome and the potential risk to company autonomy would have to be analyzed.

b) In 50 years, low. If Cargill doesn’t go public within the next dozen years, the chances of it going public will diminish. In 50 years, Cargill would have already achieved a great deal of penetration in world markets. Thus it would not need a further influx of capital to continue the expansion. Furthermore, the gradual employee-ownership purchase plan would have had time to further reduce the amount of shares held in the family, and thus the family would be placated by their meager board presence would probably have decreased further. Seeing that Cargill has managed to function successfully up to that time, they would see little need to risk going public.

5. Contrarian
Contrarian means that it goes against the current market conditions. Investing in an industry that has slumped and is doing terrible would be an example. Cargill has invested in fertilizer when the fertilizer industries was in due primarily to government idling of farmland. Cargill entered when the industry was on a downturn. Now, however, it is on an upswing, and Cargill is reaping the rewards.

6. Basic nature that made it miss french fries
Cargill is a conservative deal-finding company. Since new fads often are marked by a large upswing in costs, if Cargill sees them mid-road it will probably miss them. It instead looks for good deals that it can capitalize on in the future.

Jeremy Hubble
Section 502
March 29, 1997