Page 73 - Stakis Consolidated Teaching Note

This division had good prospects. Its operating units were
running in excess of 90% occupancy. But, unfortunately,

further development was impossible as the associated

costs were too high for Stakis to fund. Furthermore, the
options Stakis already held on other sites would lie fallow

yet would still be tying up critical resources.

The necessity to make a rights issue clearly placed a strain
on the management team, but a strain they bore well. The

effect of their endeavours was that with a rights issue

there is a theoretical share price. When the issue was

announced the share price was around 40p and the
announcement was for a 1 for 3 at 32p. That meant that

the share price should have settled down in theory to the

weighted average of 3 at 40p plus 1 at 32p, which if the
sums are done, is a theoretical price of 38p. What actually

happened after the announcement and into the month of

February as people began to absorb what had happened

was that the price touched 55p and settled down to
around 48p.

The question that needs to be answered here is why did

the share price respond so favourably?

Period (c)

The answer to the question above is simply that Stakis was

perceived as a recovered company. It was now being run
for the benefit of shareholders and employees.