Metapath Case Essay

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Executive summary: Metapath Software: September 1997 General: Metapath Software was formed in January 1995. Its purpose was to build a software product that allowed wireless carriers to see exactly what calls were on their networks at any point in time. They started out sluggish with only one contract, but after a new round of financing from Norwest and USVP, they landed an order worth $19 million with Sprint. Metapath now has to offers on its hands. One option is to be acquired by CallTech Communications, another firm that just recently went public, for $115 million. The other one is for RSC to by $11.75 million of stock at a $76 million pre-money valuation. CallTech´s offer would give Metapath´s shareholders near-term liquidity at an attractive price, without dilution of further financing and an IPO. The financing proposed by RSC could dilute the founders shares significantly if a sale should occur further down the road. Metapath´s board believes the company has a great potential as an independent public company, and wonders if a Metapath and CallTech merger makes sense. Case problems and questions: Metapath must analyze how the offer from RSC, with the Participating convertible preferred stock would integrate with the existing preferred stocks already granted to existing shareholders in previous financing rounds. Usually the earlier investors preferred stocks becomes junior to the new VCs preferred, because the new VC won’t take the word of the old VCs that the company is well. The new VC would rather make sure his money is “secured” by having a senior claim through preferred stock. They would need to do a valuation of the participating feature of the Series E preferred stocks in the offer from RSC. They would need to analyze CallTech´s offer, and find out the risks involved for the shareholders of Metapath if they choose the CallTech offer.

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