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  • August 2014 (Revised March 2015)
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Molycorp: Issuing the 'Happy Meal' Securities (B)

By: Benjamin C. Esty and E. Scott Mayfield
  • Format:Print
  • | Language:English
  • | Pages:8
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Abstract

Molycorp, the Western hemisphere's only producer of rare earth minerals, was in the middle of a $1 billion capital expansion in its effort to become a vertically integrated supplier of rare earth minerals, oxides, and metals. After reporting lower than expected revenues and earnings for the second quarter of 2012, management needed to design a new funding strategy for the firm. In August 2012, Molycorp announced it would issue $120 million of equity and $360 million of convertible debt. To facilitate the issuance of convertible debt, the firm entered a "share lending agreement" with Morgan Stanley whereby Morgan Stanley would borrow shares from Molycorp in a transaction referred to as a "Happy Meal." The goal was to help convertible debt investors "hedge their respective investments through short sales." The challenge of the case is to understand why Molycorp used this financing strategy and what impact it would likely have on the firm, its prospects, and its stock price.

Keywords

Convertible Debt; Uncertainty; Startup; Growth; Rare Earth Minerals; Mining; Hedge Funds; Short Selling; Equity Capital; Capital Structure; Financial Strategy; Valuation; Metals and Minerals; Equity; Capital; Debt Securities; Stock Shares; Financial Management; Mining Industry; Industrial Products Industry; Canada; California

Citation

Esty, Benjamin C., and E. Scott Mayfield. "Molycorp: Issuing the 'Happy Meal' Securities (B)." Harvard Business School Case 215-014, August 2014. (Revised March 2015.)
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About The Authors

Benjamin C. Esty

Finance
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E. Scott Mayfield

Finance
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Related Work

    • August 2014 (Revised March 2015)
    • Faculty Research

    Molycorp: Issuing the 'Happy Meal' Securities (B)

    By: Benjamin C. Esty and E. Scott Mayfield
Related Work
  • Molycorp: Issuing the 'Happy Meal' Securities (B) By: Benjamin C. Esty and E. Scott Mayfield
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