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(A Citi spokesman explained that the higher the percentage of equities in the fund, the higher the fee: More equities require more management).
This method will determine the SMB and HML of the funds telling us the size of the equities in the fund along with their value premium over book value.
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Danone and Mars hope other companies will follow their lead and invest additional equity in the fund.
The Abu Dhabi fund, Mubadala Development Company, and G.E. said Tuesday that they had agreed to each invest $4 billion in equity in the fund over the next three years.
The fund will be eligible for low-interest financing from both the Treasury and the Fed that analysts at Credit Suisse First Boston estimate could be as high as four times the total equity in the fund.
The transaction, which is expected to be completed by June 1, would involve $55 million in cash, $20 million worth of equity in the fund and the assumption of about $5 million in liabilities.
Professors Modigliani and Miller made an important point — an increase in leverage, by itself (i.e., more debt relative to equity in the funding of a firm) does not create value.
Contrary to claims in the literature that "equity is expensive" and that regulation requiring more equity in the funding mix entails costs to society, such regulation actually helps create useful commitment for banks to avoid the inefficiently high borrowing that comes under laissez-faire.
This success was partly based on the equality and mutual respect between disciplines, equal representation in management and coordination bodies, equity in the funding for the different disciplines, and the commitment of the funder (DFID/MRC) to this.
The firm itself had been an equity investor in the fund, and about 123 of its senior executives had put a total of $20 million of their own money in the fund.
Both Arnault and Lee will put up a substantial equity stake in the fund and seek institutional investors both here and in Europe.
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