Novo Case Novo Case




Novois a Danish multinational company located in Denmark. The firmmajorly produces Industrial enzymes and pharmaceutical and morespecifically the insulin. The firm was initially founded as a familyowned business in the 1920s by two Pedersen brothers. In 1974, thecompany went public, and it was registered in a stock exchange. Novowas therefore, registered in with the Copenhagen Stock Exchange forit to raise more capital from the public. Registering the firm withCopenhagen Stock Exchange also intended on making the firm known ininvestment circles inside and outside of the country of Denmark(Arthur &amp Dullum, 1982).

Themajor characteristics of the Danish securities market that wereresponsible for market segmentation in Denmark included asymmetryinformation base of domestic and foreign investors, financial risk,political risk, taxation, foreign exchange risk and the alternativesets of feasibility portfolios (Arthur &amp Dullum, 1982).

NovoCompany later decided to internalize its sources of funds and thecapital structure. The decision of the management was based on thefact that Danish securities market was not only illiquid but alsosegmented against other capital markets. This move could thereforehelp in lowering the cost of capital employed by the firm. Inaddition, Novo closed the information gap with the US investors whenMorgan Grenfell managed to sell a 20 million dollars of convertibleEurobond (Arthur &amp Dullum, 1982).

Inthe late 1970s, the biotech companies were faced with an unexpectedfortuitous event. The industry was experienced a drastic fall in theshare prices. However, Novo took advantage of this event byorganizing a seminar in New York to convince the US investors to buyits shares. By 1981, foreign investors had bought shares and theshare price of Novo gradually went (Arthur &amp Dullum, 1982).


ArthurS. &amp Dullum B. (1982). The Novo case, Internationalizing the Costof Capital in Theory and Practice: New York: Wiley,